My Lords, before continuing the Committee stage of the Bill, I should like to ask my noble and learned friend for some information about the progress that has been made on securing the legislative consent of the Scottish Parliament.
I should also like once again to complain about the fact that this Scotland Bill is being considered on a Thursday, when Members of this House who live in Scotland generally travel north. This matter has been raised previously. When I have raised it with my colleagues, I have been told that the Opposition have requested it. It is deeply inconvenient. I know that a number of colleagues have been unable to participate as a result.
I should also like to complain also about the time which has been made available for consideration of the amendments. All the amendments that I have tabled, and I have quite a number, relate to matters which were not considered in the House of Commons. All of them raise relatively serious points. I read on the groupings list that we will sit until the business is completed. I have plenty of stamina, but I would suggest that debating these matters relating to Scotland-we will of course try to expedite them-late on a Thursday evening is very unsatisfactory, especially when we are talking about an important constitutional Bill many of whose issues were not addressed in the other place where the Bill was subject to the usual guillotine procedure.
I return to the main point on which I feel the Committee should be advised, which is where we have got to on the question of the legislative consent Motion from the Scottish Parliament. This is important. Throughout the proceedings in relation to the introduction of new taxes in Scotland, my honourable friend David Gauke, the Treasury Minister, rested on the fact that a legislative consent Motion for the Bill had been passed by the Scottish Parliament, saying that,
"any future devolution must happen with the wholehearted consent of the Scottish Parliament".-[Hansard, Commons, 14/3/11; col. 70.]
All the consideration of the Bill by the other place was on the basis that it had the support of the Scottish Parliament, but that is no longer the case.
There was a legislative consent Motion passed by the Scottish Parliament in March 2001. That is the legislative consent Motion which was noted on the Bill's formal entry to this House. Indeed, the Explanatory Notes to the Bill state at paragraph 8:
"A further Legislative Consent Motion on additional amendments will be debated later in the legislative process".
That referred to amendments to the Bill after consent by the Scottish Parliament. Since then, there has been an election in Scotland and there is a new Administration led by Mr Salmond. The committee of the Scottish Parliament, meeting on
I think I am entitled to ask my noble and learned friend what is going on here. The other place considers the Bill on the basis of a legislative consent Motion which no longer applies, with a Minister saying that we could not do this without the consent of the Scottish Parliament; at an earlier stage of the Bill, we were assured that negotiations were continuing with the Scottish Parliament and that Ministers had every confidence that they would have legislative consent; and now, today, we are about to embark on considering bringing in revolutionary tax powers for the Scottish Parliament and we still do not know whether we have a legislative consent Motion. What is the status of this and what is the Government's position? Is the Government's position as David Gauke told the other place, that any future devolution must happen with the wholehearted consent of the Scottish Parliament, and why are we taking so much time, with the House apparently being prepared to sit until the early hours of the morning if necessary, to deal with a Bill which may not meet the requirements of Alex Salmond and the Scottish Parliament?
Perhaps I may interrupt the noble Lord. We are speaking on a Motion to go into Committee. Unless the noble Lord has a very different point to make from that of my noble friend, who put it very well, why do we not allow the Minister to respond to that, and then put the Question, go into Committee and deal with the amendments in the normal way? I got the impression from the noble Lord's first sentence that he was not making a new point but simply supporting my noble friend.
If the noble Lord waited a little longer, he might find out exactly what I was going to say. It is always a good idea to sit and listen, rather than anticipate what someone is going to say and jump up. I used to represent the Leader of the House. I looked after his interests. I made sure that, as a resident of Mauchline, he was well looked after. I hope that he will give me some respect for having looked after his interests for 26 years, a not inconsiderable period of time, and allow me to speak.
I want to add to what the noble Lord, Lord Forsyth, has said. I agree with him in relation to sitting on a Thursday, which is another mischief that seems to have been done. I also want to raise something which the noble Lord, Lord Forsyth, did not raise; that is, the lack of time between Committee stage and Report stage. We have only one weekend between the two. How are we going to be able properly to formulate amendments between Committee stage and Report stage? I am also concerned about the fact that the second day of the Report stage is
The most serious issue concerns the sequence of events for dealing with this legislation as between here and the Scottish Parliament. We are rushing it through and dealing with it quickly in Committee-we shall deal with it even more speedily on Report-and yet the Scotland Bill Committee reported on
I hope the Leader of the House will give the House a little more information and allow it an opportunity and a little more time to discuss matters instead of things being done by a little clique behind the scenes.
The noble Lord, Lord Forsyth, has raised the issue of the legislative consent Motion and my noble friend Lord Foulkes has raised the issue of the timetable. We have also had within the process a consultation which concluded at the end of last week. At Second Reading we were told that one of the reasons for the truncated consultation process was to allow amendments to be brought forward at Report stage. However, there is a very short period of time between the Committee stage and the Report stage. I echo the points made by the noble Lord, Lord Forsyth, and my noble friend Lord Foulkes about this debate taking place on a Thursday and the final day of the Report stage taking place on the Wednesday before the Easter Recess
The whole process is in a muddle, and that is not the way to deal with a serious constitutional issue. I have the greatest respect for the noble and learned Lord, Lord Wallace of Tankerness, and I know that he would wish to be as straightforward with the House as he can be. I hope, too, that the Leader of the House, as the leader of the whole House, will not see this as some source of mischief but as an attempt to get to the bottom of what is happening.
My Lords, it is with some reluctance that I rise to speak but I think that my contribution will substantially meet the criteria that the Leader of the House has laid down for this debate.
I addressed the House at some length on the first day in Committee setting out the reasons why I thought it was important that we should conclude our scrutiny of the Bill and present it back to the other place ready to become legislation. That was on
First, I rebut the suggestion that we are meeting on this Thursday to discuss this part of the Bill at the request of this part of the Opposition. I cannot speak for all of the Opposition, of course, but I have been privy to many conversations, getting uncomfortably close to the usual channels in your Lordships' House, and never at any time in these discussions did I ask, or was I party to a request from the Opposition, that we should meet on a Thursday.
Noble Lords ought to remind themselves of the somewhat chequered history of the management of the Committee stage in this House. It was the great plan that this day would be devoted to a debate about referendums. It was broadly agreed because the consultation would be over and it was expected that the Government would be able to come to the Dispatch Box and indicate what their response to the consultation would be. There was a degree of consensus that went beyond the Front Benches that it was appropriate to handle the matter in that fashion. However, as has consistently happened with the Committee days of the Bill, we have been subject to other items of business being imposed on them. We have just had the same thing today. In fact, we lost a whole Committee day for this Bill because it was seized from us for ping pong on the Welfare Reform Bill. I was assured that that would take only a couple of hours-at the time I laughed uproariously at that idea-but it took all day and we lost a whole day in Committee.
There was an attempt, to which I was a party, by those who want to see this matter proceed appropriately to manage the business in such a way that we would conclude it within the appropriate time. However, there was no agreement that we would sit on Thursdays. A lot of what has happened has been imposed on me and other Members of the House by the circumstances of the business of the House. I understand that it has to be managed and I do not want to be part of that process, but any suggestion that the Opposition requested Thursdays is not correct to my knowledge.
I shall savour that apology. I am grateful to the noble Lord for his gracious apology. I shall bank it away because we may get to a point during the course of today when I will need it in order to bargain for others.
I am as interested as any Member of the House in where the discussions between the Government and the Scottish Government are in relation to the legislative consent Motion. However, I have been consistently of the opinion that the Scottish Parliament will pass a legislative consent Motion in relation to this Bill. I am also consistently of the view that we have promised the Scottish people that we will deliver the Bill in such a way that it can be enacted by a legislative consent Motion effectively and that we should keep our word to the Scottish people and to the Scottish political classes.
My Lords, picking up on the final point made by the noble Lord, Lord Browne, there was a commitment in the manifestos of all three parties-the Conservative Party, the Labour Party and the Liberal Democrats-at the last general election that we would seek to implement the Calman commission proposals, which this Bill substantially seeks to do.
On the issue of sitting days, I readily recognise the concerns. Indeed, I was told that the House would sit to debate the Scotland Bill on a Thursday and I have turned up today with my noble friend Lord Sassoon to respond to the amendments. The noble Lord, Lord Browne, indicated some of the issues that we have had to address. There was one day-
On the point made by the noble Baroness, Lady Liddell, it was not on Second Reading but when we moved into Committee in January that the Government announced, as a result of representations they had received, quite properly, from my noble friend Lord Forsyth, that there would be a consultation. There were amendments on the Marshalled List to the effect that we would not deal with referendums until after the consultation period had closed. I indicated at the time that we would hope to deal with them in the week beginning
It is perfectly reasonable for my noble friend to ask where we have got to with the legislative consent Motion. A Motion was passed in the Scottish Parliament in March last year, which I suspect is the one that our honourable friend Mr Gauke was talking about. I have no doubt that the noble Lord, Lord Foulkes, voted for it, as he was still a Member of the Scottish Parliament at the time. It is also worth pointing out that on the final vote, Mr Alex Salmond voted for it, too, as did many people who are currently members of the Scottish Government. That legislative consent Motion stands until any subsequent Motion is tabled that updates it.
The Government intend to secure a legislative consent Motion from the Scottish Parliament in favour of the Bill-
My noble and learned friend says that the legislative consent Motion stands. However, will he deal with the view of the Committee-which is the latest consideration by the new Parliament, where there is now an SNP majority rather than a minority-that it was unable to recommend that the Parliament pass a further legislative consent Motion on the Bill until it had been amended in line with the Committee's recommendations? As we discussed before, there are 45 recommendations, which effectively deliver devo-max.
That is perfectly fair and I will come on to address that. I was simply making the observation that there is, currently, an outstanding legislative consent Motion, which was actually supported by many members of the current Scottish Government. It is certainly our intention that we should have a legislative consent Motion from the Scottish Parliament in favour of the Scotland Bill, and I and my ministerial colleagues have been working very hard to secure the support of the Scottish Parliament for such a Motion. I am sure the Scottish Government would acknowledge the same.
We have been working together to consider and to assess the request for amendments to the Bill. It would be wrong to speculate on the outcome of the work being undertaken with the Scottish Government, but the key point is that I can assure the House that we are working hard to ensure that the Scottish Parliament will vote in favour of a legislative consent Motion for the Bill. It would not be appropriate to get ahead of discussions between Ministers-as noble Lords have highlighted, it is for the Scottish Government to propose a legislative consent Motion and we must allow the interministerial discussions to continue and not get ahead of them. However, I know that my right honourable friend the Secretary of State had conversations yesterday with the Scottish Government. Indeed, before coming to your Lordships' House today, I was engaged in discussions about moving forward, to get into a position where we can get an agreement.
The Sewel convention is about respecting the devolved areas for which the Scottish Parliament is accountable. It provides that the United Kingdom Parliament will not normally legislate on devolved matters without the Scottish Parliament's consent. I believe we have gone further than with any other Bill in considering and taking on board the view of the Scottish Government and Parliament, and we will continue to work to reach agreement. The Secretary of State has made clear, in letters, phone calls and meetings with Scottish Government Ministers, that we will properly consider all their requests for changes to the Bill. I understand and readily recognise that noble Lords are keen to hear the outcome of the discussions with the Government, but I urge noble Lords to continue with their thorough scrutiny of the Bill, alongside our work to agree a legislative consent Motion. I hope that by the time we come to Report, it will have been possible to update your Lordships on the intergovernmental discussion.
It would be helpful to be updated at that stage and to set a target, in our plan, for an update to take place on the ministerial discussions. Given the upcoming recesses and the fact that the Bill will have to have Royal Assent before the final Dissolution of Parliament ahead of the Queen's Speech, we do not have much time. It is important to plan the sequence of events. Can the Minister indicate what his target date is for the legislative consent Motion to go to the Scottish Parliament? Is it between Report and Third Reading, which would seem to be the logical time?
I agree with much of what the noble Lord says. He is right to point out that prorogation is sooner rather than later and that it is necessary to get Royal Assent before that. As has been acknowledged, it is not for United Kingdom government Ministers to table the legislative consent Motion, but the Scottish Government are well aware of the proposed timings and of the stages when any amendments would have to be laid so that your Lordships' House would have adequate opportunity to discuss them.
Before I gave way to the noble Lord, I was about to indicate that I hoped it would be possible to update your Lordships before Report on intergovernmental discussions. It would not be helpful-and no doubt many of your Lordships present have engaged in such negotiations-for negotiations to take place by telegraphing from one parliamentary Chamber to another. That would be counterproductive. However, I reassure your Lordships that serious efforts are being made to reach agreement. Given the point made by my noble friend Lord Forsyth about the important issues we have to debate today, I hope we can agree to move into Committee so that we can get on and debate them.
Perhaps I may ask about a matter of significance to this Parliament. Will the Minister clarify whether there will be just five or six days between Committee and Report on the Bill? The noble Lord, Lord Strathclyde, is in his place, and he will know that the Leader's report, which he commissioned, recommended very strongly that the minimum intervals between stages of Bills should be respected. As the House will remember, they were abused at the time of the Parliamentary Voting System and Constituencies Bill, and I would be troubled-as the House should be-if they are being abused again now.
My Lords, I hope that I can reassure the noble Lord, Lord Grocott, that this is not an abuse. The matter was agreed because we were meeting a legitimate concern and expectation, expressed by a number of your Lordships across the House, that we should defer some sittings of the Committee until such time as the United Kingdom Government's consultation had concluded. That was welcomed at the time; and because of that, the timescales inevitably had to be short.
There was an expectation across the Floor of the House that we should defer Committee discussion until the end of the consultation. It was agreed between the usual channels that if we did that, it would necessitate a shortened period between Committee and Report-if only for the obvious reason of being able to get to Royal Assent, as the noble Lord pointed out.
My Lords, I very respectfully remind my noble and learned friend that the Bill is before Parliament. In his remarks about legislative consent, he indicated that the Government might have to bring forward some amendments as a result of the negotiations that are being carried out by Ministers. Ministers cannot just presume the consent of Parliament. It strikes me as extremely odd that we should be half way through the Committee stage on a Bill that was introduced more than a year ago, and these negotiations are still continuing. I do not know if my noble friend is a fisherman. I am. If you want to land a salmon, you play it for a long time. In this case, the Salmond seems to be playing the Minister. He is deciding the timetable and what amendments may be put before us. We are being told that we can only consider them at the last minute, against a deadline. This is a ridiculous position for us to be in.
I have two specific questions for the Minister. Is he saying that, in the absence of a legislative consent Motion, the Bill will not go ahead? Or is he saying that he is in negotiation and will bring forward reasonable amendments, but that the Bill will go ahead? That is the crucial thing that he needs to tell the House now.
My Lords, there are a number of possible options if the legislative consent Motion is not forthcoming, but every effort is being made to achieve it. Obviously, my noble friend is absolutely right that anything in any amendment that is brought forward will be subject to Parliament. As we well know, it is quite proper and consistent with our procedures for your Lordships to vote on anything they wish to. It will be for Parliament to decide the final shape of the Bill.
My noble and learned friend said that Parliament will decide the final shape of the Bill, but there is a thing called a timetable. We know that the House will get up for the Queen's Speech. We are against a time constraint, and if negotiations are continuing as the Bill proceeds, the opportunity for the House to do that will be limited. When my noble and learned friend says that a number of options are open to the Government in the absence of a legislative consent Motion, could he share them with the House? We are entitled to know whether the Bill that we are discussing will go ahead if we do not have a legislative consent Motion. That is a perfectly reasonable question, and the Minister cannot respond by saying that there are a number of options. There is only one option-yes or no.
That is two options, for a start, and a third option could be to pass it and park it. We are seeking to reach agreement, and my noble friend has repeated the truism that it will be for Parliament to determine the final shape of the Bill. If Parliament does not wish to agree, that may determine the reaction of the Scottish Parliament to a legislative consent Motion. But I emphasise that, as things stand, much effort is being made and considerable progress is also being made with regard to achieving a satisfactory outcome. As I said to the noble Lord, Lord Foulkes, we hope that we will be able to update your Lordships before the House considers the Bill on Report.
I apologise to my noble and learned friend for not being here when the debate started, but I was in a committee upstairs and may therefore have missed this point. If there are amendments as a result of further negotiations, will the House go back into Committee so that we can speak more than once on them?
The convention and the devolution guidance notes that update it state that we seek a legislative consent Motion before the last opportunity for amending. In your Lordships' House, that would be Third Reading. Therefore, it was always anticipated that it would not be necessary to go back into Committee. I hope that after discussing the important point made by my noble friend Lord Forsyth we can go ahead and debate the important issues around the financial provisions in the Bill.
Clause 30 : Scottish rate of income tax
Moved by Lord Forsyth of Drumlean
53: Clause 30, page 23, line 6, at end insert-
"(9) This section is subject to section (Referendum about Scottish rate of income tax)."
My Lords, this is an important amendment, which provides for a referendum, if the sections of the Bill that introduce for the first time a Scottish income tax are enacted by the Scottish Parliament in such a way that Scottish taxpayers end up paying a higher rate of income tax than people in the rest of the United Kingdom.
I should point out that the order of consideration of amendments that has been circulated to the Members of the House is not actually the order that I have in front of me now. I do not know whether it is possible for further documentation to be provided so that we are all on the same page, as my amendments are now grouped with those from the noble Lord, Lord Foulkes.
The original provisions in the Scotland Act, which provided for a Scottish variable rate of income tax, gave the Scottish Parliament the power to raise income tax by 3p in the £1 on the basic rate alone. It did not apply to either of the other rates of income tax and was limited to 3p. As Secretary of State I well remember campaigning long and hard on the tartan tax, which is a much better name than the Scottish variable rate. The Bill seeks to abolish the 3p variable rate, although it was something that the Scottish Parliament voted for in a referendum. It was something that people campaigned for and against; it was subject to argument.
It seems extraordinary to get rid of something done by referendum without having a referendum to endorse that. I am no fan of the Scottish variable rate; I thought that having the power to set a higher rate of income tax in Scotland would result in great disadvantage to Scotland if it was ever used-and I am delighted to say that it never was used. Many people enjoy jobs and prosperity they would not otherwise have enjoyed had those powers been used, so I welcome the fact that the Bill abolishes the tartan tax and gets rid of the variable rate. This is great progress, but unfortunately it goes on to create a new power for the Scottish Parliament not just to set the basic rate of tax within a limit of 3p but to set any rate of tax that it chooses that will affect the basic and higher rates of income tax. That is a huge change, way beyond anything that was set out in the Scotland Act and way beyond what was put to the Scottish people in a referendum.
The amendment would give the Scottish people the right to decide whether these sweeping powers, which will inevitably make Scotland the highest-taxed part of the United Kingdom, are appropriate and desirable. In our consideration of the Bill at earlier stages, it has become apparent that in respect of many of the tax powers there is perhaps not widespread knowledge of this in this House or the other place. The extent to which people in Scotland are aware of the potential impact of the power is limited. I cite as no other evidence the recent discussions in Scotland about more powers for the Scottish Parliament, which clearly show that many people advocating those powers do not realise that they are already in the Bill and, in some respects, beyond what they desire.
It is important, too, that this provision should be subject to a referendum not just on the principle that the previous Labour Administration who took office in 1997 thought it appropriate to have a referendum but because so many of the details about the operation and implementation of the tax, and its extent and the scope, are not actually provided in the Bill. For example, as the Bill stands, people with income from savings or dividends will not pay the Scottish income tax, but people with income from pensions will. Why is that? How is that going to distort the relative desirability of pension and savings investments of a more conventional kind? The Bill does not give the Scottish Parliament the ability to change the thresholds for income tax purposes or the ability to increase the rates by differential amounts, so it would be impossible for the Scottish Parliament to set a higher rate of tax while keeping the basic rate at the same level. Why is that? Should those matters not be subject to debate and consideration?
The effect of implementing this power in the Bill would be that any higher income tax in Scotland would be a disproportionately heavy burden on the lowest paid compared with the highest paid, which strikes me as a rather extraordinary thing to do. Of course, in the nature of the Bill the amount of grant that is being reduced is the equivalent to 10p on income tax, which is a curious position. Why not have all the revenue from the income tax? Why have the 10p? These matters are being debated in Scotland now.
I hesitate to mention the late lamented poll tax, or community charge, but one of the problems with the poll tax was that it raised a relatively small part of local government revenue. The same was true of the rates, and therefore in order to make an increase in expenditure that fell for its burden upon the poll tax or the rates, you required a disproportionately large increase in the amount. One of the issues here is how this income tax power would operate. The Minister gave figures earlier in our deliberations and, as I understand them, 1p on income tax would raise £420 million. That is a relatively small sum when one thinks that the Scottish Parliament is having to reduce its funding by £3 billion to meet the deficit reduction requirements. Allowing for a reduction in yield, that is the equivalent of allowing for 8p on the basic rate of income tax. On my calculations, that is a 40 per cent increase, whereas 8p on the 50p rate of income tax would be a very much smaller percentage increase.
A number of issues about the operation of this income tax, both in its scope and in the limitations on the powers of the Scottish Parliament, have not been debated or considered at all in Scotland but ought to be, and almost certainly would be debated or considered if there was a requirement to have a referendum before these powers could be implemented. The most important thing about taxation-the very nature of the other place-is in ensuring that taxes are not levied without consent, and that those raising the taxes are subject to the accountability of the people. This is a huge change. It is not one that I welcome but I acknowledge that I am in a minority, in this House and in the other place, in forming that view.
The people of Scotland should have an opportunity to have an explanation of what is being suggested, and the chance to give their verdict on it. This amendment attempts to do that, and in doing so it merely reflects the view of all parties when they campaigned for devolution in the first place, which was that there should be a referendum on the tax-raising powers.
I wonder whether everyone in the House is absolutely clear, because I am slightly confused about it, that we have now degrouped from my amendments the amendments tabled by the noble Lord, Lord Forsyth, on the referendum on taxation powers, so we are just dealing with Amendments 53, 55, 56 and 57.
It is certainly my understanding, and I think it is the understanding of my noble friend, that the amendments tabled by the noble Lord, Lord Foulkes, Amendments 66 to 69 and Amendments 75, 76, 84 and 86, are now grouped with the amendments to which my noble friend has just spoken. We are at the moment trying to get a fresh piece of paper that sets them out. It is my understanding that they are on much the same subject.
We are very confused, because I got a draft that said that, but the paper from the government Whips' Office with today's lists for your Lordships' House lists the Questions that were tabled, my noble friend Lord Barnett's Motion and, as the main business, this Bill and the target for today. It then has the grouping for amendments. Everyone picked this up on the way in, and I have assumed that that is the basis on which we are debating.
