Scotland Bill

Angus Brendan MacNeil Excerpts

Monday 29th June 2015 Commons Chamber

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

For the benefit of the Committee, will the hon. Gentleman explain the difference between the agreement the UK Government have with the Isle of Man and what they are now proposing for Scotland?

[Mr Gauke]

The Isle of Man has different constitutional arrangements. What we are proposing is consistent with the conclusions reached by the Smith commission.

The hon. Member for Dundee East (Stewart Hosie) made a number of technical points about how that will work. I accept that a number of details will need to be worked out as part of the fiscal framework. There is a need to agree the methodology for estimating how much VAT is generated by Scotland and by the rest of the United Kingdom. The UK and Scottish Governments will also need to agree the operating principles, including mechanisms for verifying that the methodology has been applied correctly, how many adjustments might be carried out and arrangements for audit and transparency, including publication of results. It is worth pointing out that other countries operate similar systems and could provide a reasonable starting point from which to build.

Again, those considerations will be part of the fiscal framework, and I think that it is agreed on all sides that it would not be helpful to provide a running commentary on it. Of course, there have already been meetings with the Deputy First Minister and the Chief Secretary to the Treasury on some of those points. All I will say to the hon. Member for Dundee East is that the UK Government are determined to work constructively, as I am sure the Scottish Government are, to ensure that we reach an agreement that is fair and reflects the appropriate assessment that should be made.

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[Graham Stringer (Blackley and Broughton) (Lab)]

Amendment 36 would, in essence, have opposed clause 16 standing part of the Bill, because I want the Committee to explore the specific issues related to air passenger duty and the more general principles about tax competition between Scotland and the rest of the United Kingdom that may well evolve from a discussion on air passenger duty.

Some of us who voted to set up the Scottish Parliament in the first place now think that, although it seemed a very bold decision at the time, it was less bold than it might have been and that if we had the benefit of being able to go back in time—we do have the benefit of hindsight—the proposals that the Government are making might well have been those that should have been put before the House after the 1997 general election, with us now moving towards full fiscal autonomy for the Scottish Parliament. It was a fundamental mistake to set up a Scottish Parliament with mainly spending powers and no tax-raising powers, apart from the plus or minus 3p on income tax.

[Mr MacNeil]

The hon. Gentleman is absolutely right. One of the mistakes is that there is no incentive for the Scottish Government to grow the economy. A great example that we have in the Hebrides is that the Scottish Government have put a road-equivalent tariff on to the ferries. This has grown the economy in the west of Scotland, but the increase in tax revenue is not going to the Government that funds it but to Westminster, which gives no extra cash and further incentives to roll it out further across the west coast. It is similar with childcare and a number of other issues.

[Graham Stringer]

The hon. Gentleman makes a pretty fundamental point about devolution. When the House was making a decision to devolve powers, it would have been sensible to settle on a grant basis that was fair between Scotland, England and Wales, which the Barnett formula was not, and then allow the Scottish Parliament to raise taxes on that basis, so that if it wanted better-quality services, it could have had higher taxes and, if it was more efficient, it could have had better services or lower taxes, and so on. That is a very clear principle.

[Mr MacNeil]

The important point I am driving at is that, if the Scottish Government had proper control of their taxes, they could have grown the economy more and that growth would have delivered far more than the zero-sum game of who has got and has not got what in the UK. It is the ability to grow the economy that tax powers would give that is really fundamental.

[Graham Stringer]

If the hon. Gentleman is saying that Scotland, or any other devolved authority, should benefit from the initiatives it takes and from its own efficiencies, I agree completely. We are moving that way, but the Bill does not move far enough. No Minister or shadow Minister has been able to explain to me, in any of our debates, why we should have the unfair funding in the Barnett formula.

Those are the basic principles. I now want to explore how, if taxation is devolved to the Scottish Parliament, the United Kingdom Government will respond to competition. Air passenger duty is a very good example. As I understand it, the SNP intend to reduce air passenger duty by 50% and then reduce it to zero. That is quite a sensible policy for the SNP to follow. For that matter, it is a sensible policy for the United Kingdom Government to follow, because a number of consultants’ reports have shown that there is almost certainly likely to be a benefit for the whole United Kingdom if air passenger duty is taken away.

Every other country in the European Union has moved either to very low rates of APD or, as in the Netherlands, to zero. It is therefore a sensible policy, but the Government do not seem to have a clear position on what they will do about the very unfair competition between regional airports.

[Mr MacNeil]

Air passenger duty is a perfect illustration of what I said earlier. If the Scottish Government decided to lower APD and that upped the rate of economic activity in Scotland, they should benefit from the fruits of that activity. The benefits should not go to Westminster, because it would not compensate the Scottish Government for that initiative.

