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Instead, the Chancellor has done another smash-and-grab raid, taking £2 billion extra from business and around £200 million from Scotland. I hope that the Financial Secretary will explain one specific point when she replies to the debateperhaps she can intervene now and tell me. The table on page 111 of the Red Book includes a heading, North sea oil and gas: abuse of management expenses rules. That is forecast to take
£500 million in yield in the next three years. I would have thought that, if there was an abuse in one sector to the tune of £500 million over three years, the Chancellor might have mentioned it in the Budget statement. One would have thought that something of that magnitude was worthy of note. Or is it simply another way of getting cash out of the North sea after a previous promise not to touch the fiscal regime relating to it? Likewise, the Chancellor could have made a difference with proper investment in research and development, which is historically low, at about 1.8 per cent. in the UK and less than 1 per cent. in Scotland, compared with about 2.5 per cent. for our competitors.
Those measures could have made a difference. Instead, the Government seem to be stuck on spin and obfuscation, building on what was said in last years Budget, by estimating intangible investment, rather than counting what was actually spent. I refer hon. Members who are interested to paragraph B.71 on page 163, where they will find that that is exactly the approach that the Government are taking. They are no longer counting the investment spent; rather, they are estimating what it might have been, based on other parameters.
The Budget speech was littered with references to social policy. Many of the social policies we agree with. Binge drinking and the violence that follows it were not referred to, but actions were taken in relation to the duty on alcohol that one might imagine would be designed to tackle the problem. It therefore seems quite extraordinary that the Government are putting 55p on a bottle of whisky, but only 3p on a litre of strong cider. Where was the attack on alcopops, which are designed to appeal to an immature palate? Where was the proper and fair taxation of cider, which is massively undertaxed, even up to 7.5 per cent.?
Mr. Mark Field (Cities of London and Westminster) (Con): I very much agree with the hon. Gentleman about alcopops. He will know that my party brought forward a policy paper only last week on that. However, could he tell the House by how much duty on whisky has increased in the past 10 years? He will find that that particular alcoholic beverage has done fairly well.
Stewart Hosie: It has done extremely wellso well, in fact, that it is generating £2.5 billion in revenue, contributing massively to the UK economy. The key thing is not the revenue for the UK economy that whisky generates from sales here, however. If the market and the industry are to grow, how can the Scotch whisky industry go to foreign regimes and say, Stop taxing us unfairly and disproportionately, if those regimes can say to the whisky companies, Why should we, if your own Government is discriminating against you in their handling of the duty regime in the UK?
Mr. Russell Brown (Dumfries and Galloway) (Lab): I thank the hon. Gentleman for giving wayI have the press release from the Scotch whisky industry here. I am listening to him carefully, because he faces something of a dilemma. The Secretary for Finance in the Scottish Parliament has written to the Chancellor saying, Dont increase the duty on whisky, yet the Secretary for Justice in the Scottish Parliament, who has been on the road to Damascus, is demanding that the price of alcohol should increase significantly, to battle the antisocial behaviour caused by those who drink in excess.
Stewart Hosie: I suspect that the young men and women who binge drink and cause disturbances on our streets in the south and south-west of Scotland and in Dundeein fact, in every constituency in the countryare highly unlikely to do so after a few nips of 15-year-old Balvenie. We need to take on the real problemalcopops, super-strength lager that is cheaper than bottled water, and cider, which has been undertaxed for some timenot take on an industry that generates a huge amount for the UK economy in a way that will make its export drive much more difficult.
Mr. Brown: I hope to make a contribution in this debate later, but let me say now that price is not the sole issue. The price of alcohol in some Scandinavian countries, such as Sweden and Finland, is way in excess of the price in this country, but those countries have significant problems with alcoholism. Alcohol is much cheaper in southern Europe, yet we do not see the same problems, so we are talking about more than a price issue.
Stewart Hosie: I agree entirely. Much of this involves cultural and educational issues. However, the evidence that I have seen from the UK Government and the Scottish Government suggests that price sensitivity is important in encouraging young people not to drink. Young people might have less money than grown-ups who like to have a glass of whisky. Pricing and price sensitivity are important for tackling these issues, but I believe that the Budget has tackled them in the wrong way. The Government have got it back to front by putting up the duty on a litre of cider by 3p and putting 55p on a bottle of whisky.
The Governments inability to invest and to ensure competitiveness is not the only problem. The double whammy of Government policy and the upward pressure on inflation driven by the rise in energy and road fuel costsanother matter that the Government have ignored over many yearswill have a detrimental effect on consumers, who are paying higher prices for domestic energy, and for the distribution cost of all types of goods, which is passed on to them.
Fuel costs are now so high thatfor contractual reasons in some casesthey cannot all be passed on from the hauliers to those purchasing the goods. The increasesand the spiking, in particularcannot all be passed on, and this is causing huge difficulties in the haulage industry. I speak to many hauliers in my constituency and elsewhere, and they tell me that they are struggling to make ends meet.
