Labour’s first budget will end austerity in Scotland
We meet here on day three of what is one set to be of the closest and most important general election campaigns we ever have faced. At the heart of this election is a big choice. And it is important we debate the choice we face, and start doing so now rather than wait until after polling day.
Nicola Sturgeon was absolutely right in her lecture in London a few weeks ago to demand that we are open about what the different economic and fiscal approaches of the different parties actually mean – I agree. That is, of course, why we have said we want the independent Office for Budget Responsibility to be allowed to audit the manifesto commitments of all the main political parties.
And in that spirit, I want to set out today why we believe both the Tory approach and the SNP approaches to fiscal policy and austerity would be bad for Scotland and the UK.
Today I want to delve beneath the familiar narrative, and instead examine the fiscal numbers. And I want to explore the aching gap between the SNP’s austerity-ending rhetoric and their austerity-extending policy.
Because the inconvenient truth for the SNP is that there is no consensus at Westminster on austerity. The only consensus now on offer to voters in Scotland is the consensus between the SNP and the Conservatives – that no new investment is required here in Scotland to end austerity in the coming year.
The fact is only Labour has a radical and credible plan to end George Osborne’s austerity economics and secure the stronger growth and better jobs and rising living standards and investment which we need to secure a more socially just future for Scotland and the UK. Because Labour is Scotland’s party of economic growth, social justice and fairness – it always has been and it always will be.
So today I will set out the facts and substantiate the case that if you want immediate action to end Tory austerity, both the economic and electoral logic requires a vote for Scottish Labour on May 7th.
I am going to start back in 2010, when Prime Minister David Cameron made two key promises on the economy. He promised there would be sustained rises in living standards. And he pledged to balance the books by now.
Five years on it is clear that neither of those pledges have been met. And their failure is inextricably linked. After five years of this Conservative-led government, working people are worse off. Wages after inflation are down by more than £1,600 a year since 2010. Households have lost over £1,100 a year on average as a result of tax and benefit changes introduced by this government.
Today in Scotland, 71,000 people depend on food banks, compared with just 7,500 four years ago – while 60,000 people are stuck with a zero hours contracts. And the result is that this is set to be the first time since the 1920s that working people are worse off at the end of the Parliament than they were at the beginning.
At this election, the answer to the famous Reagan question – ‘Are you better off than you were five years ago?’ – is a clear and resounding no for working people in Scotland and across the UK.
This recovery has been characterised both by weak export growth, sluggish business investment and stagnant productivity growth. And also by the enormous rise in the use of zero-hours contracts and other forms of part-time work, which reduce the unemployment figures but also help explain why wage growth has remained so weak.
All this explains why, when asked whether they see economic recovery, most people across our country reply – yes, there may be a recovery but it is not a recovery which is working for me or my family or our community. And this failure on productivity and living standards has led to this government’s failure on the deficit.
In this Parliament, weak earnings growth has led to tax receipts falling short. National Insurance contributions in this Parliament have been £27 billion less than planned, while income tax revenues have fallen short by £70 billion. This is the key reason why, far from balancing the books, borrowing is set to be £76 billion next year. And it is why the government is now set to have borrowed a staggering £200 billion more than they planned in 2010.
The Tories had a choice about how to respond to this failure. To accept reality and set out a steadier pace of deficit reduction. To stick to their fiscal objective of an overall budget surplus and the already deep spending cuts they had set out for the next Parliament at the time of the last Budget, and seek to make up the shortfall through action to secure stronger revenue growth – by tackling tax avoidance, asking those at the very top to make a greater contribution or action to boost wages and living standards. Or to stick to the Chancellor’s fiscal objective of a big overall budget surplus and drive through even deeper spending cuts.
This was a genuine strategic choice. A political choice and an economic one. And the Chancellor chose the latter course: Not only to stick doggedly to his fiscal goals, but dogmatically to seek to fill the gap caused by these lower forecasts for tax revenues entirely through even deeper spending cuts than he previously had planned.
