22:01 - The House divided: - Ayes: 9 / Noes: 382 - Question accordingly negatived.
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the clause be read a Second time.
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following: new clause 8 —Funding formula for Scottish Government (No. 2)—
‘(1) Within six months of the day on which this Act is passed, the Chancellor of the Exchequer shall lay before the House a report on the formula for allocating funds from the Consolidated Fund to the Scottish Government, and on alternative ways of calculating the sums to be paid.
(2) Within six weeks of laying the report referred to in subsection (1) above, the Chancellor of the Exchequer shall lay before the House proposals for a new funding formula which would ensure that the funds allocated to the Scottish Government are no more than 5 per cent. below or above the equivalent figure for each of the other nations of the UK.’.
New clause 9—Tax on profits of companies—
‘In Part 4A of the 1998 Act (as inserted by section 24), after Chapter 4 (inserted by section 30) insert—
Chapter 5
Tax on Profits of Companies
80L Tax on profits of companies
The Secretary of State shall, within one month of the coming into force of section 80B of this Act, lay in accordance with Type A procedure as set out in Schedule 7 to this Act a draft Order in Council which specifies as an additional devolved tax a tax charged on the profits of companies.”’.
New clause 19—Spirits, wine, beer and cider duties—
‘(1) The 1998 Act is amended as follows.
(2) In Part 2 of Schedule 5 to the Act, in section A1 (specific reservations: fiscal, economic and monetary policy), after the heading “Exceptions”, insert—
“Spirits duties, wine duties and beer and cider duties”.’.
Amendment 25, in clause 24, page 16, line 35, at end insert—
‘(c) Chapter 5 provides for an Order in Council to specify, as an additional devolved tax, a tax charged on the profits of companies.’.
Amendment 24, in clause 26, page 20, line 24, at end insert—
‘(3) T is deemed to be in Scotland at the end of a day when T commences a journey in Scotland before midnight and arrives at a destination in England after midnight, irrespective of the time at which the border between Scotland and England is crossed.’.
Government amendments 31 and 15.
Amendment 26, in clause 32, page 25, line 10, leave out
‘with the approval of the Treasury, borrow by way of loan’
and insert ‘borrow’.
Amendment 27, page 25, line 15, at end insert—
‘(1C) In borrowing any sums under subsection (1A), the Scottish Ministers must have regard to any code of practice agreed by them and the Treasury.
(1D) A code of practice agreed under subsection (1C) may include provision as to—
(a) how the Scottish Ministers are to determine and keep under review how much they can afford to borrow,
(b) the terms and conditions on which sums may be borrowed,
(c) limits on the aggregate at any time outstanding in respect of the principal of sums borrowed.’.
Government amendment 32.
Amendment 28, page 25, line 26, leave out from beginning to end of line 33.
Government amendment 33.
Amendment 29, page 25, line 43, leave out subsection (10).
Government amendments 34 and 35.
Amendment 23, in clause 39, page 28, line 35, leave out from beginning to end of line 2 on page 29 and insert—
‘(2A) Subject also to the provision made in sections 26(1) to (6), 27, 28, 29, 30 and 31 as to how those sections are to have effect, Part 3 shall come into force at the end of the period of two months after the new funding formula referred to in subsection (2) of section [Funding formula for Scottish Government (No. 2)] has been approved by resolution of the House of Commons.’.
Amendment 37, page 28, line 35, at end insert—
‘(c) section [Spirits, wine and beer and cider duties]’.
Amendment 18, page 28, line 40, at end insert—
‘(3A) Notwithstanding any provisions in subsection 3(a), (b) or (c), sections 26(1) to (6) and 27, sections 28 and 29, and sections 30 and 31 can not be commenced without the consent of the Scottish Parliament.’.
Amendment 2, page 29, line 2, at end insert
‘except new subsections (1A) and (1B) of section 66 of the 1998 Act, inserted by section 32(3), and subsections (9) and (10), which shall come into force on 1 April 2012’.
Mr Gauke
It gives me great pleasure to return to the House to discuss the Scotland Bill after the Committee debate in March.
The first group of amendments on today’s selection list is fairly extensive and addresses several different aspects of the Bill’s finance package. I will set out why we have tabled Government amendments and why we will not accept the non-Government amendments.
In Committee, we debated the definition of a Scottish taxpayer for the Scottish rate of income tax. I said that the Government would table a new clause to apply the same definition to the Scottish variable rate, in response to one of the recommendations of the Scottish Parliament’s Scotland Bill Committee. The reworked definition of a Scottish taxpayer for the new Scottish rate of income tax is a significant simplification. I appreciate that it is unlikely that the Scottish variable rate will ever be invoked. Nevertheless, without the amendment, there would be two separate definitions of a Scottish taxpayer in place at the same time. There is potential for practical difficulties for taxpayers, employers and their professional representatives, who might need to familiarise themselves with one definition for the years up to 2015-16, only to have to switch to a different definition for subsequent years. That is entirely unnecessary.
Applying the definition of a Scottish taxpayer that has been developed for the Scottish rate of income tax for the purposes of the Scottish variable rate will help smooth any transitional issues, and will also make it easier for people to understand whether they are classed as a Scottish taxpayer. The Scottish Parliament’s Scotland Bill Committee rightly recommended the change, with which the UK Government very much agree, and I commend the new clause to hon. Members.
On a previous occasion, my hon. Friend the Member for Milton Keynes South (Iain Stewart) raised a particular query. He has tabled amendment 24, about which he intends to speak later. I will respond to the issues that he raises after he has had an opportunity to set out his thoughts on that.