Sammy Wilson: This problem has been thrown into sharp relief in Northern Ireland because of the high levels of duty that are imposed by the Exchequer here in the United Kingdom, compared with the much lower rates imposed in the Irish Republic. That makes it very difficult for the haulage firms along the border between Northern Ireland and the Irish Republic to survive.
A specific issue exists when a land border exists between one duty regime and another. The hon. Gentleman knows his constituency and the Province far better than I do, but I believe that he is making a valid point. It was no surprise, when I last pressed amendments on similar matters to a vote here, that they were supported by the Northern Irish parties,
by Plaid Cymru and by my own party. They also received sympathyalthough no supporting votesfrom members of other parties whose constituencies were remote from the economic centres, and whose hauliers were probably telling them precisely what mine are telling me.
Fuel price inflation now stands at 19.5 per cent., and food price inflation is now 6.5 per cent. According to the Alliance Trust, that has forced up real inflation for the over-75sand, indeed, the under-30sto 25 per cent. higher than the official published figures. Although we see average inflation figures for different groups in society, the marginal rates are always different. At a time of rising prices, I would have thought that the Government would do what they could for the very oldest and the very youngest.
It is interesting to note the measures that the Government have announced today. I support their determination to lift children out of poverty. I know that the Scottish Government are actively involved in measures to do exactly the same thing. However, the UK Government announced today that child benefit for the first child would rise to £20 in two years. That might have had a slightly different gloss if they had announced a 70p rise for the first child and a 45p rise for subsequent children. Those figures would not have had quite the same hit as the £20 figure that the Chancellor announced earlier.
The commitment to pensioners is for an increase of 2.5 per cent. or the rate of inflation, whichever is the highest. The basic pension rise will therefore be about 2.5 per cent., and there is to be an extra £50 on the winter fuel allowance. However, given the fact that the real rate of inflation for pensioners will outstrip the increase in their basic pension, I wonder how quickly the extra £1 a week will be eaten into, and just how many extra minutes the electric fire will be on before people realise that that bit of generosity is worth very little indeed.
It is worth comparing this UK Budgetwith all the fiscal levers that the Chancellor has at his disposal with the actions being taken in Scotland, particularly in relation to business. We know that businesses are concerned about their cost base, and about rising prices for road fuel, energy and raw materials. We also know that they are struggling due to competitiveness and a shortage of skilled staff, and that they are worried about the tax burden and the complexity of the tax system, and the failure properly to invest in the transport network.
David Taylor: We have heard several times how complimentary the hon. Gentleman can be about the SNP Administration in Scotland. The east midlands of England has a population approaching 4.5 million, which is not dissimilar to that of Scotland, and a very similar social and economic profile to Scotland, yet the Barnett formula awards Scotland an extra £1,200 a head, which is £6 billion. If England and its regions had access to that sort of funding, we too could do things of the sort that the hon. Gentleman cites as improvements in Scotland.
There are two points. First, because Scotland has been in surplus for the past 30 years, every single penny spent on public services in Scotland has
been raised from taxes paid in Scotland. Secondly, if Scotlands funding was to be cut to the English average, it would provide England with £150 more per head but would cut a quarter of Scotlands expenditure. If Labour policy is now to sack a quarter of the doctors, a quarter of the teachers and a quarter of the nurses and to cut back a quarter of all expenditure, I will be delighted to make that argument on the doorsteps. Sometimes, the hyperbole about the Barnett formula takes Labour Members into areas where they perhaps might not want to go.
David Taylor: As someone with Scottish roots, I would hardly advocate that approach. As far as long-term financial strategy is concerned, we should be raising the regional support that is distributed to the east midlands, the south-west and so on to the levels of generosity and largesse that Joel Barnett inadvertently allocated to Scotland three and more decades ago.
Stewart Hosie: I am well aware of the regional imbalance in spending in England. I welcome the hon. Gentlemans demand for more money for his region, but because every penny spent in Scotland has been raised in Scotland, he should not expect Scotland to subsidise the east midlands.
In the next three years, the Budget will take some £2 billion extra from business and about £200 million from business in Scotland, but notwithstanding the fact that he is taking the cash, the Chancellor has done nothing fundamental to address many of the concerns of businesses in Scotland and throughout the UK. He has failed to reverse the damaging impact of capital gains tax and has failed even to freeze the increase in the small companies corporation tax rate.
We have heard a lot about CGT, but we have not heard in any detail what impact it will have. When businesses are trying to raise cash from a private investor or a business angelcall them what you willif that person expects the same cash return with the changes as they would have had with the taper relief in place, there will be far less money available, perhaps, for a proprietor-manager. They might say that it is not worth a jot. If they were only going to get the same cash but were going to have to pay the tax that they would not have paid under taper relief, the private investor might say, Ill put my money elsewhere. The tax will take £700 million in yield, according to the Government. I suspect that the damage to business through lost opportunity and lost investment will be significantly higher than that £700 million.