He chose to continue with the same austerity economics that has failed him in this Parliament – ploughing on with even deeper cuts in the next parliament in the mistaken belief that cutting the size of the state will somehow make our the economy stronger and bring in the tax revenues he has failed to secure in this parliament.
The recent Budget confirmed the Tories plans for the next Parliament. Spending cuts which according to the independent Office for Budget Responsibility mean “a sharp acceleration” in cuts to public spending – deeper spending cuts in the next three years than the last five years. Cuts which go beyond balancing the books and aim for an overall budget surplus of several billion by 2018/19.
To deliver this goal, the Chancellor set out tax and spending plans which will take spending on day-to-day public services to a lower share of national income than any time since 1938 – a time before there was an NHS.
Compounding this, the Tories have also committed to make a number of tax cuts over the next Parliament. Unlike Labour’s plans, these Tory tax promises are totally unfunded. The only stipulation the Tories have made is that, in order not to disrupt the Treasury’s stated plans on the deficit, they should be paid for from additional cuts in spending. That would cost £10 billion a year in additional cuts according to the House of Commons Library.
The impact of these changes would be severe across the UK. Extreme and risky cuts to defence and policing and social care even deeper in the next parliament than in this one.
Defence cuts at a time when there is such instability on Russia’s borders, the Middle East is in turmoil and the Jihadist threat from Africa is growing – with a knock on effect both on our security and on jobs here in Scotland.
Alongside a further £12bn in welfare cuts which George Osborne says he won’t tell us about until after the General Election but which last weekend’s leaked document from the Department of Work and Pensions says would mean cuts to disability benefits or scrapping industrial industries compensation – or instead even further cuts to tax credits.
But the Tory track record is clear. They won’t tackle the causes of rising social security spending like low pay and a lack of affordable housing. But they will make unfair choices like cutting tax credits, which have already hit 250,000 working families in Scotland. And for public services here in Scotland the effect is stark.
Based on what has happened in this Parliament we can estimate that more than £1.5bn per year will be cut from the Scottish Government grant in the coming years under these extreme Tory austerity plans.
The Tory agenda is clear. Deeper spending cuts in the next three years than the last five years. Ideological spending cuts which go beyond balancing the books. And we all know what it would mean – another VAT rise and cuts to our National Health Service.
So the choice is to carry on with the Tories failing plan, an austerity plan with deeper cuts in the coming years than in the past five years. Or Labour’s better plan.
Because it doesn’t have to be this way.
We reject these extreme and risky plans. That’s why Labour voted against the Tory Budget last month.
There is a silly claim that voting for the OBR fiscal charter implies signing up to the Tory plans for the next Parliament. The Institute for Fiscal Studies totally shredded that claim on Monday. So the Tories can play whatever games they like but our position is clear:
We will take a balanced approach – not Tory austerity but an approach which will balance the books in a fairer way – through sensible spending reductions which our Zero-Based Review continues to identify, through fairer choices on tax and, crucially, through an economic plan that delivers the rising living standards needed to boost tax revenues and protect vital public services.
Nobody seriously argues that we can avoid what Nicola Sturgeon calls “responsible deficit reduction”. So we will cut the deficit every year and balance the books – with a surplus on the current budget and national debt as a share of GDP falling, as soon as possible in the next Parliament.
How fast we can go will depend on the state of the economy, including what happens to wages, growth, the housing benefit bill and events around the world. And Labour’s fairer and more balanced approach is very different to the Tories’.
First, there will need to be sensible spending cuts in non-protected areas. For example, we will cut winter fuel payments from the richest five per cent of pensioners and cap child benefit at one per cent for two years. And our Zero-Based Review of every pound spent by government is identifying savings and cutting out waste and inefficiencies – so we can safeguard vital public services upon which people and businesses depend. We have already published eleven interim reports which identify savings.
Second, we will also make fairer choices: reversing this government’s £3 billion a year tax cut for the top one per cent of earners.
