All 1 Debates between Edward Leigh and Stewart Hosie

Mon 29th Jun 2015

Scotland Bill

Debate between Edward Leigh and Stewart Hosie
Monday 29th June 2015

(8 years, 9 months ago)

Commons Chamber
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Edward Leigh Portrait Sir Edward Leigh
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As I explained, my personal view is that we should devolve the whole thing. It makes logical sense. As I said, setting the thresholds is often much the most interesting part of tax policy in modern Parliaments. When our friends the Liberals were in power with us—we remember those happy times—was not their proudest boast that they, as members of the Government, had lifted hundreds of thousands of people out of tax altogether?

There is an interesting argument here. For the record, I am dubious about lifting the threshold. It is expensive, and surely more, not fewer, people should have a stake in the income tax system. But that is my personal view, and I accept that there are countervailing arguments. For instance, lifting the threshold reduces the pressure on tax credits. I recognise that it is an interesting political debate.

Setting rates and bands without being able to set thresholds makes no sense. Of course, raising thresholds and personal allowances is dramatic and expensive, which is presumably why the Scottish Parliament is being denied the power, but leaving aside the need for and desirability of full control, does not full fiscal autonomy lead to full fiscal responsibility? The more autonomy a Parliament is given, the more responsible it becomes. Countries such as Belgium and Spain—not without their own separatist problems—provide exceptionally broad autonomy to their constituent parts.

That is certainly the case in the United States, where the states have full fiscal autonomy, including the power to issue bonds and the like—the whole lot, as far as I know. This country is definitely not the United States, despite the best efforts of Mr Blair, but if there is one aspect of America we should like to emulate, it is its vigorous civic culture. Its states, counties and towns have real power and the capability to respond to people’s needs and democratic desires. Surely we all want Scotland to have that capacity, just as we want the whole UK to have it. The fact that fiddling with thresholds is so expensive makes Governments and Parliaments niggardly about raising them—each £100 is inordinately expensive—but why should the Scottish Parliament be less responsible than the UK Parliament? Can anybody tell me why a responsible Scottish Parliament should not also be niggardly about that power and use it in a very conservative—small c—way?

Of course, full fiscal autonomy requires a set of support mechanisms through a formula-based grant. That should be based on need, not obscure variations on English spending, which is why I am opposed to the Barnett formula and want to replace it with one based on need—but that is a debate for another time. If the UK Parliament issued a sensible grant formula based on the specific needs of the Scottish Parliament, and if that were followed by full freedom for the latter to set personal allowances, bands and rates, I believe the Scottish Parliament would use that power responsibly and carefully. I contend that the more power we give the Scottish Parliament, the less it will be a grievance Parliament and the more the forces of canny, prudent Scottish financial conservatism will be unleashed. Indeed, the best way to encourage the growth of the Conservative party in Scotland is to give the Scottish Parliament more power. At the moment, all the pressure on it is to spend more money and blame the UK Government when we indulge in any austerity programme.

In the current situation, it is perfectly logical for the voters to choose whichever party complains the most and makes the biggest fuss. I do not blame the Scottish people for doing that. The current system leads to that sort of mindset, whereas the UK system leads to an alternative mindset—we want politicians in power who are careful about how they vary thresholds and bands. It is because Treasury Ministers have that power that people are careful about whom they elect, and Conservatives do not do too badly in that UK set-up.

With full home rule and full fiscal autonomy, the voter would be in charge and would choose representatives who would raise and spend money wisely rather than just go cap in hand to Westminster. That is surely what we want to achieve, so what is the objection? If it is said that the Barnett formula makes such natural freedom unobtainable, the solution is not the denial of power or freedom but the end of the formula. If the argument is that the Scottish tax system could undermine full UK fiscal responsibility, I find it unconvincing. For instance, the Scottish Parliament spends £37 billion and raises £30 billion—quite responsible, actually. The UK spends £732 billion and raises £648 billion. [Interruption.] I thought Scottish National party Members would respond in that way, but I could not resist helping them along.