I have the same problem. I have a revised list that I got from the Whips' Office and it would be really helpful if the revised groupings could be made available. It is of course not for me to give the noble Lord advice. He can insist on degrouping his amendments, but as they are about referenda it would make sense for them to be grouped together.
I specifically asked in an e-mail, which got a response from the clerks' office, for my amendments to be degrouped from those tabled by the noble Lord, Lord Forsyth. It is not that I want to be disassociated from him completely, but because while I have tabled the appropriate amendments to allow a referendum, the basis on which I will argue for that-and I hope to argue for it later, which is why I wanted to clarify this now-is entirely different from the basis on which the noble Lord, Lord Forsyth, is arguing for it. I actually want the Scottish Parliament to be given full fiscal responsibility and to have all these additional taxation powers, but only if they are approved by the Scottish people in a referendum. That is an entirely different basis of argument, and why I wanted it separated. Can I assume from the list that I have that we are dealing just with Amendments 53, 55, 56 and 57 now, and that my Amendments 66 to 69 will be dealt with after Amendment 65, tabled by my noble friend Lord Barnett? Is that agreed?
My Lords, I was delighted to see my noble friend Lord Attlee here, because I was about to follow some of his grandfather's advice: that a period of silence from me had been welcome until now. Today, however, I shall break my duck regarding income, in strong support of my noble friend Lord Forsyth. This is a preliminary strike about dividend income and pensions income.
I am sure that my noble and learned friend will be able to give advice at an early stage, but on page 25 of the Bill we come to Clause 31, headed, "Income tax for Scottish taxpayers". At lines 34 and 35 in Clause 31(3), new subsection (3C) refers to Section 16, which I presume to be that of the Income Tax Act 2007. It says that it,
"has effect for determining which part of a Scottish taxpayer's income consists of savings income".
As a non-practising member of the Institute of Chartered Accountants of Scotland, but very much as a consumer who takes advice, I seem to recall that until 10 years ago one's income tax was classified as earned and unearned income. Indeed, my colleagues with whom I worked then have confirmed that. However, we now have this completely different concept of savings income, earned income and other income being applied to Scottish taxpayers. It would be different from any other United Kingdom definition of what savings income or other income will be. Perhaps my noble and learned friend will be able to take note of that and cover it at some stage. However, I support most strongly what my noble friend Lord Forsyth has said at this stage. I am happy to let your Lordships know that this will be the first of one or two efforts from the mouse that roared, as I call myself-that is, the accountant in the backwoods of Angus.
My Lords, my noble friend Lord Forsyth is suggesting that we need another referendum on the use of tax powers. It is my memory that, 12 years ago, the second question in the referendum was along the lines of, "This Parliament should/should not have tax-varying powers". Do tax-varying powers not strike a lot wider than the Scottish variable rate, which was enacted? Consent has already been given for any form of variation in existing taxes.
My Lords, I refer to the earlier discussion about groupings. Do I take it that the authoritative groupings list that we are working to is the one that is still being distributed by the Printed Paper Office?
I hope I can be helpful. My understanding is that my noble friend Lord Forsyth has spoken to a grouping of Amendments 53, 55, 56 and 57. He indicates that that is right. If there is some confusion it is because it was thought that the amendments in the name of the noble Lord, Lord Foulkes, which start with Amendment 66, had been regrouped. However, he indicated that that was not the case and that he will speak to them when we come to them. Therefore, the groupings of the amendments on referendums that we have here are definitive.
My Lords, I thank the noble Lord, Lord Forsyth, for his amendments and for opening this debate. I also thank him for the opportunity to make a speech that will, I hope, over the hours that we will spend on debating these and related issues, be considered to be multipurpose.
I had expected-and anticipated in preparing my speaking notes-the amendments of my noble friend Lord Foulkes to have been regrouped, for maybe the second time, with those of the noble Lord, Lord Forsyth. Therefore, I wrote a note to myself to apologise to both noble Lords for giving a generic response, rather than addressing all the subtleties of the individual effects of their amendments. I do so because this is, ultimately, an issue of principle. I do not devalue all the detailed points that underpin the argument that the noble Lord, Lord Forsyth, put forward about the interesting debates that we could have in Scotland on the referendum and the detail of these specific taxation powers. However, whether we have a referendum on them is an issue of principle, and there are principles that we ought to apply. I will deal with that. I am sure that we will then get to the detail through the revised groupings, or re-revised groupings, of amendments that I have in front of me. The noble Lord, Lord Forsyth, has indicated that the details are exercising him.
My second point is one that I have made before. I deeply regret that timetabling prevented the other place dealing with the detail of these very important issues. The last time that we convened this Committee, we had a very interesting debate on Clause 28- probably for the first time anywhere in the United Kingdom, unfortunately. It is a matter of deep regret that our elected representatives in this Parliament were denied the opportunity for debate by timetabling, thereby denying us a quarry of their position that we could mine to inform our debate. Therefore, when we draw on what we believe is the will of the Scottish people, as expressed by their elected representatives, we draw on information that unfortunately cannot be in the public domain, such as conversations and observations. Some of us have expertise that we have built up over time from watching what is happening in Scotland and knowing, from the conduct of politicians, what the people they represent are telling them. That is deeply unfortunate but it is where we are. There is a bigger issue at stake in the politics of Scotland, but I will come to that strongly later in the debate. We should keep our eye on the prize, which at this time is the union of the United Kingdom. There is a political imperative at the moment that should dominate everything that we do. I regret that we are sometimes forced into undermining that by the way in which this has been handled, which has been deeply inefficient.
I turn to the principle of referendum. I do not believe that there is any constitutional imperative to hold a referendum on the devolution of financial powers to Scotland, as provided for by Part 3 of the Bill, for the following reasons. First, the conclusion of the Select Committee on the Constitution in its 2010 report, Referendums in the United Kingdom, was:
"We do not believe that it is possible to provide a precise definition of what constitutes a 'fundamental constitutional issue'".
It is a fascinating publication for the reasons that I am about to explain to your Lordships' House. The committee did not look specifically at the example of the devolution of financial powers, although it could have because it was in the air. Therefore, noble Lords are entitled to look beyond such a conclusion to test whether what has been described by government Ministers as the largest transfer of financial power from London since the creation of the United Kingdom would be a likely candidate for a referendum.
In looking beyond the committee's conclusions, we should look at the evidence that was heard, which is deeply instructive. If noble Lords will excuse me, I will go into this in some detail because it is interesting. Before I rehearse some of the evidence, I am prepared to concede that people who listen to this debate may think, on the basis of the expert testimony to the committee, that there is a legitimate view that that evidence tends towards the view that the devolution of financial powers would commonly be considered a candidate for referendum, given that the definitions posited included the following. I will share a number of them with noble Lords.
In giving evidence, Professor Gallagher referred to,
"fundamental questions concerning sovereignty or a major constitutional settlement, especially if they concern steps that would be completely or virtually irreversible once enacted".
The Institute of Welsh Affairs, in its evidence on page 126, referred to,
"truly major issues of democratic principle-change that alters fundamentally the nature of the state".
Caroline Morris, who is an expert, gave two definitions:
"Topics ... which directly affect the constitutional make-up and powers of a state",
"changes to the sovereign powers of a state".
My noble friend Lady Kennedy of the Shaws gave the following definition:
"Anything that changed the power balances within our democratic system ... anything that in any way redistributed power in a significant sense".
Professor Bogdanor cited:
"Legislative proposals which provide for a radical alteration in the machinery by which the laws are made".
Professor Saward referred to,
"significant, encompassing and lasting change in the formal and general rules and rights which locate political authority".
Professor Graham Smith mentioned,
"anything that changes the dynamic and the relationship between the people and those who are elected".
All these definitions, which are not mutually consistent, could support the argument of the noble Lord, Lord Forsyth. However, they must all be considered against the backdrop of historic precedent. As the Constitution Committee noted in its analysis, no definition of principle can be extracted from historic precedent.
I agree that all those definitions could be advanced and are open to argument, but what about something that has been approved by referendum but which you propose to reverse?
I am grateful to the noble Lord for his intervention. I think that the somewhat delayed intervention by the noble Earl, Lord Mar and Kellie, on the noble Lord's speech-it occurred long after the noble Lord had stopped speaking, but it was in the nature of an intervention-answered that point, but I will come to that in a moment. I think that I can answer that question.
Although it could be said that matters of significant constitutional change ought to be put to a referendum, many are not. Indeed, there was never a referendum on the Human Rights Act 1998-some people may regret that-the Fixed-term Parliaments Act, the Constitutional Reform Act 2005 or, indeed, if I anticipate the outcome of the debate that is presently taking place, on the future of your Lordships' House. The House of Lords Reform Bill does not anticipate a referendum on that matter in the next Parliament. Therefore, while there appear to be certain broad principles on which academics and others can give evidence, which indicate what is a good candidate for a referendum, ultimately it seems that it comes down to a political judgment. We appear consistently to have exercised this power on the basis of political judgment. It is for this reason that I do not think we can discuss the noble Lord's amendments-I anticipate my noble friend's amendments-in a vacuum from the political environment. We have to defer to the political circumstances that face us during our consideration of this Bill. That is what I invite noble Lords to do.
I suggest that to require a referendum on the devolution of financial powers before the commencement of Part 3 of this Bill would be irrelevant in the present political context. Indeed, I go further-I think it would be irresponsible for the reason that the single fundamental question being posed to the people of Scotland at this time concerns the issue of secession. An additional referendum in this context would only confuse such a debate and distract from the single important question at hand. I understand that the circumstances have changed but we are discussing this matter now and not when we had expected that we would when this Bill was conceived as it emerged out of the Calman commission.
It is important to note that with the exception-it is an impressive exception-of the noble Lord, Lord Forsyth, and his shaky alliance with my noble friend Lord Foulkes, there is no political movement at all for any such referendum. There is no clamour for such a referendum in Scotland. I know that the noble Lord, Lord Forsyth, will say that is because many people in Scotland do not understand the implications of this piece of legislation.
I hope I may interrupt the noble Lord again. His speeches are always carefully crafted and well thought through and I am enjoying listening to him. However, when he says that there is no demand for such a referendum in Scotland-I absolutely agree with him that the key issue is whether or not we are going to break up the United Kingdom-I had the impression that the First Minister, the Scotsman, Scotland on Sunday and every newspaper in Scotland were all campaigning that people should have an opportunity to have a referendum on devo-max. To my mind what is in this Bill is devo-max. Indeed, my noble and learned friend the Minister says that in my mind in some ways it goes beyond that. However, there are within the Bill the powers to deliver devo-max. Therefore, when the noble Lord says there is no demand for this in Scotland, I think there is a demand for a referendum on extra powers which are already being delivered by this Parliament, and which people are completely unaware of.
I hope the noble Lord will not be surprised to hear that I anticipated this very point about devo-max. I intend to cover it very specifically. However, I am driven in these arguments by the political imperative of concentrating most of my political firepower on the arguments for retaining the union of the United Kingdom. I have tested every contribution that I have made to this debate against whether or not it makes that retention more or less likely. I ask noble Lords to join me in concentrating their minds on that issue, to look at this matter in the context of the political circumstances that face us at the moment and to make priority choices. In other circumstances I might well have supported the amendment of the noble Lord, Lord Forsyth, but in these circumstances I do not. I am trying to lay out the arguments.
As I was saying, there is no political movement for such a referendum. There is remarkably complete coherence between the parties in Scotland on the view that there is no necessity to seek a further mandate from the electorate as regards a referendum on these powers. Further, as the Calman commission noted, and the noble Earl, Lord Mar and Kellie, has reminded the House, there is an argument contrary to the argument put forward by the noble Lord, Lord Forsyth, that such a mandate has already at least partially been granted by the 1997 referendum on Scottish devolution in which 63.5 per cent of the Scottish electorate agreed with the statement,
"I agree that a Scottish Parliament should have tax-varying powers".
That was the question, not plus or minus 3p, or what the consequences would be if this power was or was not used-we know the history of that-but whether the Scottish electorate agreed with the statement,
"I agree that a Scottish Parliament should have tax-varying powers".
In a recent report on a referendum on Scottish independence, the Select Committee on the Constitution agreed with the UK Government's position-this comes to the point the noble Lord raised about devo-max-that whereas independence is a Scottish question, devolution-max is not solely a Scottish question and proposals for a significant change to the devolution settlement considered under this title must be addressed only once the issue of secession has been clearly and decisively addressed by a referendum of the Scottish people. Therefore, we need to deal with these things in series and we need to keep our eye on the ball as regards the issue which is foremost in Scottish and UK politics at the moment in terms of the constitution. It is within this public and political discourse that we need to consider the priority of a referendum on the devolution of financial powers. I argue that the conclusions of the Select Committee are of precise relevance to this question. A referendum on the devolution of financial powers as proposed by Calman, and elaborated in this Bill, would in my view be politically misguided and publicly rejected prior to a referendum on devolution.
These are powers which I have said repeatedly the Scottish people want. There is significant evidence of that. I regret that I am not able to refer noble Lords to detailed debates in the other place to advance that argument but I know from extensive consultation with Scottish parliamentarians and Scottish people that the Scottish people want these powers. Much more importantly, they want these powers now because they want them to address issues which are important to the Scottish people now and were made obvious as a priority to them by yet another performance of the Scottish economy that has reversed the previous trend of devolution over the past few years in that we are now behind the rest of the United Kingdom in unemployment and growth. For almost all the period of devolution in Scotland the opposite situation applied. It is only since the SNP has taken control of government in Scotland that we have got into a situation whereby we are falling behind the rest of the United Kingdom as regards unemployment and comparative growth of GDP. Therefore, these powers are needed now.
The future development of the devolution settlement, be that full fiscal autonomy or whatever-there are all sorts of titles-may well ultimately be a question for a referendum, but it is a question that needs to follow the broader one of Scotland's future membership of the union. In my view it cannot coherently be proposed before that. Consequently, these Benches cannot support the noble Lord's proposed amendment of the Bill. I apologise to my noble friend Lord Foulkes far more in advance than I would normally have to do as we will not support his call for a referendum, no matter what the motivation for it is, when we come to that part of our debate in Committee.
I should like to follow my noble friend and say that I do not support the amendment. I had the privilege of being a neighbour of the noble Lord, Lord Forsyth, for many years. I have seen him exercise political skill across a broad spectrum, but on many occasions not without a degree of cynicism. I have to say that his amendment today is just a cynical opportunity to attack the principle of taxation. The idea that referenda have anything of any substance to do with this is just a bit of a smokescreen. The fact of the matter is that a referendum agreed that a Scottish Parliament would have tax-raising powers. The powers have never been exercised. Do we therefore need a referendum to take away powers that we have never used? I do not think so. There is a case, which has been made quite well by the noble Lord, regarding the clumsiness of the manner in which this taxation will be imposed. Were it to be imposed in its present form, it would probably be grossly unfair to too many of the poorest people within Scotland. That is the issue.
Let us not bother about the referendum question. Let us just question whether or not taxation in the form that is being suggested is the most appropriate way of trying to develop a sense of fiscal responsibility in a Scottish Parliament-whether it is separate or devo- maxed, or even with its present fumbling, incompetent and profligate way of expenditure.
My Lords, the amendments we are discussing relate to whether there should be a referendum on the provisions contained within the Bill's specific reference to the changes to income tax and Scottish income tax. There will, of course, be opportunities at the next sitting of the Committee to debate amendments relating to an independence referendum. Indeed, later today there will be an opportunity to consider the details of the income tax proposals. I have no doubt that my noble friends Lord Forsyth and Lord Lyell will contribute to that, and my noble friend Lord Sassoon will be very pleased to respond.
I should make a point of clarification to my noble friend Lord Lyell, who raised a question about the Income Tax Act 2007. I can advise him that that Act sets out, as part of the tax law rewrite programme, how an individual's income should be taxed and the distinction between savings and non-savings income. It is right that the Bill follows that approach.
The Government have a clear mandate to implement the Calman commission's conclusions, as we seek to do in the Bill. There were pledges to do that in not only the manifestos of the two coalition parties but in the manifesto of the Official Opposition, the Labour Party. It is fair to say that these proposals were worked out after consultation by the Calman commission. I do not think that anyone can fault the level of consultation. There was considerable public discussion after the publication of that commission's report. There was a White Paper by the previous Labour Government. There was a Command Paper by this Administration. These matters have been pretty well aired and the noble Lord, Lord Browne, said that these are powers that people want. The Scottish Social Attitudes Survey 2010 showed that 57 per cent of people wanted the Scottish Parliament to have powers of taxation and, significantly, only 37 per cent wanted Westminster to have tax powers. There has been considerable discussion of this, and I am not aware, with some respectable and respected noble exceptions, of any great clamour to have a referendum on these matters.
The proposal would be to have a referendum prior to the implementation of the finance provisions. These provisions will give the Scottish Parliament increased powers to take decisions on how to raise money as well as how to spend it. The crucial point was the final one made by the noble Lord, Lord O'Neill-the Bill will give the Parliament increased accountability and fiscal responsibility. While these reforms are significant and substantial new powers, they fall very much within the framework of the original Act.
The noble Lord, Lord Browne, reminded us that the question on tax powers was answered overwhelmingly in the affirmative in the 1997 referendum. In it, the Scottish electorate endorsed the establishment of a Parliament with the ability to exercise tax-varying powers, and therefore have a degree of financial accountability for taxation and spending decisions. As has been pointed out, these powers have not been used, but it is clear that there is demand for increased financial accountability, and that call was regularly made to the Calman commission-the Parliament should be not only responsible for how it spends money but have some greater accountability and responsibility for how it raises money. That has widespread support. It was also within the existing framework of the Scotland Act to vary the powers of the Scottish Parliament and its Ministers by order-making powers, such as those in Sections 30 and 63 of that Act. Here, of course, we are doing that by primary legislation.
The noble Lord, Lord Browne, referred to the Constitution Committee report on referendums. I declare an interest because I was a member of that committee when that report was produced. I could not say what its view would have been of this proposal, but I agree with the noble Lord's analysis that when we looked at past referendums they were very much matters of political judgment. I may have misheard what my noble friend said in his concluding remarks-that the referendum was supported by all parties in 1997. However, if he casts his mind back, he was a busy Secretary of State at the time, and when the Labour Party in opposition proposed a referendum in spring 1996, a considerable furore greeted it.
My Lords, I hesitate to go back over old ground and reopen old wounds, but as I recall, I was the person who was pressing the Labour Party to have a referendum on the tax-varying powers. The shadow Secretary of State-now the noble Lord, Lord Robertson of Port Ellen-was dead set against a referendum but he was sat upon by Tony Blair, the then leader of the Opposition, and forced to agree to one. I think that I can claim a track record on getting the referendum that was initially opposed by the then Labour Opposition. But quite rightly, and to their credit, they followed through on it.
I am probably going to compound matters by saying that it was opposed by the Scottish Liberal Democrats at that time. It was not right to say that all parties called for a referendum, but we all campaigned in it.
That absolutely illustrates my view. The noble Lord, Lord Browne, says that people's attitudes to referendums are a matter of political judgment. I tend to find that people are in favour of referendums if they think that they can win them but against them if they think they might lose.
My Lords, I did not have any doubt that we would win a referendum, I just did not think it was necessary-and I did take the legislation through on the referendum for the alternative vote. The point, as the noble Lord, Lord Browne, said, is that there is no political movement for a referendum on these measures. He is also absolutely right to say that all of us who share the goal of keeping Scotland within the United Kingdom should have our eye fixed on the one referendum, in which we will seek to ensure that Scotland remains a full member and plays a full part in the United Kingdom. Any other referendum in the interim would be a distraction and could undermine the case, because it would obviously take up time and resources when we should in fact be focusing on exposing the weaknesses of the case for independence and proclaiming the case for a Scotland within the United Kingdom. In those circumstances, I very much hope that my noble friend will not press his amendments.
My Lords, we have had an interesting debate and I am grateful to everyone who has spoken. I seem to be somewhat isolated on this issue. I worry about the idea that the tax-raising powers in the Bill will increase the accountability of the Scottish Parliament. As I am sure my noble and learned friend will confirm, had those powers been in place and exercised since 1998 when the Scottish Parliament was established, the block grant which the Scottish Parliament had available to it would have been reduced by many billions. The exercise involves substituting a slice of the Barnett funding with funding that comes from the tax base. If public expenditure is growing faster than the tax base, the result is that far less revenue is available.
Tempted as I am to support the proposals because they would have had the effect of squeezing public expenditure in Scotland substantially and, I suggest, avoided considerable waste and the policies which have resisted reform of the public services, the notion that they would increase accountability needs to be looked at very carefully. It will squeeze the resources available to the Scottish Government over time and, in doing so, put pressure on them to use the tax powers, which by the nature of the gearing effect will result inevitably in Scotland becoming the highest taxed part of the United Kingdom. I venture to suggest that at that point, many people will say: "Why weren't we told this? Why didn't we know about it?". If I am still around, I will take great pleasure in saying: "I suggested that there should be a referendum so that people had a chance to consider these arguments and know what they were being committed to".
I entirely accept that the political classes and the political establishment have got together in the worthy cause of stopping the Scottish nationalists getting control of the Scottish Parliament and taking us towards independence, but I have my doubts about how it will increase accountability. I suggest that my noble and learned friend think about this again. If a referendum was held-I assume that those on both Front Benches are confident that the Scottish people would vote yes to these tax-raising powers, although I suspect that their opposition to the referendum may lie in their doubt that they would-there would be clear consent for the exercise of the powers.
The noble Lord, Lord Browne, and the noble Earl, Lord Mar and Kellie, suggested that a mandate was granted by the referendum on the original Scotland Bill. The noble Lord is quite right to say that the question was:
"I agree that the Scottish Parliament should have tax-varying powers",
but those tax-varying powers were defined in the referendum campaign as being limited solely to 3p on the basic rate. This is far more than tax-varying powers. This is the introduction for the first time of a new Scottish rate of income tax. We are not talking about tax-varying powers here, we are talking about the ability to set a new rate of income tax that the Scottish Parliament chooses.
My noble and learned friend talks about opinion polls and surveys. I venture to suggest that if you go out and say, "Do you think the Scottish Parliament should have more powers?", that is a bit like saying, "Do you love your mother?". Of course people are going to say yes, the Scottish Parliament should have more powers. If you ask them, "Do you think that Scotland should be able to be made the highest taxed part of the United Kingdom?", I think they might have a different view. If you ask them, "Do you think that the Scottish Parliament should be able to take money out of your pay packet?", you might get a different answer.