Government amendment 31 would make a small, technical change, to which I hope the House can agree. Section 989 of the Income Tax Act 2007 contains several definitions, which apply for the purposes of income tax legislation. It includes definitions of the basic, higher and additional rate of income tax. They refer to the rate of income tax set by the UK Parliament in the year in question. Government amendment 31 would extend those definitions to include the rates applicable to a Scottish taxpayer. As I said, it is a minor drafting amendment, and I do not anticipate its proving too controversial.
The purpose of Government amendment 15 is to correct a technical fault with the Bill so that it is consistent with the Government’s policy intentions as set out in the Command Paper, which states that the Scottish Government will be able to borrow to manage the difference between forecast and outturn tax receipts. However, as I explained in our Committee debate on 14 March, the Bill as it currently stands enables the Scottish Government to borrow to manage this difference only for fully devolved taxes, and not the Scottish rate of income tax. That is a technical fault, which the amendment corrects. I hope that it will be accepted.
Let me deal with Government amendments 32 to 35. The purpose of Government amendment 32 is to introduce a power, which will enable the Government to amend in future the way in which Scottish Ministers can borrow, including by way of bond sales, without the need for further primary legislation. The Bill gives Scottish Ministers a new power to borrow, by way of loan, from 2015-16 up to £2.7 billion of total debt, £2.2. billion of which can be used to fund capital expenditure.
The UK Parliament has an interest in ensuring that Scottish Ministers can borrow efficiently and sustainably because, although interest paid on any loans will be funded from the Scottish budget, it will be included in the UK fiscal aggregates. The Bill therefore gives Scottish Ministers the power to borrow in the most efficient and sustainable way—from the national loans fund, as recommended by the Calman commission. In addition, should Scottish Ministers so choose, the Bill gives them the power to borrow by way of commercial loan where that represents value for money.
Reports on the Scotland Bill by the Scottish Affairs Committee and the Scottish Parliament have recommended that Scottish Ministers should be granted additional borrowing powers—specifically, the power to issue bonds. The First Minister made the same points in his discussion with my right hon. Friends the Chancellor of the Exchequer and the Secretary of State for Scotland. The reports and discussions have highlighted the discrepancy between the powers of Scottish Ministers and local authorities, which already have the power to issue bonds.
So far, the main evidence that has been provided to the Government in support of Scottish Ministers issuing bonds is “because other bodies can do it”. However, with the exception of Transport for London, the vast majority of local authorities have not exercised those powers in recent history, not least because local authorities judge that they have access to more efficient and sustainable forms of borrowing.
The Government continue to believe that the case against bond issuance is clear cut, particularly in the medium term, given the uncertain outlook and challenging fiscal mandate. All the evidence suggests that further bond issuance would have a negative impact on the UK’s fiscal position.
In the context of the highest deficit since world war two, the Government would consider allowing Scottish Ministers to issue bonds in future only when that does not undermine the overall fiscal position, or have a negative impact on total UK borrowing. If a case is made that Scottish Ministers’ borrowing powers could be extended without undermining the overall UK fiscal position or increasing UK borrowing, the amendment that I am tabling today would allow changes to the borrowing powers of Scottish Ministers to take effect swiftly, by way of an order.
The Government have committed to conducting a review of the costs and benefits of bond issuance over other forms of borrowing to help inform any decision. The amendment would have the effect of, first and foremost, protecting the UK’s fiscal position by continuing to allow Scottish Ministers to access the most efficient and sustainable source of borrowing.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
After the Bill has been passed, the Welsh Government will be the only political entity in the British state unable to borrow. Will the Exchequer Secretary address that matter quickly, rather than awaiting some prolonged Calman process, which the Government currently envisage?
Mr Deputy Speaker
Order. I am not sure that that is relevant to the debate.
Mr Gauke
I want to make it clear that Government amendment 32 would not grant the power of issuing bonds to the Scottish Government. However, it would enable us to move more quickly should that decision be made in future The Welsh Assembly Government are not alone in their status, although the amendment would enable us to move more quickly should we decide to proceed in that direction.
Amendment 2, which was tabled by Her Majesty’s Opposition, would bring forward the introduction of the capital borrowing requirement set out in clause 32 from April 2015 to April 2012. Amendment 26 would remove the role of the Treasury in approving capital borrowing and the restriction that such borrowing must be by way of a loan. Amendment 27 would introduce a new statutory code of practice, to be agreed between the Treasury and Scottish Ministers, to govern capital borrowing permitted by section 66(1) of the Scotland Act 1998. Amendment 28 would remove the £2.2 billion aggregate limit on capital borrowing by Scottish Ministers. Amendment 29 is consequential on amendment 28. As hon. Members wish to remove the borrowing limits from the Bill and the ability to revise those with the approval of the House, clause 32(10) would no longer be necessary, because there would be no such secondary legislation.
Andrea Leadsom (South Northamptonshire) (Con)
If that debt must be consolidated with the UK’s national debt, it should surely be considered as quasi-UK Government debt. Does the Minister therefore agree that if the Scottish National party goes ahead with its vote on independence, it will need to consider very carefully the increased cost of borrowing that would ensue?
Stewart Hosie (Dundee East) (SNP)
For the sake of clarity, will the Minister confirm that that £2.2 billion is a cumulative sum, and that the annual amount is £230 million?
Mr Gauke
Yes, that is the case, but we must consider the consequences of that borrowing for the UK’s debt position. That is the level that we believe is right.
