Scotland Bill

Mark Lazarowicz Excerpts

Tuesday 21st June 2011 Commons Chamber

[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the debate, to make strong recommendations to the House about which new clauses should be accepted and which should be withdrawn and so on.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]

As I said, I appreciate that there are strong views on this issue, and that they will be expressed this evening. Little did I know, though, that such strong views would be expressed quite so quickly among hon. Members in such close proximity to each other.

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[Mark Lazarowicz]

I want to be clear about what the hon. Gentleman is saying. He said that if there were to be a devolution of corporation tax and the ability to vary it, an appropriate change would be made to the level of the block grant. Does he mean that if corporation tax were reduced in Scotland by £1 billion, an equivalent £1 billion reduction would take place in the block grant? Is he talking about a like-for-like reduction?

[Stewart Hosie]

It has to be initially to get this kicked in. At that point, the Scottish Government are rightly responsible for their revenue raising and their tax spending within it. That is normal, grown up and quite appropriate.

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[Stewart Hosie]

Not at this point.

New clause 9 would allow for the introduction of an additional devolved tax charged on the profits of companies, and would require such a proposal to be placed before both Houses of Parliament.

[Mark Lazarowicz]

Will the hon. Gentleman give way on that point?

[Stewart Hosie]

No, not on that point.

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[Stewart Hosie]

I am glad that the Minister agrees with my direction of travel. What I am saying is that the Scottish Government would have to take responsibility for the consequences of Scottish Government policy, as is right and proper.

[Mark Lazarowicz]

rose—

[Mr Reid]

rose—

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[Iain Stewart]

The hon. Gentleman anticipates my next point exactly. It is too crude to look at the four constituent nations of the United Kingdom. In Scotland and in England we need to break that down further and look, as he says, at the different needs in the different parts of the kingdom. I will give a constituency example. My constituency, Milton Keynes South, is in the affluent south-east of England, yet I have very deprived wards in my constituency. Taking health spending as an example, what Milton Keynes is allocated as its formula share of health spending in England is capped because there is a transfer to other parts of England. I contend that that is not fair and it disregards some of the areas of need in my constituency, but it illustrates the problem that arises if the formula for analysing spending is too crude.

[Mark Lazarowicz]

As the hon. Gentleman knows, spending per head in London is almost 50% higher than in the south-east region of England. No one disputes that there are parts of London where there is great need, but other parts which do not fall into that category still benefit from Government spending which is 40% higher than in his constituency.

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Instead of giving us an ill-defined list of extra powers, it would be helpful if SNP Members and their colleagues in the Scottish Government could specify how they wish to use their existing powers to increase Scotland’s economic growth and productivity.

[Mark Lazarowicz]

No doubt there is a theoretical argument that cutting corporation tax for smaller or new businesses would encourage them to grow and expand, but can my hon. Friend explain how cutting the corporation tax paid by Royal Bank of Scotland by 50% would encourage it to bring more jobs into the Scottish economy? Would it not just add to its already large profits?

[Ann McKechin]

My hon. Friend raises a good point. The Scottish Government are advocating a cut in taxes for banks but not for small businesses that do not pay corporation tax. Many employers in the private sector who employ many people do not pay corporation tax, but income tax. Substantially reducing corporation tax would lead to a large cut in public expenditure or increase the burden on income tax payers.

The Scottish Government already have a considerable number of economic levers. They have decided to cut funding to many Scottish colleges—for example, James Watt college in Greenock faces a cut of £5 million. They have cut regeneration funds in many of the most deprived areas, including a 71% cut in the Inverclyde regeneration fund. The test that the Scots will apply is not how many powers anybody has vis-à-vis someone else but how they use them for Scotland’s benefit. [Interruption.] SNP Members chunter on, but they do not have any intervention to make because these are decisions that they have made and they do not wish to take responsibility for them.

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[Mr Davidson]

I would like to speak to the amendments but also to refer to some sections of the Scottish Affairs Committee report. Like other hon. Members, I have attended many of these debates and I recognise that this is not the end of the process. We are just mid-way through it.

My first point follows on from my intervention on the Minister about making more information available. It is essential that we try to raise the tone in these debates rather than lower it. Our debates should be based on argument and figures rather than on the yah-boo politics that we see too often in the Chamber between Scottish Members on these issues.

Some Members may remember the “magic bullet” theory. Professors Hughes Hallett and Scott—all three of them—[Laughter]—suggested that simply devolving financial powers to Scotland would result in an automatic boost. That was seen as a panacea and a deal-breaker. Only after a substantial amount of debate did they reach a conclusion. The Select Committee report states:

“when questioned on the relationship between the devolution of fiscal powers and economic growth, Professor Hughes Hallett said that: ‘the empirical evidence is inconclusive on the question of whether it does or doesn’t lead to an increase in the growth rate systematically. Some studies say yes, and some studies say no’… Professor Scott stated clearly, however, that ‘the actual act of giving power does not in itself create a bonus’.”