It is an important part of the noble Lord's argument that there is an inevitability of Scotland becoming the most heavily taxed part of the United Kingdom and that that will be done against the wishes of the Scottish people, who will never be consulted about it. We intend to have general elections in Scotland for the Scottish Parliament. This issue will come to the fore when we get to the next group of amendments, but the issue of the rate of tax will be decided in general elections by the Scottish people through manifestos put before them, just as it is for the rest of the United Kingdom.
I venture to suggest that I cannot think of any way in which any politician of any party, with the setup as it is in respect of the taxation powers and the way that the block grant will be calculated-subject to later review, but even assuming that Barnett survives-and given the levels of public expenditure and the position we are in, would be able honestly to do other than to tell the voters that income tax will have to go up. The numbers simply do not add up.
Let us just take the promises being made by the First Minister. On the whole, if you promise people free health care, free prescriptions, free bus travel, free nursery care and free this, that and the other and you do not have the money to pay for it, whoever comes in will find it very difficult to reverse that. Those are all very expensive requirements. If a Chancellor of the Exchequer gives the First Minister in an election year a bisque so that he does not have to cut public expenditure to meet the budget deficit requirements and the cuts have to be made in the subsequent year, you are building up very substantial gaps. I said that the gap on the budget deficit was about £3 billion. A tax-varying power where one penny on income tax raises merely £400 million will not get you very far in that respect. It is a delusion. If anyone in this House believes that the power will be used to reduce taxation, I think they are misguided.
I entirely agree with the noble Lord that we must be careful to focus on the issue of independence. He is absolutely right about that. Where I believe that the Bill is playing into the hands of the nationalists is that they are saying: "Look, you cannot play golf with one club. You cannot run an economy simply by having limited tax-varying powers that relate to one part of the income tax yield. You need corporation tax powers so that you can get growth so that the yield goes up". That argument has a certain degree of logic to it-if not, altogether, a degree of fantasy.
Some of us remember that the First Minister interrupted my noble friend Lord Lawson's Budget, scandalised the House of Commons and was thrown out of the House. We are told now by the nats that that was done to protest about the poll tax. Of course, he interrupted to say, "That is an absolute outrage" when the Chancellor, my noble friend Lord Lawson, announced a reduction in corporation tax and income tax to the same rate of 25 per cent. So there is a fantasy here. We should be absolutely clear what we are doing here. We are committing Scotland to a position where it will have a higher rate of income tax. I am prepared to challenge anybody. Once these powers are in place and are being used-after 2015-I will be astonished if I am wrong about that, in the way that the noble Lord, Lord Robertson of Port Ellen, was wrong when he said that the Scotland Act would kill nationalism stone dead.
They were, quite a long time ago. I remember it. This goes against the noble Lord's theory that no one argues that taxes should be reduced. I remember what happened in Edinburgh when local councils raised about 50 per cent of their income themselves through the rates and got the rest through rate support grant. The Conservatives on Edinburgh council-they called themselves Progressives at the time but they were Conservatives-used to propose reductions in the rates and Labour proposed increases, with increased services. The Conservatives made quite a lot of headway by proposing rate reductions, with people having to pay less, and a lot of middle-class people around Morningside and Corstorphine-I live in Corstorphine, so I had better be careful-went with the Conservatives on that. Has the noble Lord given up all hope of arguing the case for tax reductions along the lines of his predecessors?
Not at all. I do not remember those days but then the noble Lord is a little older than me. However, he is absolutely right. His key point was that 50 per cent of the revenue was raised on the rates. However, the Government are using this dodgy figure of 30 per cent, which excludes capital expenditure from the base line. If one were making a reasonable assumption of how much would be raised in taxation, the figure would be nearer to 15 per cent than 30 per cent, but it is only a small part. Of course, in those days Edinburgh council was run reasonably well. My point is that here we have a whole load of post-dated cheques and expenditure that cannot be afforded. It will fall on Scottish income tax and that will have a catastrophic effect on the Scottish economy in terms of both growth and the living standards of the people of Scotland. That is why I am saying that, if you are going to do this, at the very least make sure that you can blame it on the electorate who voted for it, rather than people stumbling into it without being aware of the consequences.
I do not like playing the part of Cassandra but the numbers are there for all to see, and they do not come only from partisan, political people such as me. Professor Bell at Stirling University has done a lot of work on this, and the numbers simply do not add up. I say to the noble Lord, Lord Browne, that Alex Salmond and the nationalists will use the fact that the numbers do not add up and that income tax will go up to blame Westminster, and we will get into the same old argument about the size of the grant and so on. If the noble Lord's argument is, "Let's not have the distraction of a referendum on Scottish income tax because it will mean that people do not focus on maintaining the union", then it is an argument for which I have some sympathy. It is the most powerful argument that I can think of for dropping the Bill altogether and coming back to it after we have resolved that position. On the same basis, the noble Lord argues that it will be a distraction. Of course, whether it becomes a distraction will ultimately depend on whether Alex Salmond deigns to give us permission to pass it on for Royal Assent, and we wait with bated breath to hear his latest thinking on that.
We have had a good debate. I do not propose to press this to a vote but I urge my noble and learned friend and Members of the House to look at the arithmetic in relation to how this tax is going to work and what it is supposed to cover. I beg leave to withdraw the amendment.
Amendment 53 withdrawn.
Moved by Lord Forsyth of Drumlean
53A: Clause 30, page 23, line 6, at end insert-
"( ) If the application of the Scottish Rate would result in a Scottish taxpayer paying a higher rate of tax on non-savings income than an equivalent taxpayer in the rest of the United Kingdom, the Scottish Parliament shall consult interested parties before passing such a resolution."
My Lords, I do not propose to rehearse all the arguments that we have just had, although I am being encouraged to do so by the Front Bench opposite. However, I shall resist the temptation.
This amendment would require the Scottish Parliament to consult before setting the Scottish rate of income tax if it was intended that the rate should be higher than that of the rest of the UK. This seems to be a perfectly reasonable request. Some people may argue that the Chancellor does not consult before he sets a rate of income tax, but we are not talking about setting a rate of income tax here; we are talking about setting a differential rate of income tax within the United Kingdom, and that will have a profound effect. We are talking about setting a differential rate of income tax which applies to only certain types of income.
Following consideration of these matters in the other place, there are still a lot of uncertainties about what the impact will be. I am not clear about that and perhaps my noble friend will be able to enlighten us. For example, what is the position on tax reliefs with a higher rate of Scottish income tax? Will tax reliefs on charitable contributions apply at the higher rate? Will all allowances based on gross income apply against the Scottish rate or the English rate if there is a differential? If the Scottish Parliament sets a higher rate, I think it is very important that representatives from business, charities, pension funds and other institutions are given an opportunity to be consulted on the likely impact and incidence of the tax.
I strongly support my noble friend on this amendment. I hope that I have brought with me the correct route plan for the groupings, because there are several other amendments that I should like to refer to, if I may. I find that with Amendment 53A are grouped Amendments 54A, 54B, 54C and 54D. Am I right?
Shall I be able to refer to them at a later stage? I assume that they will be called and that I shall not lose my chance to speak to them. With regard to Amendment 53A, I strongly congratulate my noble friend. I received a very kind and satisfactory answer from my noble and learned friend about non-savings income but Amendment 53A seems to apply particularly to what I call the ritual dance over whether the Scottish Parliament may or may not do something. I may be enlightened about that when we come to the other amendments that were in this group, and I assure your Lordships that I shall not desist when we come to Amendments 54A, 54B, 54C and 54D. I see my noble friend on the Front Bench giving some form of assent, so I give him warning that I shall raise the matter when we come to those amendments. However, I strongly support what my noble friend Lord Forsyth has said on Amendment 53A.
Perhaps I may add some further Angusian support for the amendment, recognising that Angus is well represented in relation to this particular amendment. It has already been observed by a number of noble Lords that the underlying purpose of the Scottish rate of income tax is to bring real accountability to the Scottish Parliament on behalf of the Scottish taxpayer. As the noble Lord, Lord Forsyth of Drumlean, says, decisions on this tax will have a profound effect and will of course be extremely important for the Scottish Parliament. Therefore, we on this side agree that there should be an obligation to consult interested parties, such as business, charities and pension funds.
The only point that I would raise is that such an obligation to consult might also be useful were a lower rate of tax to arise. I immediately appreciate that this amendment comes from a quarter that does not envisage such a possibility but, perhaps on a logical basis, there may be a reason for both higher and lower outcomes requiring consultation.
I completely agree. I think that if the proposal were to lower the rate of income tax, something so out of order would be going on that it would certainly be desirable to consult.
If such an event came about, any retractions that might be required from any quarter could also be added into the consultation. We support the amendment.
My Lords, as my noble friend Lord Forsyth of Drumlean has explained, Amendment 53A would require the Scottish Parliament to consult interested parties prior to passing a resolution that would see a Scottish taxpayer paying a higher rate of tax on non-savings income than the equivalent UK taxpayer. Of course, my noble friend has also explained in passing that there is no such requirement on the UK Government to consult interested parties when they make similar decisions.
There are two reasons why the Government do not see merit in my noble friend's amendment. First, the underlying purpose of the Bill is after all to provide for greater financial accountability of the Scottish Parliament to its electorate and give the Scottish Parliament a real stake in Scottish economic performance. I hear, and heard in our previous sitting, my noble friend's doubts about that, but that is the purpose of the Bill. Devolving the right to set a Scottish rate of income tax to the Scottish Parliament is absolutely key and central to that, which clearly my noble friend accepts. In devolving that key power, I do not believe that it is right for the Government to impose conditions on how the power is used. Ultimately, as the noble Lord, Lord Browne of Ladyton, pointed out in the previous discussion, the Scottish Parliament is and will continue to be subject to regular elections. My noble friend seems to be blithely suggesting that somehow the income tax rate will go up and up in Scotland without reference to the fact that it might not be an election-winning strategy. The Scottish Parliament should not be fettered in the consultation processes through the legislation.
I shall, if I may, continue and complete the two legs of this argument. If the setting of the Scottish rate becomes part of the existing budget process of the Scottish Government, my noble friend's amendment will be unnecessary because currently the draft Scottish budget is published in September or October, following which the public and Scottish parliamentary committees are consulted on its proposals. A budget Bill is then typically passed in the spring and, if the Scottish rate is announced as part of the draft budget and the resolution is passed as part of the Bill, the Scottish Government's existing processes will already include the type of consultation that my noble friend envisages, irrespective of whether it is an increase in the rate or not.
That is very helpful, but on the previous point that it would be wrong to constrain the Scottish Parliament and that this is about accountability, the Bill is bristling with provisions that require the consent of the Treasury before the powers can be enacted. Is it not a bit strange to argue that it would be wrong to constrain the Scottish Parliament from consulting the people in a Bill that requires and constrains it to consult the Treasury?
No, I do not accept the logic of that. We can debate as we go through which powers require what sorts of consents, but the central nub of the Bill is to devolve income tax rate-setting to the Scottish Parliament. That is what is envisaged. As I say, I believe that it should be done in a clean and clear way and it is then for the Scottish Parliament and the Scottish Government to decide what consultation there is. As I pointed out, the Scottish Government at the moment consult in a very sensible and open way for their budget Bill. There is no reason to doubt that they would do something sensible and proportionate with the new power.
To answer my noble friend's question about allowances of one kind and another in the context of a higher Scottish rate, the position is that the Government are consulting with representatives from the pension industry, charities-which he specifically mentioned-and other interested parties through the Scotland Bill technical groups. There will be a technical note setting out proposals in these areas after the Bill receives Royal Assent, so it is very much work in progress. My noble friend identifies important issues but, on the basis of my explanation, I ask him to withdraw his amendment.
The noble Lord is unkind. I asked a question about the position of charities and charitable contributions in respect of this Scottish income tax regime. It strikes me as a bit strange that by this stage of the Bill-after all, we are talking about a Bill that has been around this place for more than a year-the various groups that have been consulting and the technical groups that have been grinding on have not reached a conclusion. To be told that this will happen after Royal Assent means that we are being asked to buy a pig in a poke. We are being told to go along with this and, "By the way, after the Bill is law we will tell you what its effect will be". That is the opposite of what parliamentary scrutiny is supposed to be about. In my day as a Minister, first of all you had to get your policy right; you then had to get your drafting right; then you had to go through the legislative committee. If you turned up and could not answer all the questions, dot all the "i"s and cross all the "t"s, you went back to the bottom of the queue and lost your place in the Queen's Speech.
Here we are, more than a year on. I am not making a difficult point; it was made by honourable Members on both sides during the passage of the Bill in the other place-almost a year ago. At that time, the answer was the same as that given by my noble friend now-that it will be dealt with by the technical committees, and that the Government hope to report shortly. I will withdraw the amendment on the basis that I will table it again because at the next stage of the Bill my noble friend ought to be able to answer those questions. People in Scotland who are running charities will want to know this. If we are asked what will be the impact of the tax, is the answer, "We are not sure but we will tell you after the legislation has been passed"? If the answer is that, for example, for people paying the Scottish rate of income tax-if it is higher-on the amount that is given to the charities, only the English element will be allowable, and we discover that only after Royal Assent, just think what the nationalists would make of that as an argument and how aggrieved the charities would be.
Before my noble friend comes to an excellent conclusion, I say that he is most optimistic about this group. I understand that it is called the high-level group-that is what the Institute of Chartered Accountants of Scotland told me. My noble friend says that we have just spent a year on this. I say with humble duty to the Committee: you ain't seen nothing yet. When we come to Clause 30 stand part, I shall refer back to 1998. I think that my noble friend and the Committee will be interested to see what was said then. When we see what was said then, what is in the Bill today and the discussions that went on in another place, the word "snail" comes to mind-and makes this look like Concorde. I support what my noble friend has said and look forward to the next amendments, when we come to them under the guidance of my noble friend on the Front Bench.
I think that is mildly critical of my noble friend. However, I accept that the procedures that are adopted for the consideration of the Budget may very well cover the point, and I certainly would like to study them. I beg leave to withdraw the amendment.
Amendment 53A withdrawn.
Tabled by Lord Forsyth of Drumlean
54: Clause 30, page 23, line 6, at end insert-
"80CA Referendum on increasing Scottish rate of income tax
(1) This subsection applies if the motion tabled by a member of the Scottish Government for a Scottish rate resolution proposes that the basic, higher or additional rate of income tax for a tax year for Scottish taxpayers is to be above the rates set for taxpayers in the rest of the United Kingdom as determined under section 6(2) of the Income Tax Act 2007.
(2) If subsection (1) applies Her Majesty must by Order in Council cause a referendum to be held throughout Scotland about whether the basic, higher or additional rate (as the case may be) of income tax for the relevant tax year for Scottish taxpayers should be set as proposed in the motion.
(3) If the majority of the voters in a referendum held by virtue of subsection (2) vote in favour of the proposed rate or rates of income tax the Scottish Parliament may consider the motion for a Scottish rate resolution under section 80C.
(4) But if they do not, the Income Tax Acts have effect for that year in respect of the rate of income tax that was the subject of the referendum.
(5) For further provision about referendums held by virtue of this section see Schedule (Referendums on commencement of sections 30 to 32 or increasing Scottish rate of income tax)."
My Lords, I shall speak to Amendment 54A which goes in the revised grouping with Amendment 54E. Again, the matter was considered and raised in the other place, I think by the opposition spokesman. I have put down an amendment that clarifies the position on the liability of members of the armed services to pay Scottish income tax. During consideration in the other place, people repeatedly asked for clarification on how Scottish income tax would apply to members of the armed services. My concern is, if someone is stationed in Scotland and is living in barracks, are they liable to pay Scottish income tax? Ministers promised-
My Lords, may I press the noble Lord for a little clarity? Is he speaking to Amendment 54 or to Amendment 54A?
Does the noble Lord wish to move Amendment 54? It needs to be taken before Amendment 54A.
Will the noble Baroness confirm that? I have the grouping list. Perhaps somebody will be kind enough to give me a new grouping list because what I have on my grouping list contradicts what the noble Baroness said. It shows Amendments 53A, 54A and 54 separately.
I apologise. I just say to my noble friend that it really is impossible if we have one piece of paper that is different from the rest. I raised this privately and was told that the Whips' Office is not prepared to issue another piece of paper. I am reasonably involved in these amendments, and I am finding it very difficult. I was looking at the other list of amendments as opposed to the revised, revised list of amendments. That is why I was moving Amendment 54A, and I apologise. The noble Baroness wants me to move Amendment 54. We have debated that; it was in the first group.
Amendment 54 not moved.
Moved by The Duke of Montrose
54ZA: Clause 30, page 23, line 10, leave out "A"
My Lords, this is a paving amendment, and I shall address my remarks also to Amendment 54BA and the other amendments in the group. Amendment 54BA will remove the close connection condition for the purposes of identifying a Scottish taxpayer. This is an effort to remove the complications that come from trying to prove a close association, which is a concept that raises many questions of definition and interpretation. The argument is that the best way to define a Scottish taxpayer is without reference to residence in Scotland. Instead, the definition should be based on being a UK citizen and spending more time in Scotland than in other parts of the United Kingdom. This argument has been put to me by the Law Society of Scotland, and I think it has weight.
Perhaps the definition I have just pointed out goes some way to answering the call of the Institute of Chartered Accountants of Scotland for a definition in statute of what constitutes a Scottish taxpayer. At present, new Section 80D defines a Scottish taxpayer as,
"an individual ... who is resident in the UK for income tax purposes, and ... who, for that year, meets condition A, B or C".
These conditions are that the taxpayer,
"has a close connection with Scotland ... does not have a close connection with any part of the UK other than Scotland ... and ... spends more days of that year in Scotland",
or is an elected parliamentary representative for Scotland.
The residence qualification is typical of the sort of issue that has raised controversy in recent legal cases. I mention Gaines-Cooper v Her Majesty's Revenue and Customs and Tuczka v Her Majesty's Revenue and Customs. New Section 80D, when combined with new Sections 80E and 80F, presents problems for those who move between jurisdictions within the United Kingdom inasmuch as they create uncertainty, difficulties of interpretation and potential problems regarding compliance. In particular, the definition of "close connection" contained in new Section 80E creates a difficulty of interpretation-and what does "place of residence" mean? It appears to be different from residence as understood in other areas of tax law, such as capital gains tax. Does "place of residence" imply ownership when juxtaposed with "main place of residence" in paragraphs (b) and (c) of new Section 80E(3)? "Place of residence" and "main place of residence" are not defined in new Section 80E, and therefore create potential problems of interpretation for those who may live in Scotland yet work in England, or vice versa, including those living on the Scottish-English border.
There are, of course, people who live in Scotland, who even work in Scotland, but who are paid from England or elsewhere in the United Kingdom. They, too, create a problem because, as far as I am aware, the PAYE system does not depend on where you live but where you work or who you are employed by.
My Lords, this is the type of complication that we are talking about. In fact, the way the Bill is at the moment, it will practically be a question of where you spend the night. There are commuters from Glasgow or Edinburgh to London, and a variety of public office holders, who may have a place of residence in Scotland yet work for considerable periods in England or Wales, such as Members of the House of Lords, who are not included in new Section 80D(4), or Supreme Court judges. If a clause such as this remains, should the Bill not contain an obligation for each individual to state what he regards as his main place of residence?
New Section 80E also highlights the issue of split-year residences. Unfortunately I just missed the debate immediately preceding this, but I thought that my noble friend Lord Forsyth would cover the point. Her Majesty's Revenue and Customs currently applies, in extra-statutory concession A11, split-year treatment to individuals who spend only part of the tax year resident in the United Kingdom. The concession means that, for example, an employee who comes to the UK for a secondment beginning on
The Law Society of Scotland questions whether setting up the provisions of new Sections 80D, 80E and 80F will require the creation of a similar extra-statutory concession. It would seem more sensible to create a robust system that does not rely on extra-statutory concessions in order for it to work-one whose fundamental architecture takes account of movement of people within the United Kingdom, and therefore within different tax zones, in one tax year.
The provisions will need some amendment to deal with changes the residence status of a number of categories of employee-perhaps the point made by the noble Lord, Lord Maxton, comes into this category-including those working on board ships or oil rigs who are neither UK resident nor employed by UK employers. There will be another issue with members of the Armed Forces, where it seems inevitable that members of the same unit will end up being taxed differently. I beg to move.
I strongly support my noble friend and I hope that I might save some time. There was plenty that I was going to say on Clause 30 stand part, but thanks to the excellent and wonderful briefing that my noble friend the Duke of Montrose had from the Law Society of Scotland, I do not need to. I, too, have had a considerable briefing from the Institute of Chartered Accountants of Scotland.
When we discussed this at an earlier stage, I took a dig from my noble and learned friend the Advocate-General about the great singer Mr Andy Stewart. Mr Stewart used to sing, "Take me back"-and perhaps I can take your Lordships back to the Scotland Act 1998. On page 35, Section 75(6) says:
"In this section 'place' includes a place on board a vessel or other means of transport".
I direct the Committee's attention to page 24 of the Bill before us. New Section 80E(4) says just the same:
"In this section 'place' includes a place on board a vessel or other means of transport".
Both in 1998 and at Second Reading I raised the question of people who are employed on a means of transport-for example, lorry drivers-or at sea on a vessel. In 1998 the government spokesman, the noble Baroness, Lady Ramsay of Cartvale, referred to houseboats. That is absolutely fine. My noble friend has just spoken about people on oil rigs. I made inquiries and I understand that nothing has changed in 14 years, that "on board a vessel", as in this Bill and Section 75 of the Scotland Act, includes people on ferries. Perhaps I can direct my noble friend the tax specialist's attention to the ferries at Cairnryan or Stranraer.
Perhaps noble Lords who are experts in the law will be able to advise me, but I am given to understand that if a UK taxpayer-at Cairnryan or Stranraer it would be a Northern Ireland taxpayer-is on board that vessel, either when the clock strikes midnight or at a relevant time, he or she is deemed to be a Scottish taxpayer. Then you have to calculate how many days you are on board that vessel. You have to do some sums and we still do not know-it is rather like O-level algebra-what will be the proportion of the days you spend in Scotland or elsewhere in the United Kingdom. You have to deduct from that days you have spent outside the United Kingdom. That will come into the mix as well.
When we discussed this in 1998, my late noble friend Lord Mackay of Ardbrecknish said that to classify UK taxpayers from Northern Ireland or elsewhere outside Scotland as being Scottish taxpayers because they were on board a ferry as part of their work would be "plain daft". He put it much better than I do, and I rest my case.