The serious point that I am making is that the Scottish budget is very small compared with the UK budget. If we gave the Scottish Parliament full fiscal responsibility, it is extremely unlikely that it would upset our fiscal responsibility. The Secretary of State may, of course, be able to deal with that point. He has many more expert advisers than I do, and I will listen to the arguments that are made today and wait for his response. Perhaps he will indulge me, if not with a yes to my arguments then at least with a willingness to listen and, in time, to move. If he is not interested, we could return to the matter on Report.

I make my comments in the spirit of trying to be creative and helpful. We can return to these matters, but I hope that the Secretary of State will not just provide a throwaway line from the civil service brief but will try to respond to the arguments that are made. We are trying to create a responsible Parliament; let us give it full fiscal autonomy.

Stewart Hosie Portrait Stewart Hosie (Dundee East) (SNP)
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It is a pleasure to serve under your chairmanship in this Committee, Sir David, and to speak to our new clause 54. I enjoyed much of what the hon. Member for Gainsborough (Sir Edward Leigh) had to say, apart from his description of the “separatist problem”, which we tend to call “national aspiration”—I think I know what he meant. I am conscious of the time, so I shall try to cover the debate as briefly as I can.

Paragraphs 75 to 79 of the Smith agreement covered issues of income tax, and stated that income tax would remain a shared tax and that both the UK and the Scottish Parliaments would share control of it. The agreement said essentially that MPs representing constituencies across the whole of the UK would continue to decide the UK’s budget, including income tax. That certainly makes sense with the very partial devolution suggested by the Bill.

Within that framework, the Scottish Parliament will have the power to set the rates of income tax and the thresholds at which they are paid for non-savings and non-dividend income only. As part of that, there will be no restrictions on the thresholds or rates that the Scottish Parliament can set. All other aspects of income tax will remain reserved, as the hon. Member for Gainsborough said, so that even such things as the definition of income could be changed by a UK Government, making subsequent and consequential serious change to the yield forecast by the Scottish Government. That is one reason why, with the partial devolution, we should all continue to vote on that component of income tax in the Westminster Parliament—and it is an even stronger reason, of course, for the devolution of all income tax.

The Scottish Parliament Information Centre analysis for the Scottish Parliament Devolution (Further Powers) Committee—for the rest of the evening, termed “the devolution committee”—found in its interim report on the draft Scotland Bill that draft clauses 10 to 12, now clauses 12 to 14,

“broadly seek to give effect to the extension of income tax powers recommended by the Smith Commission. These would give the Scottish Parliament the power to set rates and bands in relation to non-savings and non-dividend income…above the UK personal allowance.”

Clause 14 also deals with the interaction between income tax and capital gains tax. Currently, individuals who pay income tax at the higher rate also pay CGT at the higher rate. The clause sets out that the rate of CGT that applies to Scottish income tax payers will continue to be calculated using the UK income tax rate limits. That would create an imbalance should there be a change or proposed change for Scotland and people choose to do something in a different way.

There were, however, no draft clauses in relation to the corresponding adjustment in the block grant or the Scottish Government’s reimbursing the UK Government for costs arising from implementation or administration of the powers. Can the Secretary of State confirm that these recommendations do not require legislation?

The Scottish Parliament’s devolution committee interim report said in its conclusion about income tax powers that

“the essence of the Smith Commission’s recommendations has been translated appropriately by the previous UK Government into the draft legislative clauses”,

and that it had “no particular concerns” with “the drafting”. However, it highlighted the

“significant issues still to be resolved regarding the implementation of the new powers, such as an appropriate definition of residency…the details of the administration of the new regime (who collects the tax and how it will function…the need to avoid double taxation and the timing and phasing of the new powers on income tax relative to those already devolved under the Scotland Act 2012”.

Those are all matters that I am sure the Scottish Secretary will address. At paragraph 166, the devolution committee also recommended that

“details on the implementation of the new powers over income tax be produced before the Scottish Parliament is expected to give its legislative consent”.