The exchanges that resulted in that conclusion advanced the debate considerably, and I think that many other matters that we have discussed, such as corporation tax and excise tax, ought to be dealt with in the same degree of detail.

When our Committee produced its report, we said that we were conscious that the misuse of figures resulted in a sense of manufactured grievance which suited some participants in the debate. The way in which to defeat manufactured grievances is to produce accurate figures, and I think that the Government have been slow in producing the full details and slow in producing the facts.

One of the main issues identified by the Committee, which is relevant to some of the new clauses and amendments, is the key principle of transparency. Another is evolution. We need to recognise that the Scotland Bill, and the relationship between Scotland and the rest of the United Kingdom, will constantly evolve. Most people in Scotland believe that an obsession with constitutional detail has diverted attention from real issues on which there is not nearly as much division as many suggest. On a number of issues there is substantial common ground between the nationalists, Labour and the Liberals—the Tories, of course, are beyond the pale—but that is often masked by the obsession with small difference.

At the last moment, points about such matters as excise duty have been produced like rabbits out of a hat. There may not be much division between us in terms of the objectives that we wish to achieve, but there may be much more when it comes to method, and more still when it comes to the interpretation of what are only partial statistics. The Committee stated:

“Progress should not be measured solely by the extent by which powers are sucked into Edinburgh and we will wish to look at how reserved responsibilities can be exercised closer to the people they serve.”

All bar one of its members agreed with the point that I made earlier about Edinburgh being a black hole into which powers are sucked. All who were not nationalists shared that perspective and that of the report. The issue of whether we are philosophically committed to devolution involves decentralisation beyond Edinburgh. Edinburgh is not an end in itself, except for people who happen to live there. The vast majority of people in Scotland want powers to be transferred closer to them, which does not necessarily involve Edinburgh. As people in many parts of Scotland will recognise—

[Mark Lazarowicz]

Will my hon. Friend give way?

[Mr Davidson]

Will my hon. Friend allow me to finish my point, for the avoidance of doubt? Edinburgh as a centre of government is as distant from many people in Scotland as is Westminster—or, indeed, Brussels—as a centre of government. Having said that, I shall happily give way to an Edinburgh Member.

[Mark Lazarowicz]

I am grateful to my hon. Friend for giving way, and I am glad that he made it clear that when he speaks of “Edinburgh” he actually means the Scottish Government and Parliament based in Edinburgh. Perhaps he should use that longer form in future, rather than give the impression that Edinburgh is benefiting from some largesse from the Scottish Government and Parliament, because we certainly are not.

[Mr Davidson]

If my hon. Friend is saying that the sucking of powers into Edinburgh has not benefited Edinburgh, things are even worse than I thought, and I will certainly take that into account in future.

The Committee dealt in detail with corporation tax, and we also welcomed the Scottish Parliament Committee’s points on the subject. Professor Muscatelli summarised the main reason why, on balance, we came down against the devolution of corporation tax, saying:

“tax competition was the main reason why our group recommended that corporation tax should not be devolved.”

He made the point that it was very likely that a reduction in corporation tax in one UK jurisdiction would result in the cannibalisation of tax from other parts of the UK.

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[David Mowat]

I want to make a few points about the excellent speech made by the right hon. Member for Birkenhead (Mr Field) on new clause 8, but before I do so I shall nail a couple of red herrings.

People have talked about priorities. It is absolutely right that the Scottish Government have the ability to set free prescriptions if that is their priority. It is absolutely right that there can be free tuition and almost free social care. Those priorities should be set in Scotland and it is the Scottish Government’s right to do that. The difficulty arises if they have a different baseline of spending. Nothing I have heard this evening convinces me or my constituents that there is no problem in that regard.

In the course of their remarks a number of Members said that we need more facts on these matters. Who can argue with that? Everyone is in favour of facts. In my previous career, however, when I heard people call for facts, it was often a delaying mechanism. There have been many reviews of the block grant formula over the past two or three years, most recently a superb piece of work by the House of Lords Select Committee in 2008, whose recommendation was unequivocal; similarly, Holtham. The Calman commission made the point that it was not a proxy for need. Most persuasively, Lord Barnett is clear that the formula was never intended to be used as it has been over the past 30 years. He, I believe, will table an amendment to that effect when the Bill goes forward.

I am not making the case for Scotland or Northern Ireland having less money or Wales having more. I am making case for the consideration to be based on need, and I will go wherever that takes us. “Based on need” means that we take into account relative population changes. One of the problems with Barnett is that over the past 30 years it has not properly reflected the fact that in both Wales and England population has increased more rapidly than in Scotland. Similarly, a needs-based formula would look at indices such as how many old people there are in a community, how many very young and how many disabled, as well as unemployment levels and indices of poverty. It is not rocket science. I do not mind what the answer is, but I will answer the question: what is likely to be the result of a needs-based formula?