My Lords, the noble Duke has raised a very important issue. I had indicated my intention to oppose Clause 30 stand part, and this is grouped with the noble Duke's amendments.
The noble Duke has raised one or two of the anomalies. My noble friend Lord Maxton intervened with another. I hope that the Minister will listen carefully to this because this whole issue is bristling with anomalies. There are all sorts of difficulties that could happen. When we got an informal briefing from the Minister and some of his staff, I raised the question of students-postgraduate and undergraduate students, researchers. There are all sorts of people who would be difficult to identify as Scottish taxpayers or not. There are diplomats and civil servants who move up and down regularly who might be difficult to identify. We have heard about people on the ferries and the sleepers. There are fishermen who could be classified in this way. There are all sorts of difficulties that arise.
There are some people in Scotland who may have a residence in England, Wales or Northern Ireland, but also a third residence overseas. How do the days resident overseas come into the calculation? This question was raised when we used to have residence qualifications for Peers' allowances and I recall that it created tremendous problems, which was one of the many reasons why we moved to the arrangement we now have. This is an absolute minefield of anomalies.
If the theory of the noble Lord, Lord Forsyth, is right-he has been arguing it very carefully-that Scotland is inevitably going to be a much more highly taxed area than England, imagine the situation that could arise on the border. The noble Lord, Lord Steel, might look at this; it might be a way of regenerating the borders. More and more people could live just over the border, living in England to pay English tax but coming in to Scotland to take advantage of the better services in Scotland. There are all sorts of difficulties that could arise.
We were most grateful to the noble and learned Lord, Lord Wallace, and the noble Lord, Lord Sassoon, for organising the seminar. I do not know about other people who went to it, but I came away with more questions at the end than I had at the beginning. Again, the noble Lord, Lord Forsyth, raised a lot of the questions in that seminar. In his reply, perhaps the noble Lord, Lord Sassoon, can tell us if, following that seminar and the genuine points of concern that were raised, some further consideration has been given to trying to make a simpler system for identifying who Scottish taxpayers are. The arrangement in the Bill is far too complicated to implement effectively.
The noble Lord, Lord Foulkes, may not know that there are already people living just south of the border who take advantage of the services in the borders. I refer particularly to people from the Berwick-upon-Tweed area who make good use of the Borders General Hospital because it is a very good facility. I have a simple question for the Minister. How does Section 80F operate? It is about the number of days that people spend in Scotland or the rest of the UK. If we do not have any border controls we do not know who is coming in and out. I am assuming that we are not having that even under Mr Salmond's proposals. Therefore, I simply do not see how it will work. Perhaps the Minister will enlighten us.
My Lords, quite properly everyone has been raising the issue of those people who live and work across borders, work on ships and trains, or are lorry drivers. My concern to some extent is those people-I could be one of them-who live in Scotland but whose sole income is a pension from the other place, and whose tax office is Cardiff and not East Kilbride or anywhere in Scotland. I am still not quite clear how that tax office will know that I am a resident in Scotland. As far as I know, it does not have to know my home address. I would accept that this debate was back in the 1990s. Of course, technology has moved on and it may be that we now have a database that allows the Inland Revenue to know exactly where you live. I rather doubt whether it has ever bothered to update the records and keep them up to date. What happens to someone who lives in Scotland and should be paying tax in Scotland but whose sole source of income and tax office are outside Scotland? How does that person know what tax they should pay in Scotland?
I wonder whether the noble Lord remembers getting a demand for taxes from the Inland Revenue which, presumably, was sent to his house because it knows where his house is.
Oddly enough, I am in the unfortunate position at one level but fortunate in another that about five years ago, if not longer, I got my last letter from the Inland Revenue. It said, "Please do not send us any more tax returns because we know what your income is. It has been the same for the last 10 years so don't bother any more". If I moved house, I am not sure that anyone would know where I had gone. I assume that you have to tell the Inland Revenue but the fact is that there is this problem. As far as I am aware, PAYE is paid on the basis of where you are employed, who employs you and the income that you are paid. That can come from a variety of sources and is taxed at source. I am never quite clear whether one's residence is an important part of that issue.
My Lords, I support what has been said by and large for this amendment in the name of my noble friend the Duke of Montrose. This is a highly complex problem and very difficult to understand. The question is whether it falls within devolution or not. It is understood that an arrangement has been made for members of the Privy Council to consider, if a question such as this arises, whether it is within or without the concept of devolution. This matter is so complicated that I am only grateful for having been able to listen to what was said about it. I hope that it may be satisfactorily resolved.
My Lords, the people of Northern Ireland are increasingly concerned that Scotland is heading towards a higher taxation system-be it devolution or potentially independence. There needs to be clarification to the people of Northern Ireland since the Larne and Belfast ferries to Cairnryan and Stranraer are some of the busiest within the United Kingdom. The people in Northern Ireland on those ferries will remain United Kingdom taxpayers until they land in Scotland.
My Lords, having managed to get my amendments in a row, I should like to contribute briefly to this debate. I have only one question for my noble friend. There was a definition in the Scotland Act of a Scottish taxpayer, which was required in order to implement the variable rate, to which we were told that the Scottish people had given their consent. Will he tell us specifically what was wrong with that definition that requires all these clauses in this Bill?
My Lords, it might clearly be seen that this group raises significant issues. The Scottish rate of income tax is plainly a major innovation in the structure of UK tax. Where one has a major innovation in taxation issues, usually simplicity is regarded as a virtue. I suggest that simplicity and clarity would be very clear virtues here. The questions that have arisen include definitions. I should like to raise certain of these points. The definition currently being suggested-unlike the bygone definition under the variable rate-is by reference to,
"an individual who is resident in the UK for income tax purposes".
There is no statutory definition of UK residency for tax purposes but, helpfully, there are 86 pages of guidance which are subject to frequent revision by HMRC. In seeking clarity, will there be a way in which the Government will give some guidance as to how specifically the taxpayer for Scotland will be defined and how residence will be defined?
The Chartered Institute of Taxation has suggested that there should be a statutory residence test for the UK. It would be very interesting to hear from the Minister whether steps are being taken to put in place such a test. The chartered institute is not alone. As the noble Lord, Lord Lyell, indicates, the Institute of Chartered Accountants of Scotland has raised this question, as has the Federation of Small Businesses and CBI Scotland. They all seek to see a concrete definition of residence for this tax. What are Her Majesty's Government doing to address these concerns from the professional experts in the area?
The noble Duke, the Duke of Montrose, raised the question of close connection and the test being employed. The example of oil workers living in England but commuting to a Scottish oil rig will not have a close connection but the Scottish resident who works in England, returning to Scotland at weekends and holidays, will, apparently, be defined as a Scottish taxpayer. It will be interesting to hear the Minister's answer to the question of how the Government will deal with mobile workers. They may find it impossible to know where they might be until a day count is carried out at the end of the year.
Concerns have also been raised that there may be unfairnesses that, through a loose definition of Scottish residence, may permit wealthy individuals to arrange their affairs to avoid a higher rate of tax. Plainly, if this is lawful, it is lawful, but it may raise questions as to the extent of avoidance that might take place. It will be interesting to hear whether that has been considered.
It is inevitable that there will be disputes in relation to the definition of residence. Are mechanisms to be put in place to deal with disputes in relation to the application of the rules? Will there be a tribunal system with a right of appeal or will it simply be left to the courts? Where will we stand on this?
I turn to questions of non-UK residents, which tend to excite from time to time. Do the Government agree that a non-UK resident working in Scotland is liable to pay tax in Scotland? Should this be at the Scottish rate? The Bill currently provides that, for example, company directors, sportsmen and entertainers undertaking duties wholly in Scotland would pay UK income tax on income earned entirely in Scotland. Does that seem to be the correct way forward with a Scottish income tax? Employees inevitably will go to their employers in order to seek information on their tax status. They are more likely to do that than to go to the call lines of HMRC. What are the Government doing to support employers, particularly small and medium-sized enterprises, so that they in turn can support their employees in their inquiries?
More broadly, concerns have been expressed by many, including the Chartered Institute of Taxation, that there will be a need to staff up properly to meet an expected flow of difficulties and questions in respect of Scottish income tax. The approach that HMRC adopts towards staffing is one of considerable importance because taxation is perhaps one of the most complicated areas of legislation. While the Scottish Parliament may be able to create new taxes, the questions that will arise are likely to be highly complicated and require a considerable amount of professional input in order to permit clarity to be seen by the Scottish taxpayer.
Another question has been raised which I think might be the subject of a separate amendment but, like the noble Lord, Lord Forsyth, I am not entirely clear on what the running order is at the moment. It concerns the split year. Currently no account is taken of split years where someone may be a Scottish taxpayer for one part of the year and a taxpayer somewhere else in the rest of the United Kingdom for the other parts. The problem is that if one is defined as a Scottish taxpayer at the beginning of the year, it appears that one remains a Scottish taxpayer for the entire year. That may not seem entirely fair or satisfactory. It is perhaps a little unfair to the individual who moves to another part of the United Kingdom, and it creates difficulties for Scottish employers or indeed UK employers who may find themselves having to deal with Scottish rates of income tax in respect of employees who are far away from Scotland. It is a curiosity and seems to be slightly cumbersome. One would be given some kind of confidence that this is going to work well if the Government could indicate how these types of issues will be dealt with. Other changes might be required in relation to pension deduction rules. Should such rule changes be effected through primary legislation by the Scottish Parliament or should they simply be done by subsidiary legislation? It is plain that the former would avoid the lack of clarity that secondary legislation can sometimes create.
One further area of avoidance on which some assistance might be helpful is how Her Majesty's Government propose to deal with avoidance of Scottish income tax rates by the use of the personal service company. Such a company registered in England would presumably permit the taxpayer to draw dividends from an English company. Those do not appear to fall within the Scottish rate of income tax. Again, this might seem slightly curious.
In relation to the self-employed, it would be useful to know if the Government have particular proposals that they wish to put in place on how self-assessment tax returns will proceed. Are they to be altered or will they remain the same? In relation to benefits, inevitably there will be an impact on how they operate in the context of the Scottish rate of income tax. Benefits are assessed on after-tax income. If the Scottish rate is higher, and there is a view that it will always be higher, that will have an impact on benefits because presumably the benefit recipient will be entitled to a higher rate of benefit. How are Her Majesty's Government going to deal with this rather complex problem? If taxation is one of the most complicated areas of our legislation, benefits can certainly give it a pretty good run as the second most complicated area. If, of course, the Scottish tax rate were lower-I accept that this is a possibility-mechanisms may be required to deal with the benefit by reducing it. How is that going to be dealt with?
I accept that I have bombarded the Minister with a range of questions for which I do not seek immediate clear answers. It would be wholly unfair to do so.
When the noble and learned Lord says that he does not expect immediate answers, I would point out that we are at the final stages in the final weeks of this Bill, and he has raised a number of very important points, if I may say so-not least one that I had not thought of, which is that everyone can get around this by setting up a company in England and paying themselves in dividends. Since I had not thought of it, I would like to have an answer to that and to the other questions. If there are loopholes of this kind, they need to be plugged before the Bill reaches Royal Assent.
I am guided by the noble Lord, Lord Forsyth, as to how one should approach the Minister. I note what he has said and I hope that I have at least given the noble Lord some useful advice that will allow him to look at certain issues. However, I will await the answers from the Minister.
There is one further point that I should raise with the Minister, which to an extent echoes what the noble Lord, Lord Kilclooney, said. We are in a position where devolution seems to be taking us to where we may have a separate tax system in Scotland, in Northern Ireland, possibly in Wales and in England. Under the coalition Government there is a new Office of Tax Simplification. It would be helpful to know if some guidance might be sought as to how simplification might be assisted. I do not mean that entirely frivolously because it is plain that this is an area of great complexity. It would be useful at least to recognise that there may be a step away from a unitary tax system to something that is more complicated, so guidance on simplification from every quarter might be useful. In relation to the various amendments, it will be detected that we are broadly in support of seeking clarity.
I am grateful to the noble and learned Lord, Lord Davidson of Glen Clova, for his measured and reasonable approach. I think that I have had 57 varieties of questions and counting. Some of the questions are very technical and possibly do not go to the heart of the clause, but I will make sure that a letter sweeping up as many of the points as possible is written ahead of the Report stage so that all noble Lords have their queries addressed in good time.
There are one or two questions that I had anticipated which we did not get to, such as the tax position of Scottish astronauts. I am sure that we could have found one or two other cases. The serious starting point of all this is that, as the noble and learned Lord, Lord Davidson of Glen Clova, points out, there is huge complexity already in the UK system on residence matters. We do not want to add unnecessary complexity in this Bill. Quite a number of the issues that have been identified in this interesting discussion already arise under UK tests, and are not particular to Scotland. Others are very much issues particular to Scotland. I believe that they have all been given consideration, but I certainly do not pretend that any of this will be simple.
The reason it is not simple is not mainly because of what has been done in this Bill. It is simply because UK residence considerations are themselves already very complex. That is why the Government consulted last year-this is relevant background to the consideration of these clauses-on the introduction of a statutory definition of residence, to provide greater certainty for taxpayers about their UK tax residence status. That issue goes to the heart of a number of questions and concerns. The Government will legislate for that in the Finance Bill in 2013, and will help on all that flows from it, including the questions that we are discussing this afternoon.
Having briefly said that as a matter of background, I know that other noble Lords are bit confused about what we are debating. For clarification, I believe that I am speaking to Amendments 54ZA, 54BA, 54BB, 54FA and 54FB, and whether Clauses 30, 31 and 32 should stand part of the Bill. I proceed on that basis.
We start with a complex position in the UK; there is no denying that. The new Scottish rate of income tax sits within that framework. We want to ensure that taxpayers' businesses and employers across the UK can operate the rates that apply to Scottish taxpayers as simply and effectively as possible. Of course, some of these professional bodies are there to look for these really difficult cases and point them out. We will take them on board, if we have not already, in all the technical notes. The key thing is that we want to keep the overriding tests as simple as possible.
Clause 30 sets out the definition of a Scottish taxpayer. A Scottish taxpayer will meet two tests in a tax year. The first is that the individual is UK-resident for tax purposes. The second is whether the individual meets any one of three conditions, A, B or C. Where they meet any one of these conditions, they can simply disregard the remainder.
In answer to one overriding question which came from my noble friend Lord Steel of Aikwood, in applying these tests, as in so much that relates to taxpayers and their income tax returns, we of course rely on the basic honesty and decency of the British people to declare their tax affairs honestly. We want to make it as simple as possible, but we rely on their honesty, backed up of course by a whole range of penalties and HMRC being vigilant in looking for those who may not be declaring their affairs honestly. The overwhelming majority of the population declares things properly, but we need to keep it as simple as we can. Condition A is that the individual has a close connection with Scotland. That is defined in new Section 80E. If they have one place of residence in the UK and that place of residence is in Scotland, they will have a close connection with Scotland and will be a Scottish taxpayer, provided that they live there for at least a part of the year. That will be, I suggest, a straightforward test for the great majority of people. If someone has two or more places of residence in the UK, whether or not they have a close connection with Scotland will depend on whether their main place of residence is located in Scotland for at least as much time as somewhere else in the UK-again, provided that the place of residence is where they live.
Condition B applies to those people who cannot identify a main place of residence. Someone who cannot determine with which part of the UK they have a close connection will need to count the number of days they spend in Scotland compared to the number of days they spend elsewhere in the UK. If they spend more days in Scotland than they do elsewhere in the UK, they will be a Scottish taxpayer. The number of people within this category-having to count the number of days-should be relatively few. I will come back to some of the instances that have been raised in this debate, where that is relevant. Finally, if someone represents a Scottish constituency in the Scottish, UK or European parliaments for any part of the year, they will meet condition C and be a Scottish taxpayer for that tax year, provided that they are UK residents.
I suggest that we have made the starting position to the basic overlay to what is a complex UK test as simple as we can. However, my noble friend the Duke of Montrose has tabled some amendments relating to the definition of a Scottish taxpayer and brings up some important issues. Amendments 54ZA, 54BA, 54BB and 54FA seek to remove condition A of the definition. This would mean that all taxpayers who think that they may be Scottish taxpayers would need to apply condition B and, as a result, count the numbers of days spent in Scotland compared to the rest of the UK. As I have explained, we recognise that the need to keep a record of where one has spent days in Scotland and the rest of the UK adds a degree of complexity and is potentially onerous. That is why, in designing the definition, we have sought to keep the number of people who have to do this counting of days to an absolute minimum.
My noble friend's amendments would mean that individuals such as lorry drivers, those who undertake shift work and those operating on the trains-an example that has been raised-on one side of the England/Scotland border but live on the other would, despite in all probability having very simple tax affairs, nevertheless need to keep a record of days spent in Scotland. We have designed a definition that will be straightforward for the majority of people to operate, and I do not believe that we should change that approach of simplicity.
My noble friend has also tabled Amendment 54FB, which would seek to define what is meant by "a day" for these purposes. Under this definition, "a day" would be a period of 24 hours terminating at midnight. We have deliberately not included a definition of "a day" in the Bill, in order to keep in line with the way in which the UK residence test currently operates. This relies on where one is "at the end of the day"; again, this would apply to a number of the cases that we have heard about. The phrase "at the end of the day" is used elsewhere in tax legislation. It is well understood by taxpayers and their advisers where it is relevant. Introducing a different statutory definition for the purposes of this Bill, I suggest, risks heaping confusion on something that starts off being perhaps not that simple. This is one of a number of areas in which we should not attempt to use the vehicle of this Bill to rewrite major areas of UK tax law, which are, as I have said in the case of residence, already the subject of major work. I take the general point made by the noble and learned Lord, Lord Davidson of Glen Clova, that we must think continually of simplification opportunities. The Government set up the Office of Tax Simplification with that very much in mind. It may help him to know that the tax director of the Office of Tax Simplification is sitting on the technical group that is looking at all the issues that arise out of this Bill, so there is a connection through the person of Mr John Whiting to the group that thinks about tax simplification measures.
Having said that I will write to noble Lords, I do not want to duck a number of the very important points that have been made. Even though my noble friend Lord Forsyth of Drumlean came in at the end, he asked one of the questions that go to the heart of this clause, as opposed to others which were technical, detailed and of a slightly different order. My noble friend asked simply what was wrong with the definition used for the Scottish variable rate in the 1998 Act. Under the 1998 Act, an individual had to consider a number of tests to determine whether they were a Scottish taxpayer. This could have led to people with otherwise straightforward affairs having to count the days that they spent in Scotland, which comes back to the issue at the heart of the concerns of my noble friends the Duke of Montrose and Lord Lyell. We are trying to help very large numbers of people avoid having to count on a daily basis as they drive their lorries, or whatever else they may do, by keeping to a much simpler definition than was in the 1998 Act centred on the question of close connection and main residence. That is why we thought that the 1998 Act definition needed to be changed.
I understand from a number of questions that the position of oil-rig workers and others who work on the seas is of particular concern. For those who work offshore, whether on an oil rig or any other offshore base, it is very unlikely that that base will constitute their main place of residence, even though they stay there for long periods. That being the case, any day spent offshore will be disregarded when applying the definition of a Scottish taxpayer. Instead, whether they meet the definition will be determined by the location of their sole or main place of residence within the UK. Similarly, with mobile workers within the UK, the critical factor will be the location of their main place of residence. I of course appreciate that there will be difficult individual cases, but I submit that the vast majority of them already arise under existing UK rules.
The noble Lord, Lord Maxton, asked whether the PAYE system would be based on where you work. The PAYE system is based on the tax code, so those identified as Scottish taxpayers will receive a tax code with an "S" prefix which employers will operate. Again, it will all go back to whether you are defined as being a Scottish taxpayer rather than other questions of where the income is coming from.
The noble Lord, Lord Foulkes of Cumnock, raised questions about civil servants, judges and others-we may come to some of these categories in other amendments. Again, movement across the border is not the key issue; it all comes back again to where your main place of residence is, as it does in answer to so many of the other questions. The noble Lord, Lord Maxton, asked about living in Scotland and getting income from elsewhere. Again, the main place of residence will be the driver. Residence overseas is a slightly different question, because the overriding test is whether an individual is resident in the UK for tax purposes-that was another point raised by the noble Lord, Lord Foulkes of Cumnock. Unless you are a UK resident for tax purposes, the simple overlay of whether you are defined as being a Scottish taxpayer does not arise; you have first to be resident in the UK.
I am very happy to address the position of the Armed Forces, but, if my noble friend will allow, we should perhaps deal with that when his amendment on that subject-if he wants to move it-comes up a little later.
The Minister has not addressed the interface of tax and benefit. Tax credits perhaps give rise to some of the most complicated questions. Speaking as a former Member of Parliament, I am aware of the issues that arise when there is the slightest adjustment to the income of some of the poorest people in our community. It would be remiss of us not to address that aspect of taxation being imposed at different rates on different sides of the border.
I will come back to that point because the question of credits is very important. I am happy to talk to that but let me answer one or two of the other questions that have already arisen. I shall pass over some of the detailed questions that are largely in the same category as some that I have already addressed.
On the question of safeguards and appeals, the appeals process will apply as it does to appeals and disputes with HMRC across the rest of the UK. That is clear and straightforward and, in general, applies to a number of the concerns of the noble and learned Lord, Lord Davidson of Glen Clova.
Let me address the issue of personal service companies as that has been somewhat topical recently. The Calman commission recognised that the changes would need to apply the Scottish rate of income tax to income from savings and dividends. The changes needed to apply the changes to savings and dividends would be prohibitive and so, as noble Lords know, savings and dividends are not within the scope of the Scottish rate of income tax. However, HMRC's compliance work, including that relating to IR35, will continue to ensure that all taxpayers pay the correct amount of tax and national insurance contributions, including those who are liable at the Scottish rate. As is evident, all noble Lords who are here today are expert in these matters and I hardly need remind them that the aim of IR35 is to eliminate the avoidance of tax and national insurance contributions through the use of intermediaries such as personal service companies or partnerships. The noble and learned Lord is right to be concerned about this but the matter has been considered by HMRC in the construct that we are talking about today.
Could the Minister elaborate on that? Setting up a bogus company in order to avoid tax is clearly black and white, but where someone living in Scotland who meets the test has multiple sources of income, perhaps through being on several boards and so on, surely they could legitimately set things up so that their only income was paid as dividend income and therefore avoid, quite legitimately and within the rules, the Scottish tax. Or is he saying that there will be some additional anti-avoidance measures?