As I set out in Committee, the £2.2 billion represents a floor, not a ceiling. The Bill provides for the limit to be increased to more than £2.2 billion with the approval of the House, but not for it to be reduced to less than £2.2 billion.
David Mowat (Warrington South) (Con)
A few moments ago, the Minister mentioned the pre-payment amount for the Forth road bridge. Did the Treasury consider a toll on that bridge, in much the same way as a toll was considered for the Mersey Gateway bridge next to my constituency? If not, is that not asymmetric governance?
Mr Gauke
The decision on whether to put a toll on the Forth road bridge will be one for the Scottish Government. The Treasury has therefore not considered that proposal. Perhaps my hon. Friend should ask Scottish National party Members what consideration was given to such a toll. I suspect that the answer will be, “Not a lot.” The expression on the face of the hon. Member for Dundee East (Stewart Hosie) is probably confirmation that no consideration was given to my hon. Friend’s suggestion. Asymmetry is inherent in such devolved matters.
The UK Parliament has an interest in ensuring that Scottish Ministers can borrow efficiently and sustainably, because although interest paid on any loans will be funded from within the Scottish budget, it will be included in the UK fiscal aggregates.
Andrea Leadsom
For the sake of clarity, the Minister tells my hon. Friend the Member for Warrington South (David Mowat) that the decision on whether there will be a toll on the Forth road bridge is a devolved matter, and yet also says that any Scottish Government borrowing would be included in the British national debt. How can that toll be a devolved matter? The UK is involved in keeping the cost of funds to the Scottish Government down so that they can afford to fund a bridge that people in England are unable to afford without charging a toll.
Mr Gauke
We must remember that any debt service will be financed by the Scottish taxpayer—that is the context.
We should move on. As I said, any loans will be funded from within the Scottish Budget and included in the UK fiscal aggregates. The Bill therefore continues to give Scottish Ministers the power to borrow in the most efficient and sustainable way—from the national loans funds, as recommended by the Calman commission. In addition, should Scottish Ministers choose to do so, the Bill gives them the power to borrow by way of a commercial loan when that represents value for money.
The Government continue to believe that Scottish Ministers should be able to borrow only by way of a loan, but because overall macro-economic policy will continue to be a reserved matter, and because Scottish borrowing will impact on the UK fiscal position, it is right that this House agrees the limits and conditions of borrowing. I therefore ask Opposition Members not to press amendment 2 and amendments 26 to 29 to a Division.
Stewart Hosie
The Minister suggests that various Opposition Members from various parties do not press their amendments. Is it not normally in order to hear the arguments for them before jumping to such a strange and presumptuous conclusion?
Mr Gauke
I do not think it an unprecedented statement. I am sure that the hon. Gentleman and I have served on many a Committee where that has been suggested. I wait to hear how persuasive the case is, but I suspect that I will not be persuaded, and that, to some extent, the amendments may be probing. We await the arguments, and I look forward to them.
New clause 8, tabled by the right hon. Member for Birkenhead (Mr Field), has two purposes. First, it seeks to legislate for the Chancellor, within six months of the day on which the Bill is passed, to
“lay before the House a report on the formula for allocating funds from the Consolidated Fund to the Scottish Government, and the alternative ways of calculating the sums to be paid.”
Secondly, it would require that within
“six weeks of laying that report…the Chancellor…lay before the House proposals for a new…formula which would ensure that the funds allocated to the Scottish Government are no more than 5 per cent. below or above the equivalent figure for each of the other nations of the UK.”
As hon. Members know, the formula for allocating funds from the Consolidated Fund to the Scottish Government is known as the Barnett formula, and as hon. Members will recall, the Bill seeks to increase the accountability of the Scottish Parliament to its people by devolving fiscal powers from Whitehall to Holyrood, and deducting a corresponding amount from Scotland’s block grant.
The Bill does not change the level of funding for Scotland. Future decisions taken by Scottish Ministers will affect the overall funding for Scotland’s public services, because Scottish Ministers will decide whether to increase or decrease devolved taxes relative to the UK. Reforming the Barnett formula is an entirely separate issue from those we are considering in the Bill, and one that the Calman commission did not make any recommendations on. The current formula is an administrative procedure and does not appear in legislation. It is not specific to Scotland, but is a mechanism for allocating funding across all four countries of the UK, so it would not be appropriate to legislate to alter it for Scotland in isolation. The Bill would not be an appropriate place for that
Kate Hoey (Vauxhall) (Lab)
I understand why the Minister does not think that discussion of the Barnett formula is appropriate for this evening’s debate, but my constituents feel strongly about the fact that Scotland gets so much more than they do generally. What mechanism could we use to have the Barnett formula looked at?
Mr Gauke
Partly following the strictures of the hon. Member for Dundee East, I would say that I am loth, at this stage of the debate, to make strong recommendations to the House about which new clauses should be accepted and which should be withdrawn and so on. I simply want to provide the context and argue why the Barnett formula should not be addressed in the Bill. I appreciate that there is a wide range of views on this issue, and that there are strong feelings throughout the UK. I dare say that a number of those views will be expressed this evening—indeed, this debate provides an opportunity for it. At this stage, however, I just want to draw the House’s attention to some of the difficulties with trying to address the matter in the Bill. I shall turn to the substance of the debate in a moment, but that is what I am seeking to do at the moment.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
I am sure that the hon. Gentleman will want to confirm that if my hon. Friend the Member for Vauxhall (Kate Hoey) got the reorganisation of the formula that she seems to want, the parts of the UK that would lose the most—the ones that are most overfunded by her definition—would be London, where she is an MP, and Northern Ireland, which I know she has a close interest in. If we are going to debate the matter, let us debate the facts rather than the myths.