The most coherent piece of work that has been done on this, notwithstanding the book by my hon. Friend the Member for Milton Keynes South (Iain Stewart), was by Professor David Bell of Stirling university. In evidence to the House of Lords Select Committee, his estimate was that the current allocation that Scotland receives is roughly 120% of that which is due in England and it should be closer to 105% or 107%. A difference of that order implies a yearly difference of £4.5 billion or, over the lifetime of this Parliament, a difference of £22 billion. I do not know if that is right, but Professor David Bell did a lot of work on that, as did the Holtham committee and others in respect of the House of Lords Select Committee.

The question might arise why we need to fix the problem now. There are a number of reasons—not just the fact that the Bill would be a convenient place to do it, although that is true, and not just because of the resentment that is felt in England and Wales. The right hon. Member for Birkenhead used an important word—“sourness”, which debases all of us and it is not the right answer to those of us who are Unionists. If we are not careful, we will be building up a bank of sympathy for devolution or separation in England.

The Bill for the first time equates Scottish levels of income tax to the level of the grant. I am concerned that unless we make the necessary reform to the block grant, it will become almost impossible to do in future. If the figure of £4.5 billion put forward by Professor Bell of Stirling university were correct, that would imply that Scottish basic rate of income tax would have to rise by about 11p in the pound to make up for that shortfall. But that is not the reason that we need to act; there is a moral reason.

I meet my constituents, have seminars and talk about the fact that we have lost Building Schools for the Future money in Warrington. We have lost the education maintenance allowance in Warrington and England. We could pay for an awful lot of things with some of the £4.5 billion. Of course, as many have said, there would have to be transitional arrangements, but that is not a reason for not starting. I think that it would be over 10 years or more.

I am genuinely mystified by the stance of Government Front Benchers on the matter. I have read carefully the replies that Ministers have given when asked about this, and they seem to come back to two basic points. The first, which is often made, is that the formula is expedient. It is true that it is easy to do—my understanding is that the whole thing is done by one guy in the Treasury—but that does not seem a great reason to continue with it. The second is that we are too busy fixing the deficit to make the change and that it must wait. As I said in an intervention, I am prepared to accept that reason, but my understanding is that we are on target to fix the structural deficit by 2015, which is before most of the Bill’s financial provisions will take effect, so I see no reason why we do not start to set up the commission that would have to look at a needs-based formula for Wales, England and Scotland. The formula must be fair, transparent and moral.

One final point I wish to make is that I do not support the amendment in so far as it puts a limit of plus or minus 5% on the amount, which I think is wrong. The point is that it should be needs-based. I would be quite happy if a consequence of the needs-based analysis was that Scotland ended up, as I think it would, with more than 105%. I do not support the amendment for the technical reason I have explained, but its basic thrust is right and it is very important that the House addresses this.

[Mark Lazarowicz]

I want to make a few points on the question of whether corporation tax should be devolved to the Scottish Parliament, as the SNP proposes. Given the time, I will make my comments as briefly as possible.

There is a respectable intellectual argument that cutting business taxes has a beneficial effect on some businesses and encouraging growth, but we cannot assume that that will automatically be the case. What is important is the effect that a cut in corporation tax would inevitably have on tax revenues. SNP Members were asked time and again in the debate how they could cut corporation tax while protecting public spending, and time and again they did not answer. If their theories are right, businesses might grow in time, but they cannot claim that there will be immediate growth that will make up for a loss in corporation tax. That is not because there is a lack of entrepreneurial spirit among the Scottish people. We must accept that any taxation policy cannot just be a general theory that applies in any circumstance. We have to look at the actual situation in a particular location and at a particular time.

The fact is that the biggest beneficiaries of a reduction in corporation tax in Scotland would be the big banks and power companies, not small and medium-sized businesses. Why on earth would cutting bank taxation encourage the banks to invest more in the Scottish economy and promote jobs? There are many other ways to encourage business growth in Scotland, and at the moment the Scottish Government have those powers. The Bill will give them more such powers, which is what should be done, rather than cutting corporation tax for beneficiaries, which we cannot assume will benefit the Scottish economy and Scottish business.

Another point is that if the Scottish Government were to go ahead with a corporation tax reduction, as they suggest, how can we assume that there would be no response from the UK Government? If the Scottish Government’s policies were to lead to a substantial transfer of businesses from England to Scotland, there would of course be a response at UK level, and at the end of the day that would lead to an overall driving down of the UK Government’s tax base. That in turn would inevitably lead to cuts in public services and public spending, and the SNP has to recognise that if it is to address the issue seriously.

I am not opposed to looking again at taxation and to considering all options, but I do not want us to go ahead with proposals that could have consequences that we cannot reverse. If the SNP is to pursue that line, it has to give us more information about the consequences of its policies. If it does not do so, it will be rightly criticised for coming forward with ideas that are all talk and no reality.

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[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.