My Lords, depending on the nature of the scheme, it may or may not be caught by the anti-avoidance rules that already exist. Clearly HMRC, in its compliance role, will have to ensure that the issue of avoidance is fully addressed. These are complex areas and perhaps my noble friend will permit me to consider whether there is anything I can do to help where we see new areas of avoidance, if any, potentially being opened up, and what the technical thinking is about how these might be closed down. Some of the areas referred to by my noble friend sound as though they are getting precious close to artificial schemes that would be covered at present. However, let me take the matter away.
Let me address a couple of more points. On the broader question of the noble Lord, Lord Foulkes of Cumnock, of what had changed since the workshop, yes, I appreciate that the workshop raised a number of issues and I wrote to all noble Lords who were there answering the questions that arose. There have not been any changes proposed as a result of the issues that came up but it was a useful session. As noble Lords who were there will know, HMRC was there and listening hard. All the issues raised were already being thought about and, of course, this will be reflected in the guidance. It was a useful session because it will inform the drafting of the guidance. As the noble and learned Lord, Lord Davidson of Glen Clova, said, there will need to be clear guidance around this issue and therefore the more questions that are raised generally-but, please, not immediately-will help HMRC with the drafting of the guidance that will be needed.
Finally, I want to come back to this question of benefits and the universal credit, which is a very important area. The clause does not address it directly but it would be wrong to dismiss it at this point. The universal credit forms the background against which we must look at this. As noble Lords know, the universal credit is going to deliver a dramatically improved, simpler benefits system that smoothes the transition into work and improves work incentives. By 2016, when the Scottish rate of income tax is proposed to come into effect, the transition to universal credit will almost be complete, as that will be finished by April 2017. Universal credit is expected to be awarded on the basis of income net of tax, as existing income-related benefits are now. If the Scottish rate and the UK rates differ, then net incomes may of course differ depending on the amount of income tax paid, so that it is possible that there would be a difference to an individual's universal credit entitlement as a result of the Scottish rate.
However, it is worth bearing in mind that many factors determine an individual's net income and that a range of local factors could determine their universal credit award, such as housing or childcare costs. The Scottish rate would be another factor to be taken into the calculation. The extent of any divergence of entitlement would depend on a number of factors, including the prevailing rates in the United Kingdom, the rate set by the Scottish Government and whether an individual's income is subject to income tax at all. I hope that gives the noble Lord some reassurance that the linkage with universal credit has been carefully considered.
I am grateful to the Minister for seeking to respond to this very complex issue. The kind of people who are likely to be affected by this may well be those who are currently employed in the public sector and whose wages are being considered for possibly no longer having a national rate. We could have the anomalous position of someone working for a local authority in Berwickshire being paid the same rate as someone in Northumberland-which is probably less than some other parts of the county-but ending up, because of the universal credit, getting paid more through benefit compensation than people south of the border in Cumbria or Northumberland, because they are being charged a higher rate of tax in Scotland. This kind of anomaly is going to create all kinds of difficulties. This form of taxation may not be the cause of it, but it will certainly be an exacerbating factor and have social consequences of quite a dire character.
My Lords, I was going to follow up on the noble Lord's point by saying that one of the consequences of this will be that the Scottish rate of income tax is higher in order to fund the Parliament's additional commitments, but the English taxpayer is going to have to foot the Bill for the increased benefits payments that arise. Will my noble friend make arrangements so that the additional cost of the benefits that arise, because of the increased taxation being levied on benefit recipients, is taken from the Scottish block grant?
My Lords, as I have tried to explain-and we can talk about the block grant at another point-the key point for these clauses and the interaction with the benefit system, which is very relevant, is that there will be a range of factors that will already be taken into account in calculating net income for the purposes of universal credit. I do not think that is conceptually any different for somebody who is working on one side of the border and living on the other. As we have been discussing during this really useful and important debate, the main-residence test will be the key driver here for most people. That will underpin all these considerations. In a sense, the points that the noble Lord has raised in relation to benefits are actually income tax points, which I have tried to cover by explaining that we are keeping this as simple as we can.
This has been a key debate on the heart of the Bill. We have a complex system of residence tests in the UK already. We are working with the possibility of a statutory residence test to make that simpler. Our watchword in this Bill is to introduce something that is as simple as possible for the majority of Scottish taxpayers as an overlay to the UK rules. That is why among other things the rather more complex approach in the 1998 Act is proposed to be superseded. It is all coming back to the main purpose of this to enable Holyrood directly to affect the level of its own income in a clear way that makes it accountable for the future Scottish budget and makes it dependent on the performance of the Scottish economy and policy decisions. These are the clauses that provide for the greater financial accountability of the Scottish Parliament to its electorate, with a real stake in Scottish economic performance, as a significant proportion of the budget for its public services will come directly from taxes set and raised in Scotland.
On the basis of the explanations that I have given the Committee, I ask my noble friend the Duke of Montrose if he would consider withdrawing his amendment.
I appreciate that my noble friend may not have had briefing or thought about the question of benefits, and I must say that I had not thought about it until the noble and learned Lord, Lord Davidson of Glen Clova, and the noble Lord, Lord O'Neill, raised it. But it is an important point because of how very small changes in income make a huge difference to the benefits that people are entitled to, because of the nature of the taper. So there is the effect on the individuals of the use of these powers by the Scottish Parliament; they will not be dealing with the Scottish Parliament or Scottish Government but with the Department for Work and Pensions.
There is a serious point here, because if the Scottish Parliament substantially raised income tax so that net incomes were lower there could be very significant increases in benefit costs arising from that action. My noble friend finished his speech by saying that this was all about increasing accountability of the Scottish Parliament for its decisions, but how can it be increasing accountability if the result of its decisions was to send a bigger Bill to my right honourable friend Iain Duncan Smith in his department and perhaps, thereby, create pressure on payment on benefits in England because of the unexpected consequences of this provision? So this is a transfer payment.
Before we get to the next stage, could my noble friend have a word with his colleagues whose responsibilities lie in this area and write a letter to those of us taking part in these proceedings, indicating how the circle will be squared?
My Lords, if the noble Lord had heard the richness of this debate he might have understood the context in which all this was raised. I was pointing out that quite a lot of what my noble friend raised, if it relates to bogus companies and other things, will already be under the microscope of HMRC, which will deal with it as part of its normal UK responsibilities.
I commend my noble friend and express my enormous gratitude for the huge patience he has shown. He has promised to write to me, but could he please also ask his colleagues to look at col. 250 of our Second Reading debate on
My Lords, this has been a very far-reaching and complicated debate and I must thank all those who participated in it. I must also apologise to your Lordships for starting off in such a rushed manner. I had gone out of the Chamber to see if I could find out what on earth the order was that we were trying to follow. Outside, I could find no evidence of what the order was, which was what brought me back in again-luckily, I was just in time.
Most of my amendments in this group were consequential with the exception of the last one, Amendment 54FB, which the Minister very kindly answered even though I had not spoken to it. It was about the definition of a day. The idea of saying that a day,
"means a period of twenty-four hours terminating at midnight",
was to couple it on to subsection (1)(a) of proposed new Section 80F, which refers to,
"the number of days in the year on which T is in Scotland at the end of the day".
The Minister seems perfectly happy to leave this as a vague definition, but to some of us it is hard to know whether,
"the end of the day",
is the end of the working day or when you finally get home for your supper, or when you go to bed. Apparently in tax terms it is perfectly natural and normal to leave it completely undefined, which is certainly an interesting explanation.
I was interested when the noble and learned Lord, Lord Davidson of Glen Clova, raised the definition of a residence. It is reassuring to hear that the Government are already on to the case and are hoping to define a residence in statute. Although that is obviously a little further down the line, it will presumably be in place before the measures of this Bill come into effect. There is still the question of how HMRC will have a way of determining the total number of days that somebody has spent in Scotland for those who require this definition, in order to know whether they are taxpayers. I thought that the Minister was not quite correct to say that the object was to simplify the definition, because what I presented in my amendments is by far the simplest form of definition. The Minister seems to think-he might be right; I could not say until I look into it some more-that by bringing out a slightly more complicated definition he is making it simpler in application, which perhaps has much to recommend it.
The noble Lord said that nobody had raised the question of what would happen to Scots who were astronauts. However, if the Scottish Government start playing rather extraordinary games and the Bill does not pass in its present form, the Minister might have to address what will happen to a Scotsman living in Antarctica. In the mean time, I beg leave to withdraw the amendment.
Amendment 54ZA withdrawn.
Given the remarks of the noble Duke, it may be of assistance to the Committee if I explain where we are regarding grouping and degrouping. To the best of my knowledge, the following amendments will be addressed separately: Amendments 54A, 54B, 54C and 54D. Amendment 54E will be grouped with Amendment 54A, and Amendments 54F, 54G, 54H and 54J will be dealt with separately. I trust that that is correct.
Moved by Lord Forsyth of Drumlean
54A: Clause 30, page 23, line 10, leave out "or C" and insert ", C or D"
I am most grateful for that guidance and I apologise for having spoken too early to this amendment. We have had quite a long debate about the incidence of liability for Scottish income tax. I thought that I might be able not to move this amendment, which is why I interrupted my noble friend and asked him to say something about the Armed Forces. I am very concerned about the position of people serving in the Armed Forces who may be stationed in Scotland, and whether they will be liable for the Scottish income tax. This is an important point which touches on a later amendment-which the noble and learned Lord, Lord Davidson of Glen Clova, mentioned-to do with the period to which Scottish income tax relates. Regardless of whether the test is no longer met, this could create an anomalous position in respect of servicemen.
During consideration of the Bill in the other place, the Government promised to bring forward a definition that dealt with servicemen. I have included one in the amendment-which is probing and not meant to be the answer-in the hope that I might provoke my noble friend into providing an answer that makes the system simpler. Judging by his remarks about the very concise definition in the 1998 Act and the definition in the Bill, that may mean that it looks more complex. However, at the moment, it seems that the position of people in the Armed Forces who perhaps live in rented or service accommodation is not clear. I beg to move.
My Lords, Amendments 54A and 54E would add this new condition-condition D-to the definition of a Scottish taxpayer. If I understand rightly, my noble friend's intention here is that a serving full-time member of the Armed Forces should be a Scottish taxpayer only if their main place of residence for any part of the year is in Scotland and that residence is a property that they own rather than one provided by their employer.
The Government have given careful consideration to the treatment of serving members of the Armed Forces in relation to the Scottish rate of income tax. We have consulted with the Scottish Government and following that consultation the Government have decided that members of the Armed Forces who meet the close-connection test should be liable to pay income tax at the Scottish rate. Prior to the introduction of the Scottish rate, HMRC will work with the Ministry of Defence to ensure that guidance is available to service men and women on their particular circumstances.
My noble friend raises a perfectly reasonable question about whether there is or should be an alternative test. At present, however, members of the Armed Forces will be Scottish taxpayers if they meet the close-connection test. It is difficult to see any justification for distinguishing between those who rent and those who own property, or the extent to which members of the Armed Forces do or do not rent property from the Ministry of Defence rather than having their own. Therefore, we believe it is appropriate to keep the basic test also for members of the Armed Forces. On that basis, I hope that my noble friend will withdraw the amendment.
It would be helpful if the noble Lord could clarify the following matter. If in any set of circumstances a serving member of the Armed Forces who is ordered to serve and live in Scotland is thereby made liable to a higher rate of income tax, will the service of which he is a member compensate him for that difference?
Before my noble friend replies on that point, perhaps I may say that I also had it in mind. Indeed, 18 miles from my home, and not far from the place of birth of my noble friend Lord Forsyth, is 45 Commando at Arbroath. I took the trouble to ring the electoral office in Angus. I was told that servicemen can vote in Westminster general elections-not Scottish elections-when they nominate their place of residence. Is my noble friend saying that the Government have consulted him, the Treasury and the Scottish Government and are laying down a new law whereby servicemen will be taxable even though they cannot vote in Scotland? Of course, the Scottish Government would like to get more tax from servicemen, even if the latter are not getting a vote there. Will my noble friend please check that?
My Lords, in answer to the first question, there are lots of situations where employers may move people around as a requirement of their employment contract. That is not by any means confined to the Ministry of Defence. People in a number of professions and occupations are moved around from one tax jurisdiction to another. Differential tax rates comprise a factor that needs to be taken into account in the total benefit package. The Armed Forces build that into the packages of servicemen working here or elsewhere.
As regards voting, I am getting into difficult philosophical discussions concerning tax without representation that could keep us going deep into the night. However, my understanding is that we are talking about a very specific matter to do with a rate of income tax which is quite separate from the law that relates to where people can vote.
In answer to the question from the noble Lord, Lord Browne of Ladyton, I have made the general point that employers need to consider total packages. However, I can give him specific reassurance that in the event that Scottish and UK rates differ at any point in the future, the Ministry of Defence will do what I suggested any employer has to do, which is to explore options to mitigate the effects of different rates of tax by using processes which are currently used for personnel serving abroad. I am glad to confirm that it will do what I rather expected it would.
My Lords, as I said earlier, there is a general impression in Northern Ireland that as Scotland moves towards greater devolution, perhaps even independence, there will be a higher level of taxation in Scotland than in the rest of the United Kingdom. That is the fear in Northern Ireland, because we have particularly close connections with Scotland, and we do not like the idea of paying more tax. Many people from Northern Ireland are in Scottish regiments and are based in Scotland. Are they going to have to pay higher taxation because they are in Scottish regiments, or, because their homes are still in Northern Ireland, will they still be paying United Kingdom taxation?
My Lords, they will pay the Scottish rate of tax only if they meet the close-connection test that is at the heart of the clauses we debated in the previous group of amendments. It therefore entirely depends on the close-connection test, and particularly where their main place of residence is.
Further to that point, this is a circular argument. My amendment chose to alter the provisions in the Bill because the test of close connection does not deal with the circumstances that the noble Lord just mentioned. On my reading of new Section 80E, which defines close connection,
"where T has 2 or more places of residence",
a soldier may have one residence in the family home in Northern Ireland and the other may be barrack accommodation in Edinburgh or some other part of Scotland. As I understand it-the Minister can tell me if I am wrong-under that definition the soldier would be liable to pay Scottish income tax. That is clearly and absolutely not fair. He might be in Afghanistan or Scotland. No one expects him to pay Afghan tax.
I tabled my amendment to suggest a possible remedy, although it may not be ideal-perhaps my noble friend can comment further. I may be wrong but my recollection is that during consideration of this matter in the other place Ministers said that they would come forward with a view. My noble friend seems to be saying, "Well actually, soldiers are the same as everyone else". They clearly are not the same as everyone else, and are not in the same position as someone who works for the Royal Bank of Scotland who gets posted from London to Edinburgh. I do not want to prolong the debate by talking about the military covenant and so on, but these service men and women are paid very poorly for the job they do, and therefore the burden of increased taxation could be significant.
What my noble friend said was very welcome if it was that where such soldiers are caught by Scottish taxation they will be compensated by having their gross salary increased so that their net position remains the same. That would be fantastic, but can we have that as an undertaking from the Government and perhaps have it written into the Bill at a later stage? Perhaps my noble friend will come forward with an amendment to achieve that purpose. Could we then also work out a system similar to the transfer payment that we mentioned when we talked about the impact of a higher tax rate on welfare payments that would be made in Scotland? Such a system would involve a transfer payment from the MoD budget to compensate for the increased revenue that was being raised from tax in Scotland. The MoD therefore would need to be compensated for that by a reduction in the Scottish block grant.
I am rather confused by this. After listening to the question of the noble Lord from Northern Ireland, I can see a situation arising in which a soldier could be posted to, say, Edinburgh, and could rightly show that his family, wife and children live elsewhere in the United Kingdom-in Northern Ireland-whereas a single soldier in the next room would be resident in Scotland, and therefore on a different rate of pay.
I agree with the noble Lord, which is why my amendment proposes that if they are in military rented accommodation, they should not have to pay. Another way to deal with it would be to give them the choice of where they pay their tax. As it stands, their position is anomalous. I must say to my noble friend that if I were a member of the armed services listening to him saying that there are a number of options that the MoD will look at, I would not be very satisfied. We need clarity, particularly because so many Scots serve in the armed services and so many bases to which members of the forces are deployed are in Scotland. On the argument about accountability, as my noble friend said, many of them will not have had the opportunity to vote in the Scottish parliamentary elections on the taxes that will be imposed on them.
The military are a special case, and my noble friend ought to say that he will take this away and come back with a government amendment to deal with it, either in the terms that he suggested-that the MoD would provide compensation-or some other terms. Simply saying that the Bill provides for it and it is just about applying the test of close connection will not do.
My Lords, at the risk of repeating myself, the Government undertook to come back, having looked at this again. We have; we consulted the Scottish Government; and we consider that there are lots of individual situations that can be called anomalous, but that there are just lots of individual circumstances related to Armed Forces personnel and a lot of other categories of people who should be taken into account when considering how the Bill will operate. On reflection and after consultation, it was decided that the basic test of close connection should apply to the armed services, as it will to everybody else. I accept that how it works out will depend on an individual's circumstances.
As I explained as clearly as possible, not only will guidance be given so that individual members of the armed services know how to interpret the test, but-I repeat again-in the event that Scottish and UK rates differ at any point in future, the Ministry of Defence will consider exploring options to mitigate the effects of different rates of tax by using existing processes used for personnel serving abroad. The metric is already there for service personnel sent abroad.
In answer to my noble friend's further point, I do not believe that that should be written into the Bill. It is something that the Ministry of Defence does in the normal course of events-it looks at the anomalies, in his terms.
My Lords, I apologise to the House because I have not been here for the whole debate. Indeed, I only came in because I suddenly became aware of this point. This is an issue that could easily be resolved, but the position we have got ourselves into stands against reason. It will not go down well with people. Perhaps the Government could take it away to think about it. If it gets someone like me dragged out of my office when I am working because I suddenly become aware of it, my goodness, I can tell noble Lords what effect it will have on the military across the board. I beg the Minister to think about making some concessions along the lines suggested by the noble Lord, Lord Forsyth.
My Lords, I come back to the position in Northern Ireland. It is all very well to say that if there are higher taxes in Scotland, a serviceman serving in a Scottish regiment in Northern Ireland, who at the moment pays a standard United Kingdom tax rate, will be judged as living in the place with which he is most closely identified. It should be remembered that many soldiers stationed in Scotland do not like to register their address in Northern Ireland for obvious security reasons. Therefore, they could well be looked on as being Scottish taxpayers and have to pay the higher taxation that we fear will apply in Scotland.
My Lords, I shall try once more with my noble friend. Perhaps he could translate the language that he used, which I recognise as coming straight out of the script of "Yes Minister". I know that this is fed to him from elsewhere and we are not supposed to notice but, when he said that the MoD would use its usual procedures and look at all the options, did that mean that the MoD would pay the tax if soldiers stationed in Scotland were subject to a higher rate of income tax? If that is clearly and absolutely understood, I am less concerned about the definition. However, his language was a bit fuzzy and he did not really seem to make that absolutely clear. If he is giving an undertaking on behalf of the Treasury and the Government that servicemen stationed in Scotland will not lose out as a result of the incidence of Scottish income tax, I shall be very happy to withdraw my amendment.
The words were carefully considered. I have put them on the record twice and my noble friend knows perfectly well that I am not going to go any further, whether I have a script or not. The Ministry of Defence will do just what I said it will do in these circumstances, if and when they arise.
I am not sure what it is that the noble Lord wants me to come forward with. There are two things here: the basic test, where the Government's position is that the close-connection test should apply; and the question of what the compensation arrangements might be in the hypothetical circumstances, which are quite possible, of a higher rate of Scottish tax being imposed. I cannot give a commitment to come back with anything more on either point, although I am taken in particular with the very practical points that might arise if, for example, there are security reasons for not disclosing the address of a main residence. These are the sorts of important and practical issues that need to be taken account of in the guidance which serving personnel clearly need to be given, as and when they have to apply the test.
My Lords, it is probably not my role to get the Minister off the hook in any way but we are, quite rightly, taking the sober and, one might say, realistic view that Scottish tax might go up. We are obviously missing what one might consider to be the almost messianic view of Alex Salmond that everything is going to be paid for by North Sea oil, renewable energy, and marine and wind energy, and that tax rates might go down.
Picking up the last point made by my noble friend the Duke of Montrose, the Bill does not provide for North Sea oil, wind energy or any of those things, and that is why the tax will go up. If Alex Salmond were here, that is what he would say and it is what he will say. He will say that the Scottish rate of tax has to go up because Scotland does not have the power to deal with all these other things. I can write the script; it is not very difficult. The tax is going to go up.
I thank everyone who has participated in the debate. I think that my noble friend should be very influenced by the words of the noble Lord, Lord West, who knows a bit about the military. He should also be very influenced by the position in Ulster that has been spelt out. It is simply not fair to expect members of the Armed Forces who are deployed and living in barracks in Scotland to pay a higher rate of tax. When my noble friend says, "We consulted the Scottish Parliament and it was happy to leave it as it is", of course it was happy to leave it as it is; it wants the money. It is in its interests to have as many people as possible paying. My noble friend shakes his head. Why is it not in its interests?
It is simply that it is a matter of principle how tests should apply to different categories of people. It is not a numbers game as to how many will necessarily fall into what categories. It is a matter of principle as to how members of the Armed Forces should be treated. The Scottish Government-not the Scottish Parliament, to correct my noble friend-believe that the proper principle here is that the close-connection test should apply.
I stand corrected. If my noble friend followed any Scottish business, he would realise that the Scottish Parliament and the Scottish Government are treated as the same thing by the First Minister.
I am so pleased that my noble friend has made this point. It is a matter of principle that members of the armed services who are deployed to Scotland, living in barrack accommodation, who have no choice in the matter, being under military discipline, should not be required to pay the additional tax. If the Government take the view that the additional tax should fall on them because it is administratively convenient for them, they should get a clear and absolute undertaking that the Ministry of Defence will meet the costs of that. The costs should fall not on the English taxpayer but should be rebated back by the Scottish Parliament. Otherwise it is a transfer of money from the MoD to the Scottish Government because they have put taxes on members of the armed services who are stationed in Scotland.
I will happily withdraw the amendment but we will come back to this at a later stage in the Bill. I advise my noble friend to discuss with his colleagues how he can improve the position. I do not believe that it is sustainable. It is an extremely unfair position, and for us to be doing it at this moment-of all moments-when the whole country is very conscious of how much we owe the armed services, would be a mistake. I beg leave to withdraw the amendment.
