Budget Resolutions and Economic Situation
Published date : 08 March, 2021
Let me join other Members in marking today as International Women’s Day. It is certainly a day for us to reflect on the contribution of women, and on how we ensure that everyone is able to make their fullest possible contribution and how we advance the cause of equality. It is also important for law makers to be considering the impact of the choices that are made all year round. With last week’s Budget, it is particularly important to ensure that the decisions as far as possible enhance equality and opportunity rather than diminish them.
Siren voices have been calling for action to be taken on the deficit that has resulted from the economic responses to covid, by which they inevitably mean the Government taking steps to cut public spending. Unfortunately, the Chancellor shows every sign of wishing to heed that. The only comparable economic event to the covid crisis in its impact on national debt was world war two. Most of us would find it hard to imagine the political voices that prevailed after world war two saying that a national health service was unaffordable, that public services were unaffordable or that it simply was not feasible for the Government to play a leading role in rebuilding housing and industry.
The important figure, of course, is not the debt in itself, but the debt as a share of gross domestic product. Economic demand will return as vaccinations start to take effect and more of life can begin to return to normal. If the Government continue to support that economic demand, the economy will return to trend growth and overall government debt will begin to shrink proportionately, exactly as it did after world war two. However, if the brakes are to be put on spending in the future, demand will assuredly fall and people will have less money to spend and growth in employment will be stifled. Inevitably, the impact will then fall most heavily on all those who have least, such as families that have one or more adult out of work and in receipt of benefits.
There are many actions, both big and small, that the Chancellor could have chosen to take in this Budget which could help or hinder the recovery, but one of the most significant choices would have been to make permanent the £20 uplift in universal credit. It is no exaggeration to say that for many families that £20 has made the difference between bills being paid or not, and food being on the table or not. It is a comparatively modest financial commitment, but one whose impact for the good has far outweighed the resources it has required. Extending it for six months falls well short of doing “whatever it takes” to ensure the financial security of the least well-off. Governments all over the world have increased their support for their economies throughout this crisis, many with interventions that are proportionately far larger than we have seen from the UK Government. Having rightly carried the economy this far, it would make no sense for the Chancellor to drop that commitment now. It is a real disappointment that he is not doing more to do “whatever it takes” and provide the 5% of GDP stimulus that the Scottish National party has called for repeatedly.
There are of course things that can be welcomed. We certainly welcome the excellent progress being made on vaccinations and on reducing infection levels of the virus, which gives us ever more hope that when restrictions start to be lifted they might be able to stay lifted. We can also welcome the extension of the furlough and the self-employment income support scheme. Obviously, the furlough is not without its cost to employers, and together with the SEISS it still fails to reach too many people, but both have been lifelines for those they benefit. To help fill in some of those gaps, the Scottish Government have provided nearly £30 million for newly self-employed people to mitigate the financial challenges for those who have been unable to access the UK Government’s SEISS. It is past time for the Chancellor to recognise the shortcomings of his support mechanisms, understand those they have left behind, recognise the hurt caused and undertake to do “whatever it takes” from this point onwards to support those people who have been left behind.
Although everyone recognises that those schemes cannot continue forever, the threat to end both in September is not at all helpful for those who are trying to plan how to trade out of their present difficulties. The repeated short-term extensions that we have seen over the past 12 months are obviously better than the alternative of not extending. However, it creates an image not so much of a Chancellor carefully planning a route back to recovery, but almost of a Wallace and Gromit Chancellor, desperately laying the rails in front of the train just before it runs out of track.
Ahead of the Budget the British Chambers of Commerce warned that a quarter of British businesses would fire staff immediately if the Chancellor failed to extend the scheme. The Institute for Fiscal Studies urged the Chancellor to recognise and address the multiple inequalities exacerbated by the crisis, saying that emergency support should be extended and that the furlough scheme
“should not be cut completely in one go.”