That is extremely important. It concluded, too, that

“any final detail of the fiscal framework and the other matters we have considered is provided to the Scottish Parliament before the question of legislative consent to any new bill is considered”.

That is a view endorsed by the Scottish Government, and I understand that discussions on these issues are ongoing with the UK Government, in parallel with the passage of the legislation.

It is normal practice for the Scottish Parliament to consider legislative consent before the final stage of a Bill in the Commons; with the Report stage likely in the autumn, usual practice would suggest September. However, the devolution committee suggested 2016 as a more likely date, so when does the Secretary of State believe the Bill will reach Report?

Because of the lack of information on the various technical aspects of the delivery of the tax powers, beyond the wording of the Bill, the committee said:

“As yet, we are not able to conclude that we are content with the fiscal framework and no detriment arrangements as these details are currently being discussed between the two governments.”

Will the Secretary of State confirm that discussions are under way and update us on progress, particularly in respect of the no detriment and no advantage clauses—principles agreed by Smith before the committee reported?

The devolution committee also said:

“both the process of these negotiations and the outcome requires proper parliamentary scrutiny. We recommend both Governments reach an urgent agreement on just how this will be achieved and for the Scottish Government to report to the Committee on what arrangements it proposes to put in place for parliamentary oversight.”

Will the Secretary of State describe what actions his Government are taking in respect of parliamentary oversight, particularly if we do not—as may well be the case—get through the debate on all the clauses and groups of amendments tabled for debate today?

In their response to the devolution committee’s interim report, the Scottish Government made it clear that they were

“broadly content with the clauses in the Scotland Bill relating to taxation”.

It added, however:

“as the Committee recognised, there will need to be extensive discussions between the Scottish and UK Governments over the plans for implementing these provisions.”

I note at this point that there were changes between the draft clauses and the Scotland Bill. In paragraph 165 of the interim report, the devolution committee highlighted one area that required specific clarification, so I ask the Secretary of State to confirm—I am sure he will—whether clause 12(5) of the published Bill now contains a change to specify that a zero rate of income tax is possible?

It is also worth saying a little about the nature of the taxation powers, which has been touched on. They are very limited. Even if we include the VAT assignation, the Scottish Parliament would raise the equivalent of around 50% of devolved expenditure. However, excluding the VAT assignation, the figure falls to barely a third. That is important because many of the submissions to the devolution committee called for more. In its written evidence, the Scottish Trades Union Congress called in its recommendation 2.1 for the

“devolution and assignment of taxation amounting to…two thirds of Scottish public spending (over 50% of all spending in Scotland)”.

The Bill clearly does not reach that standard.

--- Later in debate ---
Stewart Hosie Portrait Stewart Hosie
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I shall give way once, yes.

Edward Leigh Portrait Sir Edward Leigh
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That is a very important point. We always moan about tax avoidance. I have been talking to people in Scotland, and it appears now that wealthy people will be putting more and more money into dividends precisely to avoid tax. I cannot understand the logic of encouraging people to avoid paying tax by putting their money in dividends.

Stewart Hosie Portrait Stewart Hosie
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I agree entirely. None of us should be encouraging tax avoidance or evasion—not least a Tory Government, which is why I am sure the Secretary of State will want to support the full devolution of tax on earned and unearned income. It is a jolly good idea.

However, whether the devolution of income tax is extended or not, issues of implementation must be fully resolved. I ask the Secretary of State to confirm that, as part of the fiscal framework discussions, the following issues are now being fully addressed: the timing of the implementation of the Smith provisions; the length of the transition period and how it relates to the transition period for the Scottish rate of income tax; how the costs of implementation will be met; whether there will be an agreement to revisit the memorandum of understanding between the Scottish Government and HMRC for the Scottish rate of income tax, to ensure that it remains fit for purpose; the enforcement and compliance regime under the Smith income tax proposals; how gift aid and pensions relief will be treated under Smith; how the block grant adjustment will work, although that is much broader than simply income tax; the forecasting of revenues, the interaction between the Office for Budget Responsibility and the Scottish Fiscal Commission and the detail of how we calculate the transfer of revenue; and the continued role of the National Audit Office in working in partnership with Audit Scotland.