Amendment 54A withdrawn.
Moved by Lord Forsyth of Drumlean
54B: Clause 30, page 23, line 10, at end insert-
"(1A) If the activity which allows T to meet conditions A, B, C or D is undertaken for some but not all of the tax year then T shall be a Scottish taxpayer only for that period of the year and a UK taxpayer for the remainder of it."
My Lords, I want to touch on this briefly. It was a point alluded to by the noble and learned Lord, Lord Davidson of Glen Clova. This is about fairness and I hope that my noble friend the Minister is not going to tell me that there is a principle involved here. I see a principle, which is that you should not be taxed for something that you have not received.
As drafted, the Bill provides that if at any time in the tax year someone is defined as a Scottish taxpayer but then changes his status, my noble friend says that he will have to pay the tax. Perhaps he is one of those members of the armed services, who is stationed in Edinburgh from April to May and then goes somewhere else for the rest of the year. He will have to pay the Scottish rate of income tax for the full year, not only for the period when he was defined as a Scottish taxpayer. That cannot be right. I can see why it is administratively convenient for the Revenue and the Treasury. They have thought up the idea of having different tax rates in the United Kingdom but I do not see why taxpayers should have to bear the burden. It is unfair and my amendment provides that liability to pay the Scottish tax should arise only for the time when someone is getting the benefits of the services and political representation that the Scottish Parliament provides. I hope that my noble friend will accept this as a matter of principle and on grounds of fairness. I beg to move.
My Lords, I do not want to keep on going back to 1997-98, but this was the sort of problem that arose then. I shall take the argument slightly further forward, because we now hear that the Welsh Assembly wants to have tax-varying powers. That is very understandable. If the same test is applied in Wales as has been applied in Scotland, it would be possible for a person to be a national taxpayer in Scotland and a national taxpayer in Wales for the whole of a tax year.
My Lords, my noble friend's amendment would introduce the concept of split-year treatment for those who move between the UK and Scotland during the tax year. I quite accept that a more accurate split of tax payments based on the time an individual spends in Scotland and the rest of the UK might in theory be desirable, but it would add very considerable cost and complexity to the system. As I took pains to point out in the previous discussion, in the Bill, we have been trying to keep the overlay of the application of the Scottish rate as simple as possible. My noble friend continually postulates circumstances in which there is a higher rate of income tax in Scotland and he puts the case of somebody who is disadvantaged by spending a relatively small amount of the year in Scotland but being caught by the definition for the whole year. I could equally well give cases that might apply the other way round. I accept that, in theory, the system should more closely be related to the amount of time an individual actually spends in Scotland. Theoretically, one cannot argue about that, but it would introduce cost and complexity into the system without the advantage or disadvantage going in one particular direction. What should rule here when we come to the practical application-
I listened carefully to the Minister's response to the previous amendment and to this amendment. I see a policy unravelling here. I see the Treasury having to bring the objectives of this Bill into line with practical implementation and finding it extremely difficult to do so. The Minister has just told us that there is a practical difficulty in addressing the amendment proposed by the noble Lord, Lord Forsyth. Can he explain why that practical difficulty does not also arise with people who are able to change their non-domicile status in the middle of a tax year and, indeed, change twice during a tax year? If that can be managed for the super-rich, why can it not be managed in this situation?
First, if the noble Lord, Lord Myners, had actually been here for the substantive discussion of the enabling clauses of the Scottish income tax rates, he would know we discussed residency questions at length, including people who are part resident here or overseas. I think he has come in for the wrong part of the Bill, but I appreciate that he is a very busy man. We are sorry that we did not have him enrich the debate. We are sorry that he did not come and discuss the clauses where the basic residence test was-
That is language of asperity. If the Minister does not withdraw, I will move a Motion that the House vote on that. I have made a perfectly reasonable contribution. We are in Committee, so I am perfectly entitled to do that. The fact that the Minister is struggling to answer the question is not a justification for personal rudeness and language of asperity, on which the rules of the House are very clear.
This is all very good theatre, but we discussed the basic question of UK residence earlier this afternoon. As I said, I am very sorry that the noble Lord, Lord Myners, was not able to be here to enrich that discussion, but that it not what we are talking about in this debate. We are talking about different matters, which are important and the ones that we should concentrate on.
I am sorry, but I have asked the Minister a very simple question. He has told us that for practical reasons it is not possible to accept this amendment. I am arguing that exactly the same practical issues arise with non-domiciles and it is possible for them to change their status more than once in a year. Can the Minister explain what practical reason frustrates the amendment moved by the noble Lord, Lord Forsyth, but permits non-domiciles to do this? It is a very simple question.
I repeat that if the noble Lord, Lord Myners, had been able to be here for the earlier discussion, the key question about the residence test in this Bill is that it builds on UK residence; you have to be a UK taxpayer before the question of the Scottish status applies. We discussed that at some length earlier, and the whole concept is to keep it as simple as possible for the basic overlay of the Scottish status on the UK status. Exactly the same thing applies in respect of this proposed amendment-which goes directly to his challenge-which is that theoretically we could find more perfect concepts but we have to live in the real world. We want to make this fair but we want to make the tests workable for both the individual and, of course, HMRC, but particularly for the individual.
Perhaps I can come back to my noble friend's point before he jumps in again. He gave an example to make a particular point, but I should have drawn his attention to the fact that the example he gave of residency of two months-April and May-in Scotland of course does not make that individual a Scottish taxpayer. The basic test, as we have discussed at some length, is if your sole or main place of residence is in Scotland for the majority of the tax year. We need to be very careful about what examples we give.
That is definitely a point to the noble Lord. I was thinking on my feet and of course he is quite right. If he wants, I can spend the next 10 minutes giving him examples where it does apply but I suspect he would rather I did not.
Following up on the point made by the noble Lord, Lord Myners, it is the case that for wealthy people who are non-doms, the Revenue can accommodate them. My noble friend said-I thought very unfairly-that the noble Lord, Lord Myners, had not been here for the bit of the debate where he dealt with these issues. I have been here since the beginning and nothing he has said addresses this point.
My Lords, I am sorry, but we discussed at some length the fact that the Government are working to introduce a statutory residence test that deals with these things. Forgive me, but that goes absolutely to the heart of the point that the noble Lord, Lord Myners, is raising. I suggest that we have actually gone to this point very directly this afternoon.
I think that my noble friend is missing the point that is being made; namely, that the Revenue is able to deal with people who are flitting in and out of being liable for UK tax. It has nothing to do with the test of residency. In this case, it is about fairness and whether you are liable for the tax arising from whether you are a Scottish taxpayer or an English taxpayer. The noble Lord was simply making a parallel case and asking why the Revenue can accommodate some people. I suspect the reason is that there are a few of them and they pay a lot in tax. The Inland Revenue might look at this and say, "Oh well, we could have a lot of people who might be moving and it will be difficult". I thought that the whole argument for this was based on it being terribly simple because it simply means changing someone's tax code. Tax codes are changed all the time. What is so difficult about changing someone's tax code when they have moved from Scotland to somewhere else or to change their liability for Scottish income tax during the course of the tax year?
My Lords, let me have a go again. I think that my noble friend has answered the key part of the question. As we have been discussing for a long time today, we want to make this construct as simple as possible for the great majority of people. That is why the test is the close-connection test, which comes back essentially to where the main residence is for the majority of the year. It is as simple a test as there can be.
As my noble friend rightly points out, these questions about non-residents, non-doms and all that refer to a comparatively tiny number of people with complex tax affairs. Suggesting that the Revenue can deal with individuals with complex affairs and usually high incomes is quite a different matter from requiring the majority of the Scottish population, for example, to have to deal with a complex test of coming in and out of Scottish tax treatment.
My Lords, we have had a very useful debate. I am most grateful to the noble Lord, Lord Myners, for his contribution, which woke us all up a bit. I am not persuaded by my noble friend's argument, at the end of which I think we got to the bottom of the matter-it simply is going to be too much trouble and, as regards these people whose tax status changes during a year, there might be rather a lot of them and we are not too bothered about it.
I venture to suggest that for those people the difference between perhaps paying Scottish tax and English tax might be significant. When my noble friend says, "Well you would be dealing with the whole of the Scottish population", I do not think that the whole Scottish population will change their tax status in any one year. The Revenue is quite capable of dealing with changes in circumstances in a variety of ways. When my noble friend says that he wants to keep it as simple as possible, perhaps I may suggest that the way in which to do that is to drop this whole idea of having a separate Scottish income tax.
This is the Government's idea and if they are going to change the tax system, they should be able to make sure that it is workable and treats people fairly, and that the answers to our questions are delivered. For the life of me, I cannot see how it can be right that someone who moves from Scotland to England continues to have to pay Scottish tax. Of course, at the other end of this building, none of this was discussed because it was guillotined and there was no opportunity. But I would not like to be a Member of Parliament living in England who receives a letter from a constituent asking why they are having to pay Scottish income tax when they are now living in England. I do not know the answer. If we sent a standard reply from the Treasury saying, "Well, it is administratively simple to make it this way", that would be a vote lost and a very unhappy constituent.
When the noble Lord talks about voting, someone moving from Scotland to England would be able to move their vote. They would not be able to move their tax apparently, but they would be able to take themselves off the register in one place and put themselves on the register somewhere else.
I would guess that that must be because electoral registration offices have far more staff than HMRC, so it is probably easier for them to cope with these matters. This is an important principle. The idea is that it is just too difficult and too complicated. When we raise the issue of how employers are going to deal with a payroll where people are constantly changing from being liable for Scottish or English tax, we are told by Ministers and the Treasury, "It is very simple. It is just a matter of changing the tax code, so it is not a problem". But when it comes to the Treasury having to take account of liability, if it is about collecting the tax, then it is far too difficult and complicated. I think we are getting a bit of doublespeak here. I do not say that that applies to the Minister-
Before the noble Lord reaches his peroration, as I am sure he will shortly, does he not accept the point I tried to illustrate somewhat earlier that although it may be unfair for a person to move from Scotland to England and still pay a Scottish tax, it would be totally iniquitous for a person to move from Scotland to Wales, if Wales gets tax-raising powers, and finish up paying two lots of extra tax?
I was about to go on to say that I am not sure that this problem would have arisen under the definition which applied in the 1998 Act. When I asked my noble friend why he had abandoned the definition in that Act, he told me that he had done so in order to achieve clarity and to make it simpler. It is not simpler, as the amendment we are discussing illustrates. If the noble Lord says that the anomaly he speaks of would not arise under his definition, which was certainly shorter, perhaps we should go back to the drawing board. However, my noble friend does not look as if he wants to do that.
We have had a good debate on this-
Before the noble Lord, Lord Forsyth, concludes, I should like to say that I agree with just about everything he has said, except that he said in respect of non-domiciles that the probable reason why the Government can handle all this in terms of processing is because there are very few of them and they pay a lot of tax. In fact, there are far more of them than is customarily imagined and they pay very little tax.
I must take the noble Lord's word for it because he moves in those circles and I do not.
I return to the amendment. We have had a good debate, but I have to say to my noble friend that I will table it again and we will come back to it at a later stage of the Bill. I hope that he will consider this issue because I think that there is some feeling about it in the House. Indeed, he himself has acknowledged that it is not fair, but administratively convenient. I beg leave to withdraw the amendment.
Amendment 54B withdrawn.
Amendments 54BA and 54BB not moved.
Moved by Lord Forsyth of Drumlean
54C: Clause 30, page 23, leave out lines 18 to 21
This amendment would delete the listing of elected Members as being caught by the Scottish tax, but it is not because I seek special privileges for elected Members or that I wish to prevent them from having to pay what I believe will be the higher Scottish tax. Throughout our debates today, the Minister has been at great pains to point out that he wants to have a simple scheme, one that is easy to understand and under which everyone would be able to identify whether or not they were liable for Scottish tax. What I do not understand is why it is necessary to set out in the Bill that Members of Parliament for constituencies in Scotland, Members of the European Parliament for Scotland and Members of the Scottish Parliament are all Scottish taxpayers. Why can the criteria not be applied by them in the same way as everyone else? We will come on to this at a later point, but some of us who live in Scotland and are Members of this House are slightly puzzled and bewildered as to why Peers with a Scottish connection have been left out; I will come on to that in a later amendment.
I deplore the principle of having special rules for tax purposes for elected politicians. That is a very bad precedent. My noble friend may say, "Oh, we have put it in here because we were worried that there might be a row over some Member of Parliament or Member of the European Parliament". However, there is an important principle here. We should not have tax legislation that gives Members of Parliament special privileges-although in this case, I have to say, I think that it probably gives them a larger tax bill. I do not know whether, in line with the commitment that my noble friend gave on behalf of the MoD, Members of Parliament will also have their salaries increased to compensate for the fact that they are subject to Scottish income tax. That would be quite a deplorable thing to happen, but it helps to illustrate my point as to why they have been included. It seems quite wrong that they should. The test should apply just as it would apply to Members of this House. I am really looking forward to hearing my noble friend's explanation.
I congratulate my noble friend Lord Forsyth. I want to call him Lord "Bazooka" Forsyth because he aimed at those who do not pay tax. I am sure that he and my noble friend on the Front Bench will be aware that Members of the House of Lords are the only people in the United Kingdom who get their expenses between their home and their place of work-if you call this a place of work, especially on a day like this-paid, yet are not liable for tax. If you are a government Minister, you are liable for tax. I am curious as to why no fewer than seven of our government Front Bench are not paid. Perhaps my noble friend would take care about who is paying tax, and have a look around us. In the words of the good book, "Let he who is without sin cast the first stone".
Actually, I am not a tax expert. I think that my noble friend is taking us down a diversion, because Members of the House of Lords are not paid, they are reimbursed for their expenses. It is not a taxable benefit. My beef with the Bill is that it singles out elected Members for particular, special tax treatment. It does not really matter whether it is to their advantage of disadvantage. I was not raising a general point about the taxation of travel by Members of Parliament or Members of the House of Lords.
Well, my Lords, let me give it a go. My noble friend is not easy to satisfy on these things, but I argue that it is entirely consistent with my arguments for the rest of this afternoon to say that this provision, as drafted, gives simple and clear guidance for a category of individuals, namely Members of any of the three parliaments, that they do, for the avoidance of doubt, have a close connection with Scotland and should therefore fall into the "Scottish taxpayer" definition. It is as simple as that. Once one accepts, which I am not sure that my noble friend does, that the close-connection test should be at the heart of this, I suggest that this is a simple follow-on from that, an avoidance-of-doubt provision which is entirely appropriate. We have spoken today about members of the Armed Forces who may not have a choice about where they serve, but it is right that a Member of any Parliament who has chosen to serve a Scottish constituency is for the avoidance of doubt treated as a Scottish taxpayer. They have a clear connection to Scotland which should be recognised and which is consistent with the basic provisions of the test that we are talking about.
My Lords, I would like to keep this debate to discussion about Scottish taxpayers. As my noble friend has already said, discussion about the status of Members of this House is something of a diversion whose relevance to this clause I do not see.
With respect, throughout the previous debate, the Minister said that the definition of Scottish residents and Scottish taxpayers was based on British residence. He had used the British example as the template in coming to a conclusion in relation to Scottish residents and Scottish taxpayers, so this matter must be relevant.
Forgive me, my Lords, I thought that we were straying into questions about tax status and Members of this House. We are talking about Members of another place with a constituency in Parliament, Members of the European Parliament and Members of the Scottish Parliament. Most Scottish parliamentarians will already meet conditions A and B in new Section 80D, but there may be circumstances where this may not apply. For example, a Member may have gained or lost a seat at a recent election-it could have happened when an election is held early in the tax year-and decided to move elsewhere in the UK. The test here is that there should be clarity. If the person has been a Member of one of these Parliaments for a Scottish seat for some part of the year and has chosen to be so, they should be Scottish taxpayers for the year, but I appreciate that, depending on whether they come in or go out at different points of the year, the situation could be different. However, this is consistent with what I have been saying today: that the basic test is a close-connection test and that it should be simple and clear. Members of both Houses of the UK Parliament are deemed to be UK-resident for tax purposes if they are a Member for any part of the tax year. If the noble Lord, Lord Foulkes, wants to draw a parallel between the two Houses of this Parliament and what we are applying through the Bill as it stands, I say to him that the situation would be entirely lined up. If you are a Member of either House of the UK Parliament for any part of the year, you are deemed to be UK-resident for tax purposes. That is completely consistent with what is proposed in the Bill for Members who sit for Scottish constituencies. That is how the Bill should stand.
My Lords, I suspect that there is nobody listed in the category in the Bill who does not live in Scotland, but the Minister is right in one respect: it was not always so. My predecessor as MP for Roxburgh, Selkirk and Peebles lived in London-I do not say that critically; that was a fact. He did not come from Scotland, but he had a Scottish constituency. He came to visit the constituency dutifully from time to time, but he certainly would not have been regarded as having a close connection with Scotland nor would he have spent the majority of days in Scotland. So, although I cannot think of anyone who would be excluded by taking this out, as my noble friend Lord Forsyth suggests, it could happen.
It reminds me of a story that Jo Grimond used to tell about coming across one of the knights of the shires at King's Cross station at the start of the Summer Recess. He was putting his trunk into the guard's van on the train and he was in a very bad mood. Jo Grimond said to him, "Why are you so upset?". He said, "It is not the thought that I am going to my constituency; it is the thought that I shall have to go next year as well". Fortunately those days have gone and I do not think that that would apply now. None the less, it is a reasonable safeguard to have this clause in the Bill.
The noble Lord, Lord Forsyth, has drawn attention to a point of principle here. Creating special categories is, by definition, undesirable. It is probably the case that every single person who meets the three categories listed here would qualify as having a close connection under the other tests of what a close connection is. It is very unlikely that any of them would not meet the test of residence and the number of days resident, so why create this special category? I cannot see a practical argument for it but I see an argument of principle against it.
My Lords, I do not think the Minister made the case for having this in the Bill when he was trying to give an example of someone who might be caught, notwithstanding the reminiscences of former Liberal MPs for Scotland, or whichever party they were from. This does not exist nowadays. If you were an elected Member and there was an idea that you were avoiding Scottish income tax, the practicalities would be death and destruction. The measure is completely unnecessary. As the noble Lord, Lord Kerr of Kinlochard, who was advertised on the annunciator as the noble Lord, Lord Norton of Louth-I say this in case Hansard gets it wrong-said, this is a bad principle.
On the earlier amendment, I referred to there being a real injustice in respect of the armed services and I was arguing for a specific provision for them. My noble friend responded by saying, "We think that the existing tests cover it and therefore I am not going to do it". I cannot reconcile these two competing bits of logic. If his position is that the criteria provide a clear view as to whether or not you are caught, why single out Members of Parliaments? I suspect its origins can be found back in the debates about the impact of a Scottish income tax and whether Scottish MPs would be caught, and that has been written into the Bill.
The provision is completely unnecessary and I hope that my noble friend will think about taking it out. Apart from anything else, it would reduce the number of column inches of legislation which a Government committed to it would produce. I beg leave to withdraw the amendment.
Amendment 54C withdrawn.
Moved by Lord Forsyth of Drumlean
54D: Clause 30, page 23, line 21, at end insert-
"(d) a judge, peer or civil servant with responsibilities for, or a close connection with, Scotland (see section 80E)"
My Lords, having just argued for that measure to be removed from the Bill, and having listened carefully to my noble friend's arguments, which I do not believe are sufficient to justify maintaining it there, and given that he is going down the track of listing in the Bill people about whom there might be some doubt but who ought to be caught by the income tax, it seems to me that we should extend this beyond elected Members of Parliaments to include others. I am thinking of Appeal Court judges, Peers and, of course, civil servants who have a close connection to Scotland. Amendment 54D starts a list, to which others are welcome to contribute, to add to those Members of Parliaments who have been singled out as being liable for the Scottish tax.
I am not seriously putting this forward-it is a probing amendment to try and illustrate the absurdity of the position. However, if my noble friend persists with his view that Members of Parliament are included, I would certainly be tempted to come back to it. I do not see why constituency Members of the other place should be automatically deemed to pay income tax, whereas, say, without being personal, a member of the Supreme Court or a civil servant who perhaps comes down to work in the Scotland Office is not be treated in the same way. I am longing to hear what my noble friend has to say on this apparent dichotomy in their treatment under the Bill.
My Lords, I follow exactly what the noble Lord, Lord Forsyth, is doing but it gets worse and worse. The best answer would be to remove these special categories altogether. Other countries have gone down the road of having special treatment for the public sector nomenklatura and singling it out in legislation. It is not a good road to go down.
My Lords, might I also perhaps encourage the noble Lord, Lord Forsyth of Drumlean, to consider the position of judges. One of the great strengths of the United Kingdom is that Scotland has access to the whole Supreme Court, and therefore some of the finest minds and judiciary in the world. All those members of the Supreme Court have responsibilities for Scotland and it would perhaps be unfortunate if all 12 members of the court were to suddenly find themselves subject to the Scottish rate of income tax. I know he is looking for suggestions for his list, but possibly that one should be removed.
My Lords, I see a clear distinction between the previous category of people and parliamentarians, who are different in a number of respects, not least because they are specifically tied, in a very clear way that we well understand, to the electorate and a constituency in Scotland. However, the extent to which a judge, a Peer or a civil servant could be said to have responsibilities for Scotland will vary enormously from case to case. My noble friend has said that this is a probing amendment and that he is not serious about it, so it would be wrong to criticise the amendment for the flaws in its drafting, but goodness knows how one would go about defining what "responsibilities" means in this context and how the test would apply in practice. It would be very difficult.
I certainly agree with the sentiment that we do not want to go down the slippery slope that the noble Lord, Lord Kerr of Kinlochard, identifies of putting lots of people into some special category. Obviously, many judges, civil servants and, dare I say it, Peers will have a close connection with Scotland and will therefore be caught or encompassed by the definition of "Scottish taxpayer" as defined in the draft Bill. I am with the noble Lord, Lord Kerr, in that I do not think we should go further down this route other than in the specific case of the parliamentarians, where the considerations are different in a number of respects, not least because they are very specifically tied to Scotland in a way that this other, looser, category would not be. It is right that the individuals identified in Amendment 54D should have the conditions A and B applied in the same way as all other taxpayers. On that basis, I would yet again ask my noble friend to withdraw his amendment.