[Graham Stringer]

On 20 January, the Chancellor of the Exchequer told the Treasury Committee, in response to a question asked by my hon. Friend the Member for Wythenshawe and Sale East (Mike Kane) about that very point:

“I think the best approach to dealing with this concern, which I think is perfectly legitimate, is to cross the political boundaries of our two parties to try to find a solution that helps these regional airports that can be affected by an air passenger duty decision north of the border.

HMRC has done some work on this and I think it anticipated that Manchester airport would lose around 3% of its traffic and Newcastle could lose around 10% of its traffic. That was work carried out a couple of years ago… I think you and I—I made the same offer to Ed Balls—could work to help regional airports in the north of England if the Scottish Government were to go down the road of dramatically cutting its air passenger duty.”

Further to that, the Chancellor told the House of Commons on 27 January:

“We have a couple of years to work this out—it does not have be done tonight or tomorrow—and we can work out a plan that protects the brilliant Newcastle, Manchester and other regional airports.”—[Official Report, 27 January 2015; Vol. 591, c. 726.]

What progress has been made on that? This is about a loss of 3% and 10% of business, which are not trivial amounts.

This will result in not only an economic benefit for Scotland, but in real competition, which will come in two forms: there will be competition for passengers on short-haul flights, for which APD is £13 per passenger, and for those on longer-haul flights, for which it is £71 per passenger. Obviously, the same amount is paid for the return flight. A passenger from Newcastle therefore has an incentive—this applies to large families in particular—to travel to Edinburgh or Glasgow in order to save some money. Someone travelling long distance from north America or China has the same incentive.

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[Graham Stringer]

I agree with that perfectly sensible point.

The Government may have a number of possible solutions, and I hope that the Financial Secretary will be able to respond in some way. Manchester airport has made the case strongly to the Government that there should be an air passenger duty holiday on new long-haul routes, and that would be helpful. The Government could devolve decision making to other parts of the United Kingdom as well as to Scotland, although it would be difficult to find a mechanism for doing so. The Government could also agree to compete with Scotland, because if there is no competition, there will be an unfair loss of jobs through lowering the rate of air passenger duty.

Such solutions seem sensible to me, given the experience in the rest of Europe and, indeed, in the rest of the world. The tax was brought in not for environmental reasons, as is sometimes said, but entirely to deal with the hole in the budget after the 1992 general election. It is an inefficient tax: consultants have estimated that it costs the economy more than it brings into the Treasury in cash. Even if the Financial Secretary cannot give an absolutely definitive answer today, I hope he will assure us that he is willing to look at some of the sensible responses to this new competition in tax regimes.

[Mr MacNeil]

The hon. Gentleman has been very kind in giving way. The tax is about more than just a hole in the budget; it is actually a demand-management tool for Heathrow and perhaps for Gatwick as well. If airports are full, APD is a demand-management tool that might work. It is certainly not helping in Edinburgh, Glasgow or Manchester. The solution is not to worry about each other, but for us to be rid of it, and for the Government to keep the demand-management tool in airports that are already saturated.

[Graham Stringer]

I do not agree with the point the hon. Gentleman makes in his fourth intervention. Demand management is not the solution for our regional airports, which have huge extra capacity, but if I went down that line, I expect you would rule me out of order, Mr Crausby. I look forward to the Financial Secretary’s response.

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[Rob Marris (Wolverhampton South West) (Lab)]

I do not share this cosy consensus. The hon. Member for Dundee East (Stewart Hosie) made it very clear in his usual honourable way—I have sparred with him many times—that if APD is devolved, the Scottish Government, if controlled by the SNP, will cut it markedly and have the goal of abolishing it. He helped the Committee by quoting the Prime Minister to the effect that there would be—these are my words, not the Prime Minister’s—a “beggar my neighbour” attitude downwards on APD. Call me old-fashioned, but I think environmental laws should be state-wide and international, and I consider APD to be an environmental law, which is why I voted for it years ago.

As ever, the SNP has been totally open with the House: it wants to see the number of airline passengers increase throughout the UK. That is an environmental step backwards. Fortunately, we have environmental laws internationally through the EU, for example on waste disposal and air quality, something on which the UK is, to coin a phrase, falling foul at present.

[Mr MacNeil]

Following the hon. Gentleman’s argument, does he want to increase the rate of APD or is he saying the Tories have got it at just the right rate?

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[Mr MacNeil]

Does the Minister see any advantages in other tax revenues from the cutting of APD or does he think the countries that have cut APD have done it as a result of lemming-like behaviour?

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Again, this will no doubt be dismissed, so let us look at the Office for Budget Responsibility oil and gas report published just 10 days ago. It shows that revenue from the North sea is projected to fall from £36.7 billion to just £2 billion in the period 2020-40. [Interruption.] That is dismissed not just by the SNP, but at this moment by the hon. Member for Perth and North Perthshire (Pete Wishart), so let us try the Scottish Government’s own annual accounts in the form of the Government Expenditure and Revenue Scotland report published in March this year. The Scottish Government’s annual accounts show an annual deficit over and above the UK deficit of some £4 billion, and projections are due to worsen with the lower oil price.