John Thurso: May I seek clarification? Is it the policy of the hon. Gentlemans party to maintain taper relief and that if it were in full government in Scotland the scheme that it would have would be the taper relief regime that is being abolished?
We would not have done what the Government have done, because it is damaging to business. At the same time, as the hon. Gentleman knows, because of the way in which the regime was implemented the impact on second homesparticularly in rural areas,
where there is a housing shortagemight be reversed and might be particularly bad. We would not have gone down that route.
I have described the problems faced by businesses. I have described the actions that the Government have taken. I was contrasting and comparing what the Scottish Government have done in business terms with what the UK Government have done in the Budget and what they have not done. The Scottish Government have removed the cost burden for lots of small businesses with the removal of business rates for 150,000 small companies, but there was no comparable change to corporation tax through the UK for larger businesses.
We in Scotland are addressing the skills issues by training 20,000 new teachers and setting a target of 50,000 national apprenticeshipsway beyond the targets set in England. We have removed complexity by properly focusing the business support network. We have taken a long-term view of how we match, first, the UK and then the growth rates of small companies through the appointment of the Council of Economic Advisers.
After many, many years, we have finally understood and are fixing the congestion problems that cost Scottish business some £70 million a year, through the M74 completion project. We have even introduced an equivalent road tariff scheme to the Western Islesan issue that I recall campaigning on in 1983. We wanted this Government and our Government in Scotland to go much further in cutting corporation tax and really building competitiveness. After seeing the sub-prime Budget performance today, the sooner the Scottish Parliament has corporation tax powers, the better.
Sir Stuart Bell (Middlesbrough) (Lab): I am grateful for the opportunity to follow the hon. Member for Dundee, East (Stewart Hosie). It has been interesting to follow the debate from the beginning and see how many points have been made.
The hon. Member for Dundee, East spoke about the trade deficit. He was very keen on that subject and raised a point similar to that made by my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) about the balance of payments deficit, as we used to call it. Let me explain one of the reasons why we have such a deficit. The last time I was in Scotland, in October last year, I bought a Christmas tree in Jedburgh. On the bottom of the tree it said Made in China. There is the essence of the trade deficit. We are into high-technology goods and the world sends us its low-technology goods, so we have a trade deficit. It is counterbalanced, of course, by a surplus on services across the exchanges.
The hon. Member for Dundee, East said that there was no social policy in the Budget, but as the Chancellor made clear, the Budget is about a having a fair society, so that element is part and parcel of the Budget strategy. The hon. Gentleman also raised the question of a trust for revenues from the North sea. I have heard that story at least once a year for 30 years, and the Treasury has always made the point that the revenues coming from North sea oil go into Treasury funds and come out the other side by way of investments and all the rest of it.
The hon. Gentleman also mentioned the Barnett formula, which was also mentioned by my hon. Friend the Member for North-West Leicestershire (David Taylor), who will be pleased to know that Lord Barnett was with us today. He was upstairs, if I may say sobut I am not allowed to say that, so I did not say it; I withdraw it. None the less, Lord Barnett did follow our proceedings very carefully today, and I am sure that he will have been touched to know that his Barnett formula is alive and well, and with us still.
I congratulate the hon. Member for Dundee, East on his assimilation of the Red Book at such short notice. He also mentioned the private finance initiative. He will understand that it is now many years since the public sector could, on its own, handle the kind of investments that it needs. For example, when a hospital was built in my Middlesbrough constituency in 1997, it was the first PFI project. It was built with public and private money. That is the nature of the world we live in. I believe that about £59 billion is invested in our infrastructure through PFI, and there is no going back on that.
Sammy Wilson: While I do not think that any of us would question the use of PFI, the point that needs to be made is that when PFI schemes and the borrowing for Northern Rock are included, the levels of debt are actually much higher than are shown in the Red Book. Thatrather than an attack on PFI schemes generallyis the important point that is being made.
Sir Stuart Bell: I understand the hon. Gentlemans point, but PFI schemes have always been off balance sheet. That was their great strength and benefitan element we took from the German economyand it was welcomed for many years. Now, all of a sudden, PFI schemes are not welcomecertainly not on the Opposition Benches, as Conservative Members like to throw at us the allegation that Northern Rock is a £100 billion off-balance-sheet contingency. If we look at it in the round, however, it is in the best interests of the nation. That is why we have PFI, and the type of public investment that gets me my Middlesbrough hospital.
The hon. Member for Dundee, East also mentioned corporation tax rates. It seems a long time since I listened to the Chancellor, but I believe I heard him say that the major corporation tax rate was being reduced.
Stewart Hosie: The corporation tax reduction was announced last year, and it will come into force, but it was accompanied by the comparable loss of a number allowancesincluding industrial buildings allowances, which cover hotels and the tourism sectorfor which it did not compensate by any manner of means. There was a net take from business of around £5 billion. Yes, the headline corporation tax rate fell, but the small companies rate went, and the allowances were destroyed.
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