Mr Gauke
Of course, and there are regional variations within all the four nations. The point is that there are strong views on this issue. I am making the case for why it is difficult to address it in the Bill. Reforming the Barnett formula is an entirely separate issue from those we are considering in the Bill, and from the matters that the Calman commission looked at. As I said, the formula does not appear in any legislation as such, and there would be disadvantages in trying to come up with a legislative answer. However, I appreciate that this is an opportunity to debate the matter.
Mr Gauke
The Government understand the concerns expressed about the devolved funding arrangements, but we have also made it clear that the priority now must be to reduce the deficit, and any change to the current system and Barnett formula must await the stabilisation of the public finances. The Bill does not rule out or rule in reform of the formula in the future, but we do not believe that now is the right time. A change in the Barnett formula is not the purpose of the Bill, and it would not be appropriate to legislate for it here. As I said, I look forward to this debate, as right hon. and hon. Members will clearly take the opportunity presented by the Bill to express their views on this particular point.
David Mowat
I understand that the Exchequer Secretary does not want to spend too long now talking about the Barnett formula, so I will be quick. He said that we are too busy sorting out the deficit to address the Barnett formula, which I think is a fair and reasonable point. That is why many of us think that we should put in place a process to ensure that by 2015, when, as I understand it, the structural deficit will be eliminated, we can put in place a fair and transparent policy.
Mr Gauke
I understand the views expressed by my hon. Friend. There are a number of changes and developments in this area, not least the powers in the Bill. I agree with him that this will continue to be a live issue, but at this stage I am not in a position to make any promises to him. However, I am sure that this issue will continue to be debated, and strong views will be expressed. I can understand the points he makes, but this is not the time for a legislative solution.
Amendment 23, tabled by the right hon. Member for Birkenhead, is consequential on new clause 8 and would delay the financial provisions in part 3 of the Bill coming into force until two months after the House passes a resolution approving the Chancellor’s proposals for a new funding formula. It would then automatically bring part 3 into force two months after such a resolution. I set out why I did not consider it appropriate to debate at this time a new funding formula for Scotland when I discussed new clause 8. The Government are clear that this is a UK-wide administrative procedure and therefore has no place in the Bill. The Government’s priority is to stabilise the public finances and reduce the deficit before making any changes to the Barnett formula, as I have said.
Even were we able to accept new clause 8, the manner of commencement set out would be problematic because it would create technical problems by potentially bringing in consequential amendments relating to the Scottish variable rate before that itself had been repealed. I am sure that that is not what the right hon. Gentleman intends. The new clause would have other consequences, however. It would mean that clause 32, on borrowing provisions, could not be brought into force until an agreement had been reached on a new funding formula for Scotland. As I have set out, the changes introduced by the Bill are not contingent on a new funding formula being agreed to replace the Barnett formula, so I do not see the need to wait to introduce the borrowing clauses until such a new formula has been agreed.
Amendments 25 and 37, and new clauses 9 and 19, relate to corporation tax and alcohol duties. These amendments propose to increase the power in the Bill to provide for an Order in Council specifying corporation tax and alcohol duties as devolved duties. The Scottish Government have publicly requested that six additional powers be included in the Bill, including powers over corporation tax and alcohol duties. I understand that the First Minister has met colleagues in the Government to highlight those requests. In those meetings, the First Minister agreed to provide detailed written analysis of the benefits to both Scotland and the UK of devolving those powers. No such papers have yet been provided. We await them with interest, because we have yet to hear the case made in detail.
As hon. Members will recall, the Government are committed to implementing the recommendations of the Calman commission, which considered the merits of devolution for a wide range of taxes and decided that neither corporation tax nor alcohol duties were suitable candidates for devolution. Calman concluded that the potential administrative impact of devolving either tax would be significant. The creation of compliance costs for businesses operating on either side of the border, as well as the increased collection costs for the Government, would be undesirable, especially in the present economic climate. The risks of tax avoidance and arbitrage could also be increased, with additional costs to the Government and the UK Exchequer. These arguments apply to both corporation tax and alcohol duties.
Calman also noted that if comparable levels of public services were to be maintained, the scope for substantive reductions in the rate of corporation tax in Scotland would be limited, unless the Scottish Government were willing significantly to increase revenues from other sources, such as income tax. The figures involved could be significant. For instance, if we take the Scottish Government’s estimate of the corporation tax base, published in their “Government Expenditure and Revenue Scotland” report, and apply the methodologies developed for the Government’s paper on rebalancing the Northern Ireland economy, the cost of reducing Scottish corporation tax to 12.5%—the current rate in the Republic of Ireland—would be just over £2 billion. However, the Scottish economy is very different, not least in the presence of many large multinationals, particularly from the financial sector, whose current activity is unlikely to be adequately covered in the gross value added estimate, but whose profits are additionally likely to be attributable to Scotland with regard to corporation tax.
Provisional HMRC analysis has indicated that losing payments from large Scottish-domiciled groups could add £600 million to the direct costs. Such tax cuts would have to be funded, either by significantly reduced levels of public spending in Scotland or by tax rises in other areas. It is worth noting that these are initial estimates, and are likely significantly to underestimate the scope for profit shifting to Scotland. The model uses similar assumptions to those applied to the costing for Northern Ireland. However, given the geographic proximity of England and Scotland, the integrated infrastructure, the large number of big GB-owned groups with a substantive presence on both sides of the border, and the relatively large and complex nature of the Scottish economy, there are likely to be greater opportunities for groups to shift profits there than may be the case for Northern Ireland.