And third, our plan will deliver the rising living standards and stronger growth needed to balance the books. So we will:
- Increase the minimum wage to £8 an hour before 2020 and give tax breaks to firms who start paying the living wage;
- Establish a British Investment Bank to boost lending for small and medium-sized businesses to grow and create jobs;
- Introduce a lower 10p starting rate of income tax to help millions of working people on low and middle incomes, including 2.1m across Scotland;
- Secure Britain’s place in a reformed European Union and boost exports;
- Set up an independent UK Infrastructure Commission in order to stop long-term decisions being kicked into the long grass;
- Introduce a Compulsory Jobs Guarantee, paid for by a bank bonus tax, to provide a paid starter job for every young person unemployed for over a year which they will have to take up.
- And as Ed Miliband announced this morning, we will ban exploitative zero-hour contracts to ensure that workers who work regular hours get a regular contract;
A better plan for more good jobs and more balanced growth. Because OBR figures show that if our economy was not to slow down this year but instead grew by half a per cent a year faster than forecast over the next Parliament, government borrowing would be over £32 billion lower in the next Parliament. And our calculations show that if wages grew in the next Parliament in line with their historic average, tax receipts would be £12 billion higher. While OBR figures show that a 0.2 per cent boost to GDP growth would reduce the deficit by £15bn a year by the end of the decade.
That is why we need Labour’s better plan – because decisive action to strengthen growth, increase productivity and get sustained rises in living standards is the only way to balance the books fairly in the next Parliament and safeguard vital public services.
Unlike the Tories we will make no unfunded commitments. Indeed we want the OBR to be allowed to audit manifesto spending and tax commitments. On the subject of OBR audits, and after the Tories’ desperate and flustered attacks on Labour’s plans and what they would mean for households. Let me say direct to David Cameron: you couldn’t be more wrong, but if you think you’re right why did you refuse my proposal to allow the OBR to audit Labour’s manifesto? You were running scared from that and now you’re running scared full stop
And that’s the truth about David Cameron – after five years of government, a party should be running on its record and its pledges for the future and David Cameron is running scared of both.
So this is the choice: between an extreme and risky plan under the Tories for bigger spending cuts in the next three years than the last five years which would cause huge damage to our public services and put our NHS at risk; or a tough, balanced and fair plan to deliver rising living standards and get the deficit down with Labour.
Labour’s more balanced approach is a better plan for the whole of the UK. And it is a better plan to safeguard vital public services and deliver social justice for Scotland too. Our tough but balanced plan, set out in our fiscal pledge, means we won’t do this by increasing borrowing but with fair tax changes across the UK.
So we will have a mansion tax on properties over £2 million, a tax on bank bonuses, changes to pension tax relief for the very highest earners and action to tackle tax avoidance too. These are UK taxes raised across the UK – including here in Scotland. Fair choices – which will mean those with the broadest shoulders paying a bit more. And they will fund investment across the UK.
This will mean £800 million of additional spending for Scotland Our UK wide measures will support young people, education and the NHS across the whole of the UK. A bank bonus tax of which £150m will help people back to work in Scotland. Our mansion tax and tax avoidance measures will support the NHS in all parts of the UK including £200m for Scotland.
Reforms of corporation tax for Scottish and UK firms and action on false self-employment here in Scotland which will fund £150m in additional funding to Scotland including the scrapping of the bedroom tax. Our increase to the bank levy which will bring £100m to Scotland and changes to pensions tax relief for the highest earners, which will see at least £200m of additional funding for Scotland. And Jim Murphy has already said how he wants to use that investment for the health service, to get young people back to work and to increase bursaries for students.
Things will get better this year and next because of Labour’s decisions. But they won’t get better under the Tory or under the SNP plans. So the way to stop this Tory austerity is by voting for a Labour government and with a Labour Budget after the election. Because we will get to work straight away with new investment for our NHS, education and job creation here in Scotland and the whole of the UK.