[Mr MacNeil]

The hon. Gentleman will be aware that between 2007 and 2009 the UK’s deficit quadrupled. Given the significance that he attaches to deficits and to one year, what significance does he attach to the quadrupling of the debt of a state in a two-year period?

[Ian Murray]

I am not sure I understand the intervention. We are debating a deficit in Scotland being £7.6 billion over and above any UK deficit, rising to £10 billion by 2020. If we are defending Scottish jobs and livelihoods, that seems not just economically incredible, but economic illiteracy. Hon. Members need not take my word for it. The Scottish Trades Union Congress general secretary, Grahame Smith, commented that the Scottish Government’s own accounts were

“a sobering reminder of some of the risks of full fiscal autonomy”.

That is from the trade unions in Scotland.

The Scottish Government sneaked out their own oil and gas bulletin, their first since May 2014, last week on the last day of the Scottish Parliament. It would be good to look at that alongside the independence White Paper. The bulletin was very much in accord with the Office for Budget Responsibility that was rubbished just a few days before. It showed that North sea oil revenues and projections have fallen drastically in recent times, so let us have a look at those figures. The Scottish Government’s own oil and gas bulletin of June 2015 estimated North sea tax receipts for the period 2016-20 to be £5.8 billion. The same scenario from the same bulletin 13 months earlier estimated the receipts to be well in excess of £26 billion. Even if we compare one year—say, 2016-17—revenues had fallen from a projected £6.9 billion to £1.1 billion, and the lower estimates are as low as £500 million.

These are the Scottish Government’s own figures—all in all, an 85% drop. That tells us two things. First, it blows apart the financial basis for full fiscal autonomy. Secondly, like my new clauses 1 and 21, it calls for a more robust and impartial analysis of the Scottish economy and public finances. That is why we tabled new clauses 1 and 21. New clause 21, alongside new clause 1, would provide for the creation of a Scottish office for budget responsibility to exercise independent and impartial fiscal and budget oversight over Scottish Government devolved competencies.

The Smith commission recommended that

“the Scottish Parliament should seek to expand and strengthen the independent scrutiny of Scotland’s public finances in recognition of the additional variability and uncertainty that further tax and spending devolution will introduce into the budgeting process.”

The new clauses would do just that and take away the politicisation of one of the fundamental underpinnings of the Scottish economy, the financing of Scottish public services and, crucially, though it tends to be forgotten in this debate, the livelihoods of everyone living and working in Scotland.

I would go further and ensure that the Scottish office for budget responsibility assesses and reports on individual party manifestos, so that the public can be confident that what they are being sold is both credible and desirable. This is about simple transparency and accountability. That transparency and accountability, as I have said, has not been forthcoming on the current manifesto commitment on full fiscal autonomy. If we had had a Scottish office for budget responsibility at the last election, it would have reported that FFA would be hugely disadvantageous to Scotland. It would have backed up the IFS analysis that showed that FFA did not work and that Scotland would need a real-terms growth rate of 4.5% per year at least between 2013-14 and 2019-20. The assistant general secretary of the STUC, Mr Stephen Boyd, commented exactly on this and said:

“The implication across the board is that taxes would be cut. There are a number of examples where the Scottish Government would be trading a real and immediate cut in revenue for benefits that may not be great in the long run.”

That shows that it would not be achievable in the figures from the IFS. The IFS’s conclusion is that FFA would incur deep, deep cuts in spending or huge tax rises.

It is easy to talk about figures, percentages and statistics, but this has to be about the everyday lives of ordinary, hard-working Scottish families. Inflicting a policy on Scotland that would leave a deficit larger than the entire education budget, or more than three quarters the size of the NHS budget, will not assist Scotland. We all reject the Conservative Government’s misguided austerity, which we know is ideologically driven, rather than an attempt to balance the country’s finances, but we must also reject any policy that would inflict harsher and deeper austerity in Scotland. [Interruption.] This is not, as some would claim—they are claiming it as I speak—about being anti-Scottish, anti-aspiration or anti-hope for the ingenuity, passion and entrepreneurial spirit of Scotland; it is a sobering response to a key manifesto commitment from the Scottish National party.

SNP Members dismiss the views of the IFS, the OBR and even their own GERS reports, but even Jonathan Portes, the director of the National Institute of Economic and Social Research, has said on FFA:

“If the SNP plan for full fiscal autonomy were to go ahead, then, as a number of commentators have said, that would lead to very, very severe austerity in Scotland.”

That is why Labour is against full fiscal autonomy; that is why we believe in the pooling and sharing of resources across the United Kingdom; and that is why the public voted to remain part of the United Kingdom.