In addition, corporation tax is a very volatile tax, and would create much more revenue risk for the Scottish budget. For instance, corporate tax receipts fell by 16% from 2008-09 to 2009-10, while income tax receipts fell by 5%. Such a large volatile income stream would place great risk on the Scottish budget. Income tax, which is more predictable and less volatile, is a much more suitable candidate for devolution. The commission based its decision on the strong evidence that it received from the independent expert group and the alcohol retailing and production sector. The evidence identified increased compliance costs and significant scope for tax avoidance, given the mobility of goods such as beer, wine, cider and spirits.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
My recollection is that the Calman commission refused to rule out devolving corporation tax, should that happen in other parts of the UK. Perhaps my recollection is wrong, but it would be a mistake to misrepresent in this debate what the Calman commission actually said.
Mr Gauke
The Calman commission did not recommend devolving corporation tax as substantial practical profit shifting issues would arise, and we cannot ignore the fact that it would need to be paid for. This is not something that we could all sit round in a room negotiating, before coming up with a number. To comply with the Azores judgment, made under European law, it would be necessary to identify the precise number. I should also make it clear that the cost of any reduction in corporation tax would have to be met by increased alternative taxes or a reduction in the block grant.
Dr Whiteford
It is important to differentiate the substantive point of whether this Government support devolving corporation tax from what the Calman commission report actually said. Having found it—I think—I can tell the Minister that the Calman commission recognised that
“changes to Corporation Tax can be a tool for economic development,”
and did not
“rule out a scheme for devolving Corporation Tax in the future as part of wider reform across the devolved nations.”
Does the Minister accept that that is actually what was in the Calman commission report?
Mr Gauke
But the Calman commission did not say that that was the right way forward at this point. As I have said, some very substantial issues would need to be addressed, not least the opportunity for profit shifting and the impact on the UK Exchequer were Scotland to have a lower rate of corporation tax, as businesses operating in Scotland and England would shift their profits to Scotland, which would disadvantage the UK as a whole.
Stewart Hosie
A number of businesses moved to Ireland in the last Parliament to take advantage of lower corporation tax. A number of others moved to continental Europe, to the Netherlands. One of the drivers for this Government reducing corporation tax was to send out that signal. That change will not necessarily be paid for by changes to allowances or spending cuts; it will be paid for in the medium and long term by increased economic growth, which is a consequence of a lower business tax regime. Why has the Minister excluded the potential of growth in Scotland from it having lower corporation tax, and merely highlighted the payment in other ways?
Mr Gauke
Let me be clear: I am not making the case against lower corporation tax per se; I am saying that if Scotland had a lower rate of corporation tax, that would have an impact on the Exchequer, and Scotland and the Scottish Government would have to pick up that cost. I do not believe that that is a matter of dispute or that the hon. Gentleman disagrees with that. Indeed, we are not even talking about something that we could pursue under European law—I am sure that he will be aware of the details of the Azores judgment. [Interruption.] That point is clear, so I am surprised that there are so many mystified faces on the Opposition Benches.
Mr Ian Davidson (Glasgow South West) (Lab/Co-op)
This relates to the Minister’s point about the Azores judgment—people in my constituency speak of little else. I want to clarify the important question of transparency. Have the Government provided the Scottish Government with the figures that the Minister has quoted, in order that they can challenge them or produce any additional information? It is important that this debate is conducted not just at the level of rhetoric, but that firm proposals are made with numbers attached. Will the Minister therefore clarify whether there has been an inter-governmental dialogue on these matters?
Mr Gauke
We are talking about preliminary numbers, which I have put forward on the basis of early estimates produced by the Treasury this week. We are keen to engage with the Scottish Government, just as we have with the Northern Ireland Executive. I am sure that there will be exchanges of correspondence, meetings, discussions and a full examination of both the numbers and the methodology used in producing them. We are more than willing to engage in that process, but we are also waiting for the Scottish Government to offer their analysis of the impact of devolving corporation tax, of what the costs would be, and of the economic advantages and disadvantages. We know that the Scottish Government take a great interest in this—they make this point on a regular basis—but we await their analysis.
Ann McKechin (Glasgow North) (Lab)
I think I am correct in saying that the Minister for Culture and External Affairs in the Scottish Government wrote to Members before the Easter recess suggesting clauses to be added to the Bill, including one on corporation tax. On that basis, is the Minister saying that the Scottish Government provided no information on their analysis of the impact of this tax? Since first requesting the information, how long has he waited for it?
Mr Gauke
I look to others for inspiration on the precise details, but we are certainly talking about months. The hon. Lady is right to say that the detailed analysis has not been provided. I am sure that the Scottish Government are working very hard to produce it, but we have not received it. It could have been helpful for this evening’s debate, but so be it.
Mr Mike Weir (Angus) (SNP)
It might have been difficult for the Scottish Government to provide that information during the purdah period, and they were re-elected only a matter of weeks ago. It is perhaps no surprise, therefore, that those weighty documents have not yet arrived on the Minister’s desk.
Mr Gauke
I have to make a confession to the House: I have come only relatively recently to these issues. My understanding, however, is that the Scottish National party has been interested in this policy for some years. I am sure that if it is a priority, and I understand that it is, we will receive the paper very soon. I look forward to receiving it.
Mr Russell Brown
Perhaps I should be directing this question not to the Minister but to the Secretary of State for Scotland, because he has been engaged in this process. Has there been any indication of how long we can expect to wait for these figures?