Let’s be clear, we will only get this additional investment in Scotland and across the UK with a Labour government. And a vote for the SNP is a vote for continued Tory austerity.
There are three key reasons why this is the case
First, because you can’t trust the SNP on social justice. They have failed to back Labour’s fair tax changes across the UK which means we can have extra investment for the NHS, education and young people – the bank levy, the bank bonus tax, changes to pensions tax relief for the highest earners. And until they were dragged there kicking and screaming this weekend – they even opposed our plan to reverse the Tories’ tax cut for millionaires.
And to make matters even worse, as Gordon Brown revealed on Monday, and as the independent National Institute for Economic and Social Research has confirmed, despite all their public demands to end Tory austerity, Scottish Government documents reveal that the SNP have publicly committed themselves in exchanges between the Scottish Government and the Treasury to a zero spending rise in 2015-16.
The fact is you just can’t trust the SNP on social justice. Time and again their campaign spin doesn’t match the reality.
Whether it’s voting against the living wage, their cuts to college places or their plan to scrap the block grant, the central mission of the SNP has never been making this country a fairer place to live. That has been the historic mission of the Labour Party.
Working people in Scotland should judge the SNP by their record, not their rhetoric. It’s the next Labour government who will introduce early legislation to ban zero hours contracts for employees who are in practice working regular hours. A new legal right to a regular contract that will apply to workers after just 12 weeks. And it is Labour who will increase the minimum wage and make work pay.
The second reason why a vote for the SNP is a vote for more austerity is because they remain wedded to a fiscal approach for Scotland which rejects the pooling and sharing of resources across the United Kingdom. That doesn’t just mean scrapping the Barnett formula – damaging though that would be. Fiscal autonomy makes it impossible for Scotland to end Tory austerity. The SNP’s proposals would cost Scotland billions.
In fact, according to the independent Institute for Fiscal Studies, the SNP’s plans for Scotland would mean £7.6 billion of spending cuts and tax rises. This would have a hugely damaging impact on living standards and public services in Scotland.
When Nicola Sturgeon made her speech in London she made great play of opposing austerity. And she called for more UK spending. But the extra austerity that would be required if Alex Salmond and Nicola Sturgeon get their way and fiscal autonomy is imposed on Scotland would swamp any benefit from an increase in spending. Quite simply Nicola Sturgeon’s numbers don’t add up – and if they got their way the SNP plans would mean more, not less austerity. A 12% cut in all Scottish spending, including pensions and benefits.
And the third reason a vote for the SNP is a vote for more austerity is because a vote for the SNP makes it more likely David Cameron stays in Downing Street. This is the choice Scottish voters face: Every vote in this election for the SNP that might allow the Tories to be the largest party is a vote for Tory austerity to continue.
So that’s three reasons why a vote for the SNP is a vote for continued austerity. Three reasons why SNP promises on the economy just don’t add up. Three reasons why we need to return a Labour government.
Because a Labour Government is the only way to act immediately on the food banks that tens of thousands of Scots are forced to visit every day; and the bedroom tax that thousands of Scots must pay every week.
The fact is the biggest lie in this General Election is the claim that the SNP are the anti-austerity party when, in fact, they are the additional-austerity party. Nicola Sturgeon calls for a transparent debate about alternative fiscal plans. And that’s what she’s got. And it is now clear: there is only one way to end Tory austerity in Scotland and that’s by voting Labour.
So this is the choice. The extreme austerity of George Osborne and David Cameron’s plan. Extended austerity with the SNP plan. Or a vote for change. A vote for a Party that believes that when working people succeed, Scotland and the UK succeeds.
Only a vote for a majority Labour Government will deliver in Wales, Northern Ireland, in England and here in Scotland A real end to Tory austerity. A better future for Britain. A better future for working people. And a better future for Scotland.
That’s what Labour’s first Budget will deliver. But only a vote for Labour will make it happen.