Well, I am absolutely persuaded by my noble friend's argument that it would be wholly inappropriate to list these people in the Bill, but I am not persuaded by his suggestion that Members are in some special category that requires them to be defined in that way. Indeed, the only example that my noble friend could come up with was the example of someone who had lost their seat and had moved to England. I certainly lost my seat, but I did not move to England. That is really stretching it, because presumably if they have lost their seat it no longer applies, but he was arguing that they should pay tax for the part of the year when they were not actually liable for tax, which related to one of my previous amendments. We are really therefore in Humpty Dumpty territory here: when I say something means something, it means what I say. There is an anomalous position here, which the amendment highlights.
I do not agree on the point about judges. The last thing I want to do is to increase the taxes of someone for whom I have considerable regard, such as the noble and learned Lord, Lord Hope of Craighead, who lives in Edinburgh and sits in the Supreme Court. I do not know whether it is formal or informal, but in the Supreme Court we have always had an outstanding judge. Sadly, one of the Scottish judges, Lord Rodger, passed away. Clearly, those judges have a connection to Scotland, and I could make as strong a case as my noble friend makes for Members of Parliament, but I would not dream of doing so because I think that it is rubbish. I do not think that the arguments apply.
It is a very bad principle to use legislation as a chalkboard to write political statements. It could very well backfire. There is not the slightest possibility that there will be a reduction in income tax as a result of the power being available to the Scottish Parliament, unless a Government come in who are both mad and committed to slashing public services in a big way. However, if it worked the other way round, and, of all the Members of Parliament sitting in the Chamber, those from Scotland paid a lower rate of tax because it was written into statute, that would be a tricky thing to defend, not because they were liable for the lower rate but because it had been written into statute that their status applied in that way.
These are not trivial points. It has been a useful debate, if only to illustrate that this has not been properly thought through. We will return to it at a later stage. I beg leave to withdraw the amendment.
Amendment 54D withdrawn.
Amendment 54E not moved.
Tabled by Lord Forsyth of Drumlean
54F: Clause 30, page 23, line 22, at end insert-
"(6) Any organisation collecting, or administrating the collection of, income tax from Scottish taxpayers shall consider appeals against its decisions and formal complaints from individuals by operating a system which includes-
(a) a two stage appeal process within the body,
(b) independent review by The Adjudicator's Office, and
(c) final review by the Parliamentary Ombudsman.
(7) Appeals against the decision that an individual has met a condition to be a Scottish taxpayer will be considered under the process set out in subsection (6)."
My noble friend the Minister dealt with this matter in our discussions.
Amendment 54F not moved.
Amendments 54FA and 54FB not moved.
Moved by Lord Forsyth of Drumlean
54G: Clause 30, page 24, line 33, at end insert-
"(3A) Before exercising any power under subsection (1) or (2), the Treasury must consult Scottish Ministers, the Scottish Parliament and other interested parties."
This amendment requires the Treasury to consult before altering reliefs, disapplying or nullifying enactments. In an earlier debate when I suggested that the Scottish Parliament should have to consult before raising a higher rate of income tax, my noble friend said that the whole point of the legislation was to create accountability for the Scottish Government and that they should be free to carry out their powers without any specific requirements to consult. The Treasury using these powers to alter reliefs could have a significant effect on the baseline revenue of the Scottish Parliament. We touched earlier on the position of charities, for example, which remains unclear. It therefore seems to me that at the very least, the Treasury should be required to consult before using these extensive powers. I beg to move.
My Lords, I support the noble Lord, Lord Forsyth, in seeking further areas of consultation. How true it is that the Scottish Parliament, under improved devolution, will have greater powers. None the less, it remains part of the United Kingdom and therefore it would be very important that consultation on areas which could have a significant effect throughout the United Kingdom should be put in place by the Treasury.
My Lords, Amendment 54G would indeed require the Treasury to consult interested parties, specifically including the Scottish Government and Parliament, on its plans. It may be helpful to explain the Treasury's new approach to tax policy-making, which was published with the 2010 Budget, because that sets out the Government's commitment to consult on tax changes in legislation. Secondary legislation made under the power in proposed new Section 80G would be treated no differently, so we already have a commitment to consultation through the Government's general approach to consultation on tax changes. Indeed, in the context of the Bill and through its technical groups, the Government are already consulting on further changes needed as a result of the Scottish rate. The Scottish Government have been involved in these discussions, so I have absolutely no difficulty with the underlying concern that my noble friend seeks to address here. I simply point him to the fact that since 2010, under the new framework which the coalition Government have put in place, we are doing all these things already on a UK-wide basis under the policy that we announced.
It is important to recognise, nevertheless, that any changes which are made as a consequence of the introduction of the Scottish rate will still need to fit within the wider UK income tax system. I believe it is correct that while the Government are committed to consulting with the Scottish Government, Ministers and Parliament, and with others as part of our general approach, the Government should nevertheless have the final say on how these matters are handled, just as they do on how matters are handled across the UK tax system. On that basis, I again ask my noble friend to withdraw his amendment.
I thank my noble friend for that answer. I have noticed that there is quite a lot of consultation going on these days on tax policy, in the run-up to the Budget. I accept that the Government have made strides in this respect and that my amendment may indeed be redundant. I beg leave to withdraw it.
Amendment 54G withdrawn.
Moved by Lord Forsyth of Drumlean
54H: Clause 30, page 24, leave out lines 34 to 36
My Lords, this amendment would delete subsection (4) of proposed new Section 80G, which provides for the Treasury to make changes to tax retrospectively. The whole basis of the Bill is that the Scottish Parliament will raise a proportion of its own money and should plan its budgets accordingly. If the Treasury were to use this power to change the tax base retrospectively, it could have a very dramatic impact on the provision of services and the financial position of the Scottish Parliament. Therefore, the amendment seeks to tease out from the Minister exactly how it is intended to use this power since there are obvious dangers in having a retrospective ability to change the rules of the game well into the financial year. It could cause great trouble for an Administration in Edinburgh and might even be used in a highly undesirable political way. I beg to move.
My Lords, as my noble friend said, Amendment 54H would remove the retrospective element of the power to make supplementary changes. It gives me the opportunity to reassure the House-which I hope is what my noble friend seeks-that the Treasury does not seek a general power to impose retrospective legislation. This is a very limited power to make any changes retrospective to the start of the tax year. Because of the timing of the budget cycle, most finance Bills receive Royal Assent after the start of the tax year and so contain proposals that come into effect before Royal Assent. It is therefore important that, where necessary, any consequential change made using the order-making power can also take effect from the start of the tax year. The power is identical to that in Section 79(4) of the Scotland Act 1998 for the Scottish variable rate. I hope that my noble friend is reassured that this is just a necessary provision to take account of when Royal Assent is given to finance Bills and that, yet again, he will be prepared to withdraw his amendment.
My Lords, on the basis of that very helpful response, I am pleased to withdraw my amendment.
Amendment 54H withdrawn.
Moved by Lord Forsyth of Drumlean
54J: Clause 30, page 24, line 36, at end insert-
"(4A) Before exercising any power under this section, the Treasury must-
(a) consult widely on its plans, and
(b) obtain the consent of the Scottish Parliament."
Amendment 54J requires the Treasury to consult and obtain the consent of the Scottish Parliament before using its powers to change tax rules by order. This relates to the point that I made previously: the Treasury could knock out the financial planning of an Administration in the Scottish Parliament. If it proposes to do this, it should have to obtain the consent of the Scottish Parliament. I beg to move.
My Lords, we offer our support to the noble Lord, Lord Forsyth, for the intention that lies underneath this amendment. There is clear utility in there being coherence within the UK tax structure. I stress "coherence" rather than "unity", given the intention to devolve these powers to Scotland, and say nothing further.
As my noble friend said, this point is very similar to the issue that came up on Amendment 54G. I suggest again that the coalition Government's new approach to the transparency of policy-making, and our commitment to consulting in advance on tax changes and legislation, means that not only the Scottish Government but any other interested party will have an opportunity, under the normal framework that we now apply, to see what is going on. It will be transparent to the Scottish Parliament as well.
I think that this is consistent with what the noble and learned Lord, Lord Davidson of Glen Clova, said. If I interpret coherence as opposed to unity in the correct way, I believe that the process is achievable through the approach that we now adopt to consultation. However, as I said in relation to the previous amendment, we can achieve that while not fettering the hand of the Government in how they go about consulting on and consenting to taxation changes that may impact on the wider UK tax landscape any more than it is fettered in respect of other aspects of UK taxation.
I am afraid that I am not as convinced by the response to this amendment as I was by the response to the previous amendment, as this one is rather more far-reaching in its possible impact. Given what my noble friend said, and the Government's view of the Scottish Parliament, I have no doubt that they might well be inclined to do this anyway. However, Governments come and go; it is important that the rules of the game should be clear.
One aspect of the Bill that is very striking is the number of powers that are given to the Treasury to bring forward regulations and changes that are not specified, are not clear and which in the other place were subject to comments from Ministers to the effect that there was a working group looking at this and something would be published in due course. I am not absolutely persuaded on the matter. I have every faith in my noble friend ensuring that there is consultation, but he did not quite deal with the question of why the consent of the Scottish Parliament should not be sought before using the powers. I hope that he will respond to that.
I am not sure how much more I can do to help my noble friend on this point other than to repeat that we need to see that any changes that are made as a consequence of the introduction of the Scottish rate will fit within the wider UK income tax system. Therefore, in my view and that of the Government, this blanket provision goes a step too far. We are in favour of consultation but this provision would fetter the hand of the UK Government on matters that would impact on the wider tax architecture. Therefore, I believe that obtaining the consent of the Scottish Parliament is a step too far, although I completely accept the need to consult broadly.
Perhaps I can help my noble friend. Perhaps I misunderstand the position but he speaks from the point of view of adjusting the rest of the tax system in the event of the impact of a Scottish tax. But what would happen if this was done the other way round? What would happen if the Treasury proposed to change the tax system in a way that would adversely affect the revenue base of the Scottish Parliament? As I understand it, as the Bill stands, there would be no requirement either to compensate it or to seek leave to do so. Perhaps I misunderstand what these powers enable the Treasury to do but that is my understanding. If so, surely it would be appropriate to seek the consent of the Scottish Parliament. Perhaps my noble friend is suggesting that that consultation would involve asking the Parliament and allowing the ability to ignore it. I can see a difficulty here. For example, suppose some new rule were to be introduced to provide substantial tax relief for particular categories-charities, pensions or some other relief. That could greatly reduce the tax base for the Scottish Parliament and, as far as I can see, there is no provision in the Bill to compensate it for that. There ought to be some basis on which the Parliament's consent is sought.
I feel as if I have become a sort of advocate for devo-max on this, because I am making a case that might be made by one of the enthusiasts for devolution. However, I am doing that from the point of view that, if we are going to go down this track, we have to make it workable, and I am not sure that it is.
Perhaps the difficulty here is that there is a broader principle underlying the matter raised by my noble friend that is completely fair but is not directly addressed by this technical provision. Ministers and Scottish government Ministers have agreed that there should be an underlying principle of no detriment. Now that I understand the matter, I can confirm to my noble friend that if there is a UK decision on income tax that impacts on receipts for the Scottish Government, they will be compensated. If that has teased out the important underlying point, I am happy to give that confirmation. My noble friend's amendment, which would have a wider and different effect, is not the way to tackle this issue. However, I can reassure him that there is an agreement between Ministers and the Scottish Government that the no-detriment principle will apply, as it should do, along the lines he suggested.
I am alarmed by that because my noble friend tells me that there is a no-detriment agreement, but there is nothing in the Bill that tells us that. Does it mean, for example, that if the Chancellor of the Exchequer were able to achieve his youthful ambitions and introduce a flat tax in the United Kingdom at, say, 25 per cent, the Scottish Parliament would be compensated for the loss of revenue that would arise? I do not understand what this no-detriment agreement means. Does it mean that if any change in the tax system resulted in a reduction of revenue in England, the Scottish Parliament would be compensated by sending it a cheque for the equivalent amount?
My Lords, this is not something that has come out of the blue from my mention of it now. It has been quite clear from the start-in the Command Paper-that that principle should apply. I am merely articulating something that has been in the construct all along.
Perhaps it would help if I write to the noble Lord to make clear exactly how the principle is intended to operate before we get to the next stage of consideration of the Bill.
I do not want to press my noble friend; I am happy for him to elucidate what the position is; but throughout this afternoon, his speeches have been peppered with the word "accountability" and how this is making the Scottish Parliament accountable. If the suggestion is that the Scottish Parliament get compensated for the effects of changes in the tax base in England by the English taxpayer, that is not accountability; that is subsidy. It is about maintaining the status quo.
My noble friend shakes his head. Perhaps I have got it wrong. I thought he was saying that if changes are made to the tax system in England which have the result of narrowing the tax base, the Scottish Parliament will be compensated by being sent a cheque. Is that not what he is saying?
What I am saying, and why I disagree with my noble friend's analysis, is that this is all about getting decisions about a certain part of the tax system to be made by the Scottish Government and the Scottish Parliament, and for the Scottish Government to be accountable to the Scottish Parliament and the Scottish people for a part of the tax system to have a clearer linkage between tax and spending in Scotland for the electorate and for the performance of the Scottish economy. Beyond that, there are certain areas where we want to ensure, as is only right and proper, that Scotland is not at risk of detriment because of decisions taken in interlinked parts of the tax system which disadvantage it.
I hesitate to press this at this hour but, to give a real example, suppose that it is 2015. We are all enjoying paying these high Scottish taxes. There is a lower tax in England and the Government decide that they are going to introduce a far more generous scheme of tax relief on contributions to charity. Let us say that they make them wholly allowable and the result is that there is a reduction in the overall revenue available to the Scottish Parliament from the tax base on the Scottish income tax, because people are eligible for that. Of course, we are not yet clear whether that would apply to Scotland, but this power would enable the Treasury to implement a policy without any agreement of the Scottish Parliament and it would have a detrimental effect.
My noble friend appears to be saying that the answer to that is that they would be compensated for that, but there would be a transfer of resource from England to Scotland to compensate them for that change in the tax policy. Why would that be appropriate?
My Lords, it has been a fundamental principle of devolution from the start that if a decision of one Administration impacts on another, the other Administration should be compensated. We are not doing anything different from the principle under which devolution has existed from the start. Yes, the tax base is shared, so if the UK changes allowances and thresholds, it is quite right that the effect of that should not fall to the detriment of the Scottish Government. As I said, that follows the general principle that applies across devolution spending, as it has from the start.
I am not sure exactly where we are, but as my noble friend Lord Maxton drew my attention to the fact that there is this very interesting dialogue taking place, I was listening carefully to it. I am grateful to the noble Lord, Lord Steel, for his immediate understanding.
I am slightly disturbed because all along we have been talking about giving the Scottish Parliament greater accountability. That is why I am in favour of full fiscal autonomy, as I shall be arguing later. However, even if Scotland has full fiscal autonomy, if at any point it then goes, Oliver Twist-like, back to the Treasury and says, "I want some more", then that will not be full fiscal autonomy.
With these proposals in the Bill we are halfway towards full fiscal autonomy. I do not know whether the Treasury Minister, the noble Lord, Lord Sassoon, has seen that Alex Salmond has now come up with a list of what he calls shovel-ready projects-an awful-sounding term-that he wants the Treasury to provide huge amounts of money for. This is his technique. I am not sure whether I have got to the nub of the point that the noble Lord, Lord Forsyth, is making but at least it has given him an opportunity to sit down and think for a while. I was enjoying the Forsyth saga-that was inevitable-but I question whether it has revealed a flaw, in that we are not going to get the kind of autonomy that we want.
No, my Lords, I do not believe that it has exposed a flaw. The decisions which under the Bill, if and when enacted, would be for the Scottish Government are quite clear and the Scottish Government will bear the fiscal consequences of those decisions. What I have described is made quite clear at greater length in the November 2010 Command Paper, Strengthening Scotland's Future. If parts of the UK tax system are not devolved but remain the responsibility of the UK Administration, then, if something changes to the detriment of Scotland, the no-detriment principle will kick in, the block grant will be adjusted and, as set out in the Command Paper, the Office for Budget Responsibility will work out all the numbers and establish the fiscal impact. Of course, the adjustment would not necessarily go one way-it would depend on the nature of the change. We have talked this afternoon as though everything is always going to go in one direction. However, this could conceivably be a two-way detriment that had to be adjusted through the block grant.
My Lords, can my noble friend give us an example of the two-way process? If he cannot do so now, perhaps he can include it in the letter that he is going to send us.
My Lords, one example is personal allowances, which have a potential impact on tax receipts, and that example is highlighted in the command document.
I want to test this with one other example. Does the Minister recall when, under a previous Labour Government, the Scottish Executive introduced free personal care for the elderly? As a result of that, the old people who had free personal care no longer got the benefits that they had previously received. Malcolm Chisholm, the then Minister, sought a grant of hundreds of millions of pounds, which he claimed the UK Government had saved because they were no longer paying benefits to the people who were now getting free personal care. Would not that kind of situation arise in a number of areas under the scenario that the Minister is describing?
My Lords, that was not a tax issue, and I do not know the detail of that case, but we are talking about changes to the structure of the UK income tax system, which is something that is done by the UK Government. We are talking about circumstances that are rather far away from a Scottish spending matter that the noble Lord described.
I am lost. I fear that I do not understand this no-detriment principle. I may be showing my ignorance coming late to this subject. I thought that I understood the rationale for the Scottish rate: the UK system would remain the same but there would be this variable-take 10 per cent off and top it up. I assume that the allowances, thresholds and system would be the same over the UK. If, for example, a Government believed that more growth could be obtained by going for a lower rate of tax, or higher allowances, and thus lower revenue, that would be the case across the United Kingdom, including in Scotland. The only thing that would move would be the variable rate if the Scots chose to move it. What is this detriment? Are we saying that the Scots could enjoy the advantages of the greater growth in the United Kingdom but that the detriment to their revenue would be compensated through a block grant system? That would be winning twice. That cannot be what is intended. Will the Minister explain how the no-detriment principle works?
The noble Lord has explained the construct absolutely correctly, so I have no problem with that at all. However, if the UK Government decide to raise personal allowances to take more people out of tax, that will flow through to a reduction in the receipts to the Scottish Government under the construct that he has described. The UK will compensate the Scottish budget through the block grant for such a reduction of the tax base for Scotland, based on forecasts by the independent Office for Budget Responsibility.
That is marvellous news. I do not have a house in Scotland now but I need to get up there fast and get a close connection. If, on the Minister's example, the allowances improve, that will suit me personally, but the Scottish Government and the First Minister will have more cash through compensation to make sure that the services I draw on in Scotland are in no way diminished.
I would not want to get the hopes of the noble Lord or anyone else up too high. It will just bring Scotland back to where it was before we started this. It is not that Scotland will gain; it will just make sure that Scotland is brought back to where it was going to be before the change.
May I ask the noble Lord about the economic benefits of the change and the reduction in the tax take, and to confirm that it would not suffer a reduction in its tax take?
That is correct, and so it should be. If the UK Government decided to rebalance the taxes in some fundamental way, of course it would be wrong to take away the expected income tax take for Scotland that itself is reflected in all the calculations of the block grant. Again, I can attempt to see whether I can put down a worked example to show how the money flows will go, but this is not intended to give Scotland some great bonanza. It is a two-way balancing mechanism to make sure that neither Scotland nor the rest of the UK is disadvantaged by the way in which the effect of personal allowance changes will flow through the system.
I will correct this if I am wrong, but I believe that it is set out not in statute but, along with a lot of other critical issues relating to the financial arrangements, in the financial accords with lots of other things that support the way in which money flows through to Scotland.
My Lords, this has been a very illuminating debate. I have to say to my noble friend that this principle is bonkers. It says that if a Government take people out of tax by raising the threshold because they think that will help with welfare policy and encourage people to go to work because of the effects of the why-work taper, they follow the example that was given by the noble Lord, Lord Kerr, or they cut the top rate of tax-would that they would in order to generate growth and get the economy moving again-Scotland gets a cheque and gets the benefit. So a Treasury Minister trying to find the money to raise thresholds does not just have to find the money to compensate for the loss of receipts but has to send a cheque to Scotland to compensate it. It makes "We're all in this together" rather strange because we are not all in this together. There is a different rule.
It shows the paradox of this whole Scotland Bill. If anything, it almost makes me become a devo-max person. It almost makes me think that we should go for fiscal autonomy, because it is absolutely bonkers. It is saying that this is not about giving the Scottish Parliament tax-raising powers and accountability for what it does but about taking the block grant and pretending that it is a tax-raising power and, when the tax-raising power does not quite work because of changes in the tax system, topping it up. This is just about recreating the block grant, calling it a tax-raising power and dressing it up as accountability. That is what this principle means. I have studied this quite carefully, and I think that if this principle is to be applied, it is quite shocking that it is not in the Bill, because it is fundamental. It changes the whole architecture. Not many people follow this subject, but I do not believe that among them there is an understanding that changes in the position in England will be compensated for by expenditure north of the border, if, indeed, that is the position.
I would like to give an example from ancient times when I was in the Scottish Office. In England, water was privatised; in Scotland, it was not. The result was that there was no expenditure on water services because they were provided by private companies in England. The result was that the Barnett consequences did not come to Scotland. Under the ancien regime, we did not get an extra grant from the Treasury to compensate us for not doing what would have been the sensible thing, which was to privatise water services in Scotland. This is a wholly new, although perhaps I am wrong.
I enter this fantastic debate, as it develops, with some trepidation. It has perhaps been less illuminating than it could have been because, with respect to the noble Lord, people are using terms very carelessly. This is not a comparison between taxation in England and in Scotland; it is a comparison between decisions that are made for the UK and the consequences of this provision being devolved to Scotland.
I am not going to go any further because if I try to extemporise I am in danger of confusing this debate even more. It may be better if noble Lords wait to see whether the Government write to show how this will work, as they intend to. It is far from the case that those who understand how this works are surprised by this no-detriment policy. This no-detriment policy is actually at the heart of what we are doing because it is about accountability for an element of the tax-raising power, and that has to be sustained. Therefore, decisions made by the UK Government for all of the UK that undermine that accountability have to be compensated for in a balancing mechanism.
I go no further than that. I keep it very general. However, many of these examples that have been used to try to explain what is going on here are very far off the mark because they are comparing apples and pears. This is about what the UK Government do and the effect of that on the principle that we are trying to establish in this Bill.
I am most grateful for that very helpful intervention. I am glad that the noble Lord has a clear understanding of how this principle will be applied. However, I do not buy the argument that it is about the UK. Of course it is about the UK, but we still elect Members to the House of Commons from Scotland who are responsible for tax policy in the United Kingdom as a whole. If they support a Government who decide to cut taxes to create growth, they are accountable at the ballot box.
