Finance Bill

The Chief Secretary, in his introductory remarks, said that the Treasury team was managing the economy based on an immovable constraint. He was then interrupted by an intervention, but I suspect that he meant that borrowing had to be kept at 40 per cent. of GDP, and the Government claim to have done that. I mentioned the £169 billion of private finance initiative liabilities up to 2030-31, and I would be fascinated to find out what the capital borrowings are that lead to that amount of repayment liability. How much of that is off balance sheet? How much of it should actually be on balance sheet? What is the real level of indebtedness? Clause 1 set outs the income tax rates for the forthcoming year, which are unchanged on last year, although one would have been hard pressed to identify that fact from the comments of the Chief Secretary or the Budget speech itself, in which the Chancellor laid out his personal tax-raising agenda, which will take £16 billion from 2008-09 and 2009-10 from the removal of the 10 per cent. rate and a further £2.5 billion from changes to national insurance contributions. It has been calculated that those changes will cost 52 per cent. of the employed in Kirkcaldy and Cowdenbeath, the Chancellor’s own constituency, an increasing tax bill every month. These damaging personal tax-raising changes do not come into being until next year and thereafter, but the reduction in the main rate of corporation tax, from 30 to 28 per cent., does and that is welcome. Unfortunately, the following years will also see rather brutal changes to the general plant and machinery capital allowances, and those allowances must be taken alongside the welcome reduction of the 30 per cent. rate. Between 2008-09 and 2009-10, at £3.76 billion, the changes to plant and machinery allowances alone will bring in more revenue than the £3.6 billion in corporation tax reductions. Furthermore, the increase in clause 3 in the small companies rate to 22 per cent. will generate £1.2 billion over the next three years. Therefore, this Bill, which paves the way for the entire Budget, will see a massive hike in business taxes. Those business tax rises will do nothing to enhance competitiveness, an issue that has been touched on by many Members in the debate, and that matters particularly in Scotland. We have had a 25-year growth gap. Since 1980, growth in Scotland has been 1.8 per cent. on average as against 2.3 per cent. in the UK. Since Labour came to power, the situation has got worse with 2 per cent. average growth in Scotland compared with 2.8 per cent. for the UK as a whole. That means a 30 per cent. growth gap over time. The additional business tax burdens in the Budget and paved for by this Bill will simply make matters worse. Tellingly, the new annual investment allowance, the research and development tax credit increase and the small and medium-sized enterprise tax credit increase will not kick in until the following year. As ever, with this Government, it is jam tomorrow. Clause 49 on the definition of a small and medium-sized enterprise will allow only a few hundred companies in Scotland with between 250 and 500 employees to benefit. There are 265,000 businesses in Scotland, and the vast majority of them are very small, but they create 51 per cent. of all of the jobs and they generate 41 per cent. of all revenue in the country. However, 98 per cent. of those businesses have up to 49 employees; 1.3 per cent. have between 50 and 249 employees; and 0.85 per cent., which comes to about 2,000 businesses, have more than 250 employees. We know that 1,500-odd companies have more than 500 employers, so barely a few hundred of the 265,000 companies will benefit from the allowances announced with such a flourish in the Budget speech. Clause 12 deals with the air passenger duty. It is expected to raise an extraordinary £3.3 billion over the next three years yet it is likely to deliver little of the stated benefit of a significant reduction in airborne carbon emissions, not least because it applies only to flights originating and ending in the UK. Of course something must be done, but I am not sure that it is this. Moreover, the measure takes no account of the lifeline services to remote rural and in particular island communities, whose businesses are almost wholly dependent on vital lifeline air services. Clause 25 and schedule 3 on managed service companies were mentioned by many speakers today and rather dismissed by several Labour Members. I am deeply worried that people who are effectively self-employed but who work through a managed service company to facilitate their contracts, tax returns and tax payments will be deemed to be employees and will be taxed accordingly. Included in this is an additional tax yield of £350 million this year and almost £1 billion over the next three years, and there is a very real suspicion that this is simply a tax raising measure, rather than an anti-avoidance measure. I understand that a large number of the people who may be affected by the provision work in IT as independent freelance IT contractors and consultants. I also understand that one in four of those work for Government Departments or local government departments. If they are expected to bear an additional cost burden, it is almost certain that that additional cost will be passed on to the employer—a Government Department or local authority department—and there will be a corresponding requirement for more spending by Government in order to pay for the consequences of the change to managed service companies. The Conservative amendment states that the Bill"““fails to equip the UK to compete?" with the ever-increasing competition from abroad. I agree. The business tax rises in particular are a disincentive for competition. The amendment goes on to say that the Bill"““penalises small companies with higher tax rates?—" that is self-evident, and it offers"““a more complicated tax system, hits freelance workers with more tax bureaucracy?," as I have just described. I agree entirely with that. When the amendment states that the Bill"““does nothing to tackle the UK’s worsening pensions crisis?," it perhaps overstates the case, but I have set out our suggestions and what the Government failed to do in the Budget speech in respect of pensions. The amendment argues that the Bill"““misses the opportunity to provide effective mechanisms for tackling climate change?." That is worth repetition. There are measures in clauses 10 to 24 on fuel duty, vehicle excise duty, air passenger duty, energy saving for houses, microgeneration and so on, but the big questions and the big decisions that the Government could have taken, which have been flagged up any number of times to Ministers from the Opposition Benches, and which have been repeated from the Front Bench in two subsequent Budgets and two subsequent pre-Budget reports—about finding the funding mechanism to support the carbon capture and storage project at Peterhead—were missed. The two issues that the Government could have addressed, the inequity in connection charges to the grid to harness the massive power of offshore wind generation and at last finding a funding a mechanism to support the Peterhead CCS project rather than re-announcement after re-announcement, year after year, in Budgets and in pre-Budget reports, have been wholly missed. The Bill and the Budget from which it was derived were rather well summed up on Budget day by Carol Undy, the Federation of Small Businesses national chairman. She said:"““This is the Chancellor’s eleventh Budget and this year’s offering is no different to the others—he gives with one hand and takes with the other. However, this year, after some welcome initiatives for our members he throws it all away with a tax hike aimed at small businesses.?" The problem is competitiveness. The problem in Scotland is a growth gap. We have seen modest changes in terms of a reduction of 2p in the top rate of corporation tax. We have seen the small company rate increased and personal tax increased. Carol Undy of the FSB got it right, which is why the Bill and the Budget from which it flows are so dreadfully disappointing. It is smoke and mirrors, a tax raising Budget and a tax raising Finance Bill. They will do nothing to help competitiveness and nothing to help hard-pressed families, who will pay more tax, not least the 52 per cent. of low and modest earners in the Chancellor’s own constituency. That is why, if it is pressed to a vote tonight, we will oppose the Bill.