Placing a full stop date on furlough, rather than having an open-ended promise of continuing it until it is no longer needed, risks pushing businesses to lay off their workers while they are still in recovery. The resulting loss of skills and experience can only hinder the recovery of individual businesses and the economy, so we urge the Chancellor to reconsider the date. No business is or will be furloughing staff unnecessarily, and a Chancellor truly committed to doing “whatever it takes” would surely agree to maintain both schemes for so long as is required while restrictions remain in place.
Turning to the tourism and hospital sector, the best way to help it right now would be to allow it to trade out of its difficulties by getting money across the counter just as soon as it is safe once again to do so. The VAT reduction will be crucial. My party welcomed the VAT reduction to 5% for the sector, but to stop that on 30 September will not be helpful. It should continue for the full year.
Business rates relief will also be crucial and has been a lifeline for leisure, retail and hospitality businesses, helping them to strip out fixed costs and stay alive. It is a matter of regret that the Chancellor has not committed the same level of resource as the Scottish Government, who have announced a £1 billion package that not only cuts the poundage rate, but offers 100% relief not just until June, but for the next 12 months for retail, tourism, hospitality, newspapers and the vital aviation sector.
As a Member of Parliament representing the north-east of Scotland, I am only too aware of the importance of the energy economy and the criticality of ensuring a just transition to net zero. While I acknowledge the £27 million that has been announced for the energy transition zone in Aberdeen, it still falls well short of the wider £62 million transition fund committed last year by the Scottish Government.
Listening to the Scottish Tories would lead someone to think that the levelling-up fund will leave not a single pothole unfilled, not a bridge unrepaired and not a project unfunded in north-east Scotland. Instead, now that the detail has been revealed, we see that Aberdeenshire has been placed in the lowest category and Aberdeen city in the second tier. We are essentially being left empty handed, and it is hard to avoid the conclusion that the UK Government are so far falling far short of the necessary response to help secure the economic future of north-east Scotland. We can only hope that there is better news to come in the sector deal that we have been promised in the first quarter.
As I have said, there is also essentially nothing for the 3 million who have been excluded. If she has spent years of practice and study in pursuit of her dream to perform, Fatima’s next job should not have to be in cyber. She should have a fighting chance to get her next job in the area that she has worked so hard to be in. Our arts and cultural sector would be vital to our sense of who we are even without its economic contribution, but this is not just about the performer we see and admire, because there are so many other parts of the pyramid that helps to put that performer on the stage. Those people have been left behind without the ability to earn. If we impoverish them, we impoverish us all.
There has also been no additional funding to support musicians and touring artists who have suffered the double whammy of coronavirus and an end to visa-free touring in Europe and no provision for live events insurance, without which the industry will be reliant on support for much longer than necessary. The Scottish Government have stepped in with funds for the performing arts venue relief, for cultural organisations and the venues recovery fund, which has supported theatres and other performing arts venues across Scotland. That provision is supporting grassroots music venues and providing a stabilisation fund, furlough top-up payments and one-off grants for nightclubs and soft play centres.
The UK Government can and should follow suit. Interventions have also been made in tourism and hospitality with no UK equivalent: in the wedding industry fund, the bed-and-breakfast hardship fund, the tour operators’ fund, and the events industry support fund. These tourism and hospitality businesses have lengthy supply chains, reaching all parts of the economy. It is not just the accommodation provider, but the butcher, the baker, and the candlestick maker as well. The recovery from the pandemic will not begin when covid recedes, as businesses will simply move on to dealing with the Brexit crisis. We need to offer wide-ranging support for businesses in this regard. Instead of offering loans, it would be better to convert loans to grants.
In conclusion, let me just make this observation: through the Barnett formula, Scotland is still dependent on problems being felt and choices being made in Whitehall in order to release the resources that we would wish to have in order to act in all the ways that we need. Scotland desperately needs borrowing powers, but as the UK Government take back control from the Scottish Parliament, they are also taking away resource and with it any reason for many to support the current constitutional and fiscal settlement. I am certain that that will not go unnoticed as we approach May’s election in Scotland.
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