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Perhaps the reason the Scottish Government have not yet been able to produce the figures is that some of the international studies are not to their liking because they show that lower rates of corporation tax do not necessarily lead to higher growth rates.
Mr MacNeil
The Minister talks about the Scottish Government justifying why they should have this power, but have the UK Government given any justification for why they should hold on to the power over corporation tax in Scotland?
Mr Gauke
It was about five minutes ago when we last set out the reasons that corporation tax remains a reserved matter. The Bill provides for a substantial devolution of tax powers to the Scottish Government, but corporation tax has always been a matter for the United Kingdom. We are exploring this matter in the context of Northern Ireland, but if there is a case to be made for a radical change in this area, we would like to hear it and we look forward to doing so soon.
Mr Davidson
Did not the Minister say earlier that the Government had produced their latest estimates only about seven days ago? In the circumstances, this criticism seems a trifle unfair, even though the Scottish Government have had a long time to produce theirs. Surely they would benefit from this Government sharing their figures. If the Treasury undertook to pass on its figures to the Scottish Government, I am sure that a response would soon be forthcoming, enabling us to conduct this debate properly and not simply on the level of transitional demands.
Mr Gauke
The hon. Gentleman is clearly anxious to move the debate on, and he makes a perfectly reasonable point. The Treasury and the Government would be quite happy to share our analysis with the Scottish Government, and if that would assist them in their work, we would be pleased to be of assistance.
Stewart Hosie
Speaking of sharing information, the Minister has raised the spectre of the Azores ruling, but a comparable and permanent reduction to the block grant in place of the devolution of corporation tax would certainly meet all the state aid rules. The Azores judgment smokescreen that the Minister has thrown up is quite irrelevant.
Mr Gauke
The point I was making was that the cost would have to be borne by the Scottish Government, through either increased taxes or a reduction in the block grant. We would clearly have to enter into discussions with the Commission, but I think that he is right in principle, and that such a proposition would comply with the Azores judgment. I am merely making the point that, although the final cost would have to be determined, it would be substantially higher than £2 billion if it was the Scottish Government’s policy to bring the rate of corporation tax down to the level that pertains in the Republic of Ireland.
I shall move on to amendment 18, which seeks to make the date for commencement of all the taxation provisions in the Bill—those relating to the Scottish rate of income tax, the Scottish tax on land transactions and the Scottish tax on disposals to landfill—contingent on the consent of the Scottish Parliament. The process to be used to provide consent is not detailed in the amendment, but I assume that the hon. Member for Dundee East has in mind something akin to the legislative consent motion convention to which the Bill is subject. I consider this amendment to be unnecessary. Similar amendments were tabled by the hon. Gentleman in Committee. We have committed to working closely with the Scottish Government as we move towards full implementation of the measures in the Bill. This engagement will ensure that the Scottish Government can keep the Scottish Parliament apprised of implementation work in good time.
As hon. Members will be aware, the Scottish Parliament voted on the Bill in March, with 121 of the 129 Members voting in favour; this included the Scottish Government. Following the election in May, the Scottish Parliament established a new Scotland Bill Committee to consider amendments to the Bill. This will ensure a further opportunity for the Scottish Parliament to vote on changes to the Bill.
As I said on Report in relation to the taxes to be fully devolved, we made it clear in the Command Paper accompanying the Bill that if the Scottish Parliament was not ready to introduce the smaller taxes in April 2015, we would consider delaying the switch-off of the UK-wide versions of the taxes in Scotland. Should the Scottish Government and Parliament decide that they do not wish to put in place a Scottish version to cover the existing tax base, we will not leave the current landfill tax or stamp duty land tax in place. It will be for the Scottish Government to decide what, if any, arrangements they wish to put in place, once the matter is devolved to the Scottish Parliament. I consider this additional requirement to be unnecessary and I am therefore minded to urge the hon. Gentleman to withdraw his amendment, but of course I shall wait with interest to hear his arguments. This has been a somewhat lengthy speech, for which I apologise to the House, but I have attempted to deal with a large number of new clauses and amendments. I hope that that has been helpful, and I look forward to the forthcoming debate.
Stewart Hosie
As the Minister has pointed out, there is a large number of new clauses and amendments in this group. I intend to give them a decent airing, not least because I was chastised by the hon. Member for Glasgow North (Ann McKechin) in a recent newspaper article for speaking for barely 14 minutes in a previous debate. I would not want to disappoint her by not providing closely argued contributions on the new clauses and amendments tonight. It is also worth putting it on record that barely three hours for a Report stage is quite inadequate.
Our amendment 29 and new clause 9 deal with corporation tax, about which the Minister went on at some length. This is a tax levied on profits and the Scottish Government are seeking to devolve the competence to use it as key policy lever to promote economic activity in Scotland. It is important to focus not on the dry detail of the amendments, but on what we and any Scottish Government would do with the powers. We believe that corporation tax can be a key element in the country’s overall economic strategy and can promote economic growth and job creation by enhancing international competitiveness and encouraging innovation and investment.
We believe that the case for devolving corporation tax is clear. Over the past 30 years, Scotland’s economy has grown more slowly relative to both the UK and the average of small EU countries than it ought to have done. We believe that for Scotland to fulfil its economic potential, additional levers are required and corporation tax is, I believe, a key mechanism. It can be an important tool in helping to support increased business start-ups, increased business research and development and investment, and in encouraging more firms to locate their headquarters in Scotland—the very reasons, I suspect, why the UK Government announced a lower corporation tax rate and a strategy for reducing it further.