The key issue is the forecasting that will drive the revenues that the Scottish Government will get and the block grant adjustment. There has to be a fair balance between the role and input of the OBR and the Scottish Fiscal Commission, particularly given that the OBR uses Treasury numbers to drive its calculations.

As I said at the outset, I am conscious of time; we have many groups of amendments to get through and others will want to speak. I hope that the Secretary of State can answer those important detailed questions on the proposed devolution. I commend amendment 54 to the Committee.

Ian Murray Portrait Ian Murray (Edinburgh South) (Lab)
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I was not able to make it to the House earlier, Sir David; I would like to express my sympathies to everyone involved in the tragic events in Tunisia. Our thoughts are with the families all across the United Kingdom, but especially the people in Scotland who have been caught up.

I want to speak to new clause 32. Part 2 of the Bill devolves significant new powers to Scotland over income tax and other taxes, and it is a real opportunity to provide the powerhouse Parliament promised by the Smith agreement. Clauses 12, 13 and 14 make provision for transfer to the Scottish Parliament of the power to set rates and bands of income tax, including, as the hon. Member for Gainsborough (Sir Edward Leigh) was pushing for, the ability to set a zero rate. The full impact of that and other tax measures should not be downplayed.

Lord Smith himself outlined that the measures proposed in the agreement would create one of the most powerful devolved Parliaments in the world. When taking taxation and spending clauses together, Scotland would be only slightly behind the Canadian provinces and Swiss cantons. Likewise, according to the OECD, in exercising power over setting both the rates and bases of income tax, Scotland would rank above sub-central legislatures in Sweden, Norway, Finland, the US and even Germany.

The economic evidence suggests that fiscal devolution can work. It is our responsibility, and that of the Scottish Government, to make sure that it does—that is the genesis of our new clause 32. However, these are hugely complicated processes; anyone who has tried to read the fiscal framework analysis in the Smith agreement will know that. I note that the Scottish National party and its new friend, the hon. Member for Gainsborough, have tabled new clauses that would seek to devolve income tax in its entirety.

I should say at the start that those are perfectly legitimate arguments that have been debated at great length at both the Calman and Smith commissions. Labour disagrees, because we believe fundamentally in the pooling and sharing of resources across the United Kingdom; that is not a criticism of the SNP position, but merely a disagreement on a fundamental broad principle. We have rightly and repeatedly criticised the Smith agreement and the Bill on a number of occasions, particularly on Second Reading and in last Monday’s debate, but I agree with the hon. Member for Dundee East (Stewart Hosie): in this instance at least, the Bill and the Smith agreement have got it right. That is probably why there are so few substantive amendments to the income tax clauses. The Chartered Institute of Taxation has echoed that by saying that the commission has made a

“pragmatic set of proposals which shows a lot of thought has been given to balancing the desire of Scots for greater tax powers against the practical obstacles to devolution”.

It is worth reflecting on the Scottish Parliament’s current position on income tax. Since 1999, Scotland has been able to vary the rate of income tax by 3p in the pound. Despite the current clamour for more powers, that power has never been used—incidentally, I believe that it has now lapsed, which shows the problems with the fiscal framework. Notwithstanding that, under the Scotland Act 2012, and as a result of the Calman commission, the Scottish Parliament has been afforded control over the first 10p of the basic rate of tax. Obviously, the Smith agreement and the Bill go much further.

The Scottish Parliament will have total control over income tax rates and thresholds and complete freedom over the levels at which those rates and thresholds are set. That is significant as the estimated devolved income tax liabilities on income tax in 2013-14 amounted to almost £11 billion. That is a considerable sum, the collection and deployment of which confers a substantial degree of responsibility on the Scottish Parliament. If they wish, the Scottish Government—of any colour—can increase or decrease that liability.