Mr Gauke
I know that the hon. Gentleman is keen to move on from the subject of corporation tax, but I seek clarification, I think with good reason. He said that he understood the Azores judgment and what was necessary for compliance with it. He said that if the yield from corporation tax went to the Scottish Government, the block grant would be reduced and everything would be fine. All that is correct. However, if the Scottish Government reduce corporation tax, there will be a cost. He has not made clear how the Scottish Government would deal with that. Would they do so by spending less or by increasing other taxes?
Stewart Hosie
Evidence that I have seen in a significant number of companies suggests that the reductions in block grant would be phased in. We see a trend increase in business tax yield as business tax rates are reduced. I am sure that the Minister has seen similar figures, which may have driven some of his own policy decisions. I suspect that Scotland would be unique if we did not follow a pattern that has been seen time after time in other countries.
Mr Gauke
The hon. Gentleman is presenting the Laffer curve argument. He suggests that a corporation tax cut could pay for itself. As he knows, I support that idea and am looking at what the Government are doing in that connection. It is not altogether surprising that there are advantages in reducing corporation tax, but, initially at the very least, it comes at a cost. We had to put that in the Red Book. Does he believe that there would be no cost, or does he believe that the tax cuts would immediately pay for themselves?
The Secretary of State for Scotland (Michael Moore)
I beg to move, That the Bill be now read the Third time.
I am very grateful to Members who have taken part in all the different debates on the Bill, in particular those from the Opposition parties, members of the Scottish Affairs Committee and the many others who have examined the Bill closely during its passage through the House. Today, we have had important additional contributions by the hon. Member for Dundee East (Stewart Hosie), my hon. Friend the Member for Milton Keynes South (Iain Stewart) and the right hon. Member for Birkenhead (Mr Field), among others.
The Bill delivers the key coalition commitment, set out in our programme for government, to implement the proposals of what we know as the Calman commission. The commission, established in the last Scottish Parliament, had the support of a wide cross-section of society in Scotland. Its membership included representatives of the three main United Kingdom political parties, local government, experts in Scots law, business, education and the trade unions.
Under the chairmanship of Sir Kenneth Calman, the commission gathered evidence from a wide range of sources and engaged directly with people in Scotland through detailed consultations, public engagement events, oral evidence and survey evidence. The commission reported to both the Scottish Parliament and the previous UK Government. At the general election in 2010, all three main UK-wide parties had manifesto commitments to take forward the recommendations made by the commission. Those commitments are being delivered in the Bill.
As Members are aware, the Bill will introduce a new Scottish rate of income tax, and it will fully devolve responsibility for stamp duty land tax and landfill tax to the Scottish Parliament. It will provide for new tax-raising powers to be created at the request of the Scottish Parliament, and it will introduce a new capital borrowing power and extend the current borrowing powers of Scottish Ministers. When combined with the existing tax-raising powers of the Scottish Parliament, it will provide Scottish Ministers with a total of £12 billion- worth of financial powers. That is a hugely significant package, which represents the largest ever transfer of financial powers from Westminster to Scotland. It is a radical but responsible step.
The Bill is not about transferring power for power’s sake; it is about creating accountability. By taking on the responsibility for raising the taxes required to fund the spending decisions that they take, the Scottish Parliament and Scottish Ministers will be more accountable and better equipped to respond to Scotland’s needs within the UK.
The Bill has been the subject of detailed scrutiny on the Floor of the House and by the Scottish Affairs Committee. The debate has been animated, even lively at times, such is the strong feeling and the keen interest in it that is felt throughout the House. However, our proposals have not just been scrutinised at Westminster. After the introduction of the Bill, the Scottish Parliament established a Scotland Bill Committee to assess the measure and the supporting package set out in the Command Paper, “Strengthening Scotland’s Future”. The Scotland Bill Committee issued a detailed 240-page report on the measure. The Committee’s first and main conclusion was that the Scottish Parliament should support the Scotland Bill. In the subsequent plenary vote, the Scottish Parliament voted overwhelmingly in favour of a legislative consent motion, agreeing to the Bill by a margin of 121 to three, with support from the Scottish Government. I am grateful to all parties for their support.
Since then, there have been elections to the Scottish Parliament, and I congratulate the Scottish National party on its victory. A new Scotland Bill Committee—meeting for the first time today—will examine the measure in the Scottish Parliament. I welcome that further scrutiny. However, given the previous Scottish Government’s support for the Bill, I look forward to that support continuing. In fact, I expect that it will have been strengthened by the package of amendments that the Chancellor and I announced on 13 June.
The amendments were based on the valuable report of the Scottish Affairs Committee, and also on the report from the Scotland Bill Committee that the Scottish Parliament endorsed so strongly. The amendments that we tabled on Report were based on the evidence that we received from the two Committees. The amendments to the package will ensure that Scottish Ministers have greater flexibility to exercise their new powers effectively.
We continue to believe that the package set out in the Bill and the Command Paper, based on cross-party consensus, meets the objective of strengthening Scottish devolution within the United Kingdom.
Sir Menzies Campbell (North East Fife) (LD)
May we take it that, as a result of the earlier proceedings, Government new clause 13 is now part of the Bill? If so, is that a confirmation of the fact that in any matter involving human rights, the Supreme Court is the final arbiter, notwithstanding some of the childish and petulant outbursts that we have heard north of the border in recent weeks?
Michael Moore
First, I confirm what my right hon. and learned Friend suggests. New clause 13 is now part of the Bill that will go to the House of Lords for scrutiny. Like him, I regret the tone of some of the remarks made against judges in the Supreme Court in recent weeks. I welcome the broad support for the idea that people in all parts of the United Kingdom should enjoy the same rights under the courts.
Mr William Cash (Stone) (Con)
On the application of the Human Rights Act 1998 in this context, and conceding that the Supreme Court has a special role to play, does the Secretary of State accept that some Government Members, and an increasing number of people throughout the country, feel that the Human Rights Act should be repealed, and furthermore that the whole basis on which it operates and the European convention on human rights should be reviewed?
Michael Moore
I welcome the hon. Gentleman to the proceedings on the Scotland Bill, albeit belatedly, and commend him for his ever sharp eye, looking for opportunities to raise matters European in the Chamber. Perhaps with some disappointment, we will have to agree to disagree on the fundamentals, but I point out that we are indeed considering human rights legislation in this country. I am sure that we will have a proper debate about that over many days and weeks.
Let me outline the key changes that we introduced on Report. First, we will bring forward to this financial year access to finance to allow work on projects, such as the Forth replacement crossing, to begin. We are removing the requirement for Scottish Ministers to absorb the first £125 million of tax forecasting variation within their budget. That will give Scottish Ministers more flexibility to decide how best to respond to any variations in tax receipts compared with forecasts. We will also allow Scottish Ministers to make discretionary payments into the Scottish cash reserve for the next five years, up to an overall total of £125 million. That will help manage any variation in Scottish income tax receipts, compared with forecasts in the initial phase of the new system.
As debated on Report, we have included a provision in the Bill to enable the Government to amend the way in which Scottish Ministers can borrow to include bond issuance. Without that power, further primary legislation would have been necessary to allow bonds to be issued by Scottish Ministers. Before that power is transferred, the Government will conduct a review of the costs and benefits of bond issuance over other forms of borrowing.
We have also strengthened the non-financial sections of the package to enable Scottish Ministers to approve the appointments of MG Alba board members, and to provide for reciprocal consultation between UK and Scottish Ministers when either make changes to electoral administration that impact on their respective responsibilities. We are devolving the power to make an order to disqualify persons from membership of the Scottish Parliament, and we intend to strengthen intergovernmental dialogue in areas of mutual interest in welfare.
Importantly, as my right hon. and learned Friend the Member for North East Fife (Sir Menzies Campbell) indicated, we are implementing the findings of the expert group appointed by the Advocate-General. There is a consensus that there is a problem with the role of the Lord Advocate under existing legislation. The Scotland Act 1998 did not properly recognise that the Lord Advocate fulfils two separate roles: one as chief prosecutor in Scotland, and the second as a Scottish Minister. Our amendment separates those two roles while retaining the consistent application of the protection of fundamental rights for those in Scotland, as exists for those in the rest of the United Kingdom. We believe that it strikes the correct balance.
We believe that the package of the Bill as amended and the supporting non-legislative measures provides the right balance of powers and responsibility for Scotland within the United Kingdom. Today’s debate marks the end of the first stage of debate on, and scrutiny of, the Bill in the House of Commons, but it is by no means the end of the process. There will be further opportunities to consider, debate and amend the Bill in their lordships’ House.
However, as hon. Members will be aware, the Scottish Government have asked for further amendments to the Bill. We have made it clear that we will listen and that we are willing to consider further amendments if they satisfy some key tests. First, any further amendments must be based on detailed proposals. We must be convinced, by evidence and detailed analysis, to support any amendments to a package that we believe provides Scotland with the right balance of responsibility and accountability. Secondly, any further amendments must demonstrate that they will deliver clear benefits to Scotland, without prejudice to the rest of the United Kingdom. Thirdly, any further amendments must generate cross-party consensus, which the measures set out in the Bill have achieved.
Mr Russell Brown
The Liberal Democrats, the Conservatives and the Labour party want this legislation, but the Secretary of State is talking about further amendments. Does he recognise that members of the public wonder why we are going ahead with the Bill, when what lies in front of us at some given point is a referendum on independence? The point has been made to me, by an admittedly small number of my constituents, that we should have parked the Bill, waited for a referendum, and resurrected it thereafter if necessary. Does he recognise that some outside this place will have concerns about further amendments?
Michael Moore
I have just set out the criteria against which we would assess any suggested further amendments. There is scope within the passage of the Bill to consider those points further.
On the hon. Gentleman’s fundamental point, my argument right from the start, which I believe has had a degree of cross-party consensus, is that it is important that we empower Scottish Ministers and the Scottish Parliament with these new arrangements to enable them to get on with their jobs. The measures enhance Ministers’ economic powers and the accountability of the Scottish Parliament. I do not believe that delaying those measures is in anybody’s interest. We do not know what the terms of any referendum will be or what type of independence will be offered.
Mark Lazarowicz
Mine is a narrower point. Will the right hon. Gentleman give an assurance that, if amendments come forward from the Scottish Government that the UK Government accept and which go through the Lords, we will have proper time to discuss them in this House? We do not want three or four amendments coming here for one hour’s discussion during ping-pong. Can we get a guarantee of time to discuss any amendments that come forward? [Interruption.]
Michael Moore
My distinguished colleagues the Leader of the House and the Deputy Leader of House were just indicating—I was going to say “muttering”, but it would be inappropriate to suggest such a thing—in their typically generous fashion that adequate time would be made available should such amendments come forward. I look forward to holding them to that should it be necessary.
The Bill has been subject to detailed scrutiny in this Parliament and the Scottish Parliament. That scrutiny will, of course, continue, but I am confident that the process in the House has reinforced the central purpose of the Bill: to strengthen the Scottish Parliament so that it serves the Scottish people better. I commend it to the House.