Let us take one of the recommendations of my tax reform commission-it has been abducted by the Liberal Democrat party-to raise the threshold for basic rate taxpayers. That is an example of something that would be compensated for. That is an example of a policy that is being applied across the United Kingdom. The threshold is being raised and it is very expensive. There is a substantial cost to it, and in order to achieve it other services are going to be less generously dealt with than they would otherwise be. Members of Parliament standing at a general election for the House of Commons are accountable for that. However, it is very odd indeed if it is argued that the Member for Stirling in the House of Commons is accountable for the policy that cuts the taxes, whereas the MSP for Stirling is not accountable because a cheque is sent north of the border to compensate for the consequences of this.
Perhaps I might try again here. I do not think that my noble friend portrays it as it is going to be, and I am very grateful for the intervention of the noble Lord, Lord Browne of Ladyton. I am sorry that my noble friend portrays this as a great surprise. This was all discussed at length in the November 2010 Command Paper.
It does not make it right, but what we are discussing this afternoon is nothing new. This has been on the table for 15 months or however long it is, a good long length of time. The essential point that we have to understand is that there is going to be a permanent adjustment, as my noble friend knows, to the block grant for the move of the Scottish income tax to Scotland. The compensation that we are talking about is merely that if the basis on which the carve-out of income tax changes so that the relationship between the adjusted block grant and the income tax that Scotland expects to raise changes because of a subsequent decision, in effect we are saying that the permanent deduction needs to be adjusted because we have changed the income base from what it was expected to be, which seems entirely reasonable.
This is not the blank cheque that my noble friend is portraying it as: that the UK Government will be prepared to write whenever the income tax changes. The deal with Scotland is that there will be a one-off change to be worked on, as my noble friend knows. If the basis of that is subsequently changed because the UK Government change the base on which income tax is raised, it is perfectly right and proper that a compensating adjustment is made. It is as simple as that. It is not that there is a double whammy for the UK.
It may seem simple to my noble friend and it may have been discussed for 15 months, but I have to tell him that I am not a supporter of this Bill. I thought I made clear at Second Reading why I am not. I am somewhat surprised at the argument that my noble friend has put. The noble Lord, Lord Kerr of Kinlochard, put it quite clearly. I do not disagree about the impact of the policy but what is being said is that, if there is a change in the tax regime that results in the tax base being made narrower and from which people in Scotland will benefit, in addition people will benefit in Scotland by the cost of that change being added to the block grant. To me, that is double benefit and I do not see how that has anything to do with the accountability of the Scottish Parliament.
It arises because the Scottish Parliament is not solely responsible for tax policy, which would be an argument for fiscal autonomy that no doubt the noble Lord, Lord Foulkes, will put to us. However, the scheme in this Bill is a kind of charade whereby the Scottish block is always topped up regardless of the benefits that accrue to Scotland from the changes in the tax base, which cannot be right. I defy my noble friend to explain why, say, the Scots would get the benefit. Let us say that thresholds were raised to £10,000 so that no one earning less than that would pay income tax. That would have a dramatic effect on the Scottish block. I guess that it would be many hundreds of millions of pounds-perhaps £600 million or something of that order. My noble friend is saying that the Scottish Government would be compensated by being given that money, but the people living in Scotland would have benefited from the fact that they are not paying tax on the first £10,000. That cannot be right.
When my noble friend says, "Well, we have all known this for 15 months", I had not appreciated that the situation was as stark as this. I thought that it might be a one-off thing at the start, but the idea that this should be a continuing matter is not about accountability; it is about giving people a guaranteed budget.
As the noble Lord understands it, would the reverse be true? If, say, Mr Alex Salmond decides that he has a project that he knows the Scottish people will support and he puts up the income tax to pay for it-for example, a free new hospital or something like that, on which he knows that the Scottish people will support him-will the block grant be cut accordingly to compensate for the fact that more money is now being raised in Scotland?
I think the answer to that is no. As has been made clear, we are talking here about the Scottish block being compensated for changes in United Kingdom taxation policy. My difficulty with this concept is that the people in Scotland are within the United Kingdom. They benefit from those changes and then a compensating payment is made to the block grant to compensate for that, which cannot be right.
My Lords, I thank the noble Lord for trying to cast light into my ignorance, but it is getting worse; the fog is getting thicker. Does the no-detriment principle have a reciprocal? If not, why not? Should there not be a reciprocal? Let us suppose there was a tax change that widened the tax base. Would that be no detriment just to the Scots, or no detriment to the UK? Before the Minister responds, perhaps I may make a second point. I see two little gleams of light from the lighthouse in the fog. One was the suggestion made by the noble Lord, Lord Browne, that it might be good if one could set out on paper how this is to work. I should have got there long ago, but I had not realised it. That is central to the issue of accountability, but I had not quite got it. I turn now to the noble Lord, Lord Stewartby, for the second light. Since it is so central to the issue of accountability, should it not be on the face of the Bill?
First, I shall repeat what I believe I said earlier. This adjustment would go two ways. We have talked about so many things as being a form of one-way traffic this afternoon, but that is not the case. However, we want to make sure that the Scottish Government are accountable for what they are responsible for under the construct in this Bill, which is the effects of their powers to set a Scottish rate of income tax. They are not accountable either for a windfall gain or a windfall loss-if you can have a windfall loss-resulting from things that are done by the UK Government subsequent to the setting of the block grant adjustment. If we set out a worked example of how this will operate, I would like to think that it will be made clearer.
My Lords, that is probably a very sensible suggestion. We have had a useful debate, if for no other reason than that it has persuaded me that there is a stronger argument for fiscal autonomy than I had thought, although it is not one that I accept. I beg leave to withdraw the amendment.
Amendment 54J withdrawn.
Clause 30 agreed.
Clause 31 agreed.
Clause 32 : Definition of Scottish taxpayer for Scottish variable rate
Debate on whether Clause 32 should stand part of the Bill.
I indicated in my remarks earlier that I had intended to oppose these clauses standing part of the Bill, but because we have had such a full debate on all of their aspects, I do not think that it is necessary.
Clause 32 agreed.
Amendments 55 to 58 not moved.
Clause 33 : Scottish tax on transactions involving interests in land
Moved by Lord Forsyth of Drumlean
58A: Clause 33, page 27, line 1, at end insert-
"(3) The tax may only be charged by the Scottish Government.
(4) The tax shall be set at a uniform rate across Scotland."
My Lords, by way of explanation, I felt that we had done to death compensation for the Scottish Parliament, which is why I did not move the amendment which would require the bill for costs of collecting Scottish income tax to be sent to the Scottish Parliament. We can return to that later in the context of a debate to which we have yet to come.
Amendment 58A is similar in its impact to Amendment 58C. It would simply ensure that if the Scottish Parliament decides to set different rates of tax as part of the development land tax powers that are set out in the Bill under Clause 33, they should be applied uniformly throughout Scotland. They cannot be used to create different tax levels in different local authority areas. I do not know whether the Government were thinking that that might be the case, and that is why it is not made clear in the Bill that the rate should be applied uniformly, or whether the Government think that it is desirable. The purpose of the amendment is to tease out the Government's view on this. I beg to move.
My Lords, I will speak to both Amendments 58A and 58C, which have similar effects-namely that they would require the Scottish Parliament to set uniform rates across Scotland for taxes on land transactions and on disposals to landfill. My noble friend's amendments would be an inappropriate restriction on the power of the Scottish Parliament in this area. The purpose of devolving tax powers is to transfer some of the responsibility for public funding services in Scotland to the Scottish Government. My noble friend says that he has been converted to devo-max, whatever that may be, and that he wants more of it. Here is a good example of where we are suggesting in the Bill more devolution than the noble Lord would like through his amendment.
Accepting as I do that we should wholeheartedly support improvements in the accountability of the Scottish Parliament to the people of Scotland, the devolution of stamp duty, land tax and landfill tax is very important. The Calman report estimated that these could yield the Scottish Government over £600 million a year, so it goes to the heart of the accountability issue. Also, a key premise of the Calman report is for the Scottish Parliament to be fully accountable for its devolved taxes, a principle which the Government support. To achieve this, the Scottish Parliament must be allowed the full power to vary the rate of the devolved taxes. It is for the Scottish Government and its Parliament to take decisions over the design of the taxes through consulting the Scottish people and passing its own legislation. Scottish Ministers may well decide to set uniform rates of tax on land transactions, or on disposals to landfill, across Scotland, but I suggest that that decision is for them and not for this House or this Parliament. I cannot see a strong argument-any argument-as to why we should interfere with the Scottish Parliament's freedom to set its own taxes across Scotland as it sees fit, once there has been an agreement that a particular tax should be devolved. For that reason, I urge my noble friend to withdraw his amendment.
When my noble friend says that the Scottish Parliament should not have to apply it uniformly throughout Scotland and thatit could be used in different areas, does he mean the Scottish Parliament, or does he mean local authorities?
To be clear, my noble friend talked about different areas. I do not know how a rate may be changed, but it would not necessarily be changed on a geographical basis. There could be changes of rate based on other parameters which would not necessarily be geographic. The policy and the ability to deal with these taxes are entirely devolved to the Scottish Parliament and the Scottish Government. It is for them, on a national basis, to decide how they design the taxes from thereon.
My Lords, I can see how the Calman commission had to scrape around to find taxes that the Scottish Parliament could be allowed to levy. As my noble friend has touched on the amendment which deals with landfill, I shall, if I may, speak to that issue at the same time to save the time of the House.
I do not really have a problem if the Scottish Parliament wants to set the tax on landfill or on development land. I do have a slight problem with my noble friend's suggestion that it could be different in different parts of Scotland, which he is enunciating as a principle, without it being clear who would set it in different parts of Scotland and who would get the money. If it is proposed that it should be possible for the tax-raising power to be devolved still further to local government so that we could have differences in different areas, the Bill should spell that out and make clear who is responsible for collecting it and who gets the money.
I can see how the development land tax could be used to make it more difficult to develop particular areas; I can see how it could be used positively-perhaps by not having the tax at all-to encourage development in particular areas. However, on the landfill tax-and I am all for competition in taxes-the idea that you should combine raising the revenue with creating some kind of competition between local authorities is a little worrying, because, on the whole, people do not like having landfill sites next to them and local authorities like having sources of revenue. I would have thought that if one was planning where the landfill sites were going, and wanted to have a sensible allocation and availability of landfill sites, how and where the taxes were levied would be rather important. I would feel much more comfortable if this power was being exercised by the Scottish Parliament on a uniform basis. If that is not so, the Bill should indicate how it would operate and who would do it. Just by devolving the power and leaving it to the Scottish Parliament, we may be creating difficulties caused by the desirability of the revenue over the proper planning of landfill and development activity throughout Scotland. Perish the thought that political and other considerations might fall into this, but I am very nervous about the laissez-faire attitude that my noble friend is taking towards this tax.
Laissez-faire can be a good thing or a bad thing. I suggest to my noble friend and to the Committee that we must treat Scotland more respectfully than this. As Calman recommended, these are two taxes that should be devolved. If it is right to devolve them, as the Government believe, in line with the Calman recommendations, my noble friend should not suggest that it is inappropriate for the Scottish Government and the Scottish Parliament to determine-whether on a regional or any other basis-how they levy them. I am sure that all the considerations about the design of the taxes which my noble friend mentions, which are perfectly proper and important, will be taken into account by the Scottish Government and the Scottish Parliament. In our proposing the devolution of these taxes, that is precisely what is intended.
I am sure that my noble friend is not proposing that the Scottish Parliament should somehow devolve the taxes on to England. I merely say that it is a decision for the Scottish Parliament and the Scottish Government, just as the UK Government decide how the taxes should be handled in the UK. The Scottish Government and Parliament may decide that the design of these two taxes should be much as it is now-I do not know. It will be for them. If they have a good reason for doing it differently in the circumstances of Scotland, that is what devolution is all about. It is their responsibility; their accountability.
That is all very well and fine in theory, but I suspect that the answer to my question is that if the Minister goes back and says to his colleagues, "I have got this bright idea of devolving development land tax and landfill tax to local authorities in Scotland", he will get about 10 boxes full of reasons why this would not be desirable-not least because it would introduce different rates of tax all over the country for people who are involved in housing and other commercial developments. It is hardly in line with the Government's declared policy of simplification of taxation and less onerous regulation.
If I were to table a Question and ask what the Government's policy is on this and why, I am sure that they would come up with a whole load of reasons. My noble friend has said, "Oh well, it is for the Scottish Parliament to decide". No, it is not. At the moment this a uniform tax throughout the United Kingdom, as I understand it, and the Government have decided to devolve it to Scotland. In devolving it to Scotland, whether or not it will be circumscribed by a requirement to apply it uniformly is an important point. In considering what the impact might be on Scotland, my noble friend seems far more relaxed than in considering what the impact might be on England. If he says that that is central to the whole devolution idea and that we must trust the Scottish Parliament to use this power in this way, I just say to him that if, as I suspect will happen, the Scottish Parliament does devolve it but does not let the local authorities keep the money, he will find quite a number of English local authorities knocking on his door citing the precedent-and especially so if they decide to allow the local authorities to keep the money.
Rather than just saying, "Oh well, it is Scotland and devolution and so it must be a good thing to let them decide", my noble friend might like to think about whether it would sensible to circumscribe this in some way. However, having discussed the matter, I am happy to withdraw my amendment.
Amendment 58A withdrawn.
Amendment 58B not moved.
Clause 33 agreed.
Clause 34 agreed.
Clause 35 : Scottish tax on disposals to landfill
Amendment 58C not moved.
Clause 35 agreed.
Clause 36 agreed.
Moved by Lord Forsyth of Drumlean
59: After Clause 36, insert the following new Clause-
"Air passenger duty
(1) In Part 4A of the 1998 Act (as inserted by section 28), after Chapter 4 (inserted by section 35) insert-
"CHAPTER 5Air passenger duty
80L Air passenger duty
(1) A duty of excise which is levied on the carriage, from a Scottish airport, of chargeable passengers on chargeable aircraft, is a devolved tax.
(2) In this section-
"chargeable passenger" refers, subject to sections 31 and 32 of the Finance Act 1994, to every passenger on an aircraft if their flight begins at an airport in Scotland;
"chargeable aircraft" refers, subject to section 29 of the Finance Act 1994, to every aircraft designed or adapted to carry persons in addition to the flight crew."
My Lords, the effect of the amendment is to increase the tax-raising powers of the Scottish Parliament to include air passenger duty as part of its revenue. It is a probing amendment. I do not want to go back over earlier debates which provided for an order-making power for Ministers to designate new taxes as devolved taxes, which is a thoroughly undesirable innovation. It is dangerous because it is so open-ended in its commitment-notwithstanding the procedure, which is also undesirable.
In responding to the question of why there should be a general power for Ministers to allow the Scottish Parliament to introduce completely new taxes, my noble friend said that Calman said that there should be a general power to provide for specified taxes. Of course, in the Bill, that has been turned into any tax anybody can think of. I would like to see the Bill amended to bring it back to specified taxes. My noble friend will have spent longer reading all the consultation documents and the other material that has been produced than I have, but it seems that the aggregates levy and air passenger duty are two taxes that were specified by Calman but are not implemented. I thought it might help the Minister to include air passenger duty and the aggregates levy. There would then be no need to have the power to deal with the specified taxes, because they would already be in the Bill and we would have an opportunity to consider their merits.
I look forward to hearing the reasons why the Minister thinks that air passenger duty should not be devolved to the Scottish Parliament and provided for in the Bill. This is an example of where the Scottish Parliament might cut rather than increase taxes. It is a tax in a country that is highly dependent on tourism and on people who commute from Scotland to London-I suppose I ought to declare an interest here. It may very well make sense to get rid of air passenger duty, or not to tax aeroplanes rather than passengers, which has resulted in us all paying huge fares and being crammed into planes that are packed to the gunnels. The number of flights to Scotland is being cut, the fares are now astronomical-more than £500-and the air passenger duty is going up. I have been going to the car park at Edinburgh airport and observing it for the past 29 to 30 years. They have expanded it but I now see lots of spaces where there were none before. Air passenger duty has an economic impact not only on the business community but also on tourism and so on.
This is exactly the kind of tax that the Scottish Parliament might cut or reduce for economic benefit, although these are obviously arguments for the Scottish Parliament. I hope my noble friend will forgive me if I embarrass him, but I observed him answering a Question on the impact of air passenger duty on international flights, when he had to justify the way that tax bands operate in terms of countries and distance. It was one of those occasions when the Minister has a brief that will not stand up to scrutiny because clearly a mistake has been made somewhere along the line.
The Government seem to be very concerned about this, but if the Scottish Parliament was given these powers, it would also help-I note the noble Lord, Lord Foulkes, is not in his place-to change the position that we have at the moment where there is excessive dependence on a section of a narrow part of the tax base: the 10p on income tax. At every stage of this Bill, both the noble and learned Lord, Lord Wallace, and my noble friend have repeatedly told us that they are implementing the Calman recommendations-and that doing so was a manifesto commitment. This was a Calman recommendation and was consulted on. For all these reasons, I am longing to hear from the Minister on why it is not in the Bill.
I can see arguments against it. Indeed, someone sent me an e-mail from Newcastle asking me what I thought the effect would be on Newcastle airport. That is an important point. If the Scottish Parliament gets control of air passenger duty, I think that it will cut it and perhaps Newcastle airport will be able to persuade the Government that, worthy as the green agenda may be, this kind of tax is hugely damaging to our economy and to tourist interests. But that is a debate from another day. I beg to move.
My position is diametrically opposed to that of the noble Lord, Lord Forsyth, on the general power. I agree with him that it would be good not to have the accountability element so heavily dependent simply on the extra tranche of income tax. However, it is up to the Scots to decide how or if they wish to move further, and on which taxes. The general power seems wholly reasonable, and for us to pick and choose air passengers or whatever seems a rather bad idea.
Mine is not a complete laissez-faire position. As I said in my debate with the noble Lord, Lord Sewel, on a previous day in Committee, a counterpart to a general power is a mechanism for neutralising the macroeconomic effect. You would be very rash to start to recreate the situation that we have seen in the eurozone with Greece and Germany. That is why I am very nervous about having devo-max or devo-plus, unless and until the monetary or borrowing consequences of greater fiscal autonomy are spelt out. When we come to the borrowing bit of the Bill, I will have something to say.
I do not know what the right rate is for air passenger duty, and I consider it irrelevant to the debate on the Bill. I doubt very much that Mr Salmond, with his green credentials, would follow the noble Lord, Lord Forsyth, in thinking that a lower rate would be the right one. There are many taxes other than this one that he might prefer to lower. But it is up to them, following the procedure that would require consultation with us. The lead should come from them.
The noble Lord says that it is up to them. They want this power and Calman recommended it, and it is not in the Bill because the Government have not included it, even though they have been telling us that the Bill will implement the Calman recommendations. The legislative consent Motion that was considered by the committee of the Scottish Parliament specifically requests that it should be a condition of Scottish consent to the Bill that the air passenger tax should be included.
When discussing what should happen with Scotland, we should always also take into account not just England but Wales and Northern Ireland. In Scotland at the moment, as I understand it, there is already a variation in air passenger duty. Quite a few of the airports in the islands are already excluded, so the idea of having a different air passenger duty in Scotland is, in principle, accepted. If the power was devolved to a Scottish Parliament, would that lead to a reduction in the block grant to the Scottish Exchequer from the central Exchequer? Is there not something of a contradiction in government policy on the issue of air passenger duty, in that the Secretary of State for Northern Ireland is already recommending that air passenger duty should be transferred to the Stormont Executive?
My Lords, we on these Benches oppose the amendment at this juncture. While true it is that the Calman commission recommended that this tax be devolved-and true it is also that Labour's White Paper said that tax should be devolved-if there is any thought that this is a sudden volte-face on the part of Labour, I am afraid that that is not the case.
Her Majesty's Government said in the Command Paper that air passenger duty was under review. There is a question on whether a tax per plane might be discussed. We consider that it is not appropriate at this stage to devolve this tax until the issue is resolved; I think that we agree with the Government on this. However, the noble Lord, Lord Forsyth, might be relieved to hear that there is a power to create new taxes, which I think he might be aware of. In due course, under new Section 80B, were the air passenger tax to be devolved, this option would be open.
The noble and learned Lord has not been listening to my speech. Frankly, I do not blame him-but I did say that one reason that I tabled this and the other amendment was to get rid of that general power, which I regard as highly undesirable. Perhaps he could help me; why is the fact that the UK Government are reviewing what they want to do about air passenger duty an argument against giving the responsibility to the Scottish Parliament? If it is decided that they are going to abolish or double air passenger duty, or whatever, the revenue may halve or double. We have already been told in a long debate that there is compensation for this, so why on earth would the Government not put it in the Bill now? The fact that they are reviewing it is surely irrelevant.
It is not for me to answer for the Government. Doubtless that will be done in due course but, accepting the kind invitation for the moment, it is plainly desirable to have a coherent starting point. Simply to say, "This can now be devolved and the Scottish Government can set off on their own way, without any regard to what is happening in the rest of the UK", might be unhelpful not only to the rest of the UK but to Scotland.
I apologise if I did not pick up on his enthusiasm for advancing this in order to reduce the power to create new taxes. I understand his concern about the extent of that power. However, it might be interesting to note that the Holyrood Scotland Bill Committee has accepted that once the future of this tax has been decided, it should be considered for devolution then. Therefore, it would appear that while the noble Lord, Lord Forsyth, is in advance of the Scottish Government in their demands for ever greater powers, at least in Holyrood there has been an indication that they are prepared to wait.
My Lords, I did not find the argument of the noble and learned Lord, Lord Davidson, at all convincing. Does it mean that the UK Government are now not allowed to look at any taxes which they are proposing to transfer to Scotland? If they are looking at air duty and saying, "No, you cannot give it to Scotland as the UK Government are looking at it", and given that there is a Budget coming up, presumably, to follow the noble and learned Lord's argument, we should not devolve anything to Scotland.
My Lords, it is always a danger to generalise from the particular. In this instance, one sees that we on this side are content that the tax be devolved in due course-but where the people in Scotland, as expressed through their Bill Committee, seem to see virtue in waiting, we would agree with them.
My noble and learned friend talks about being content for the tax to be devolved in due course. That would be the route that the noble Lord, Lord Forsyth, identified, in which the only parliamentary control is an order. Will my noble and learned friend tell me where he draws the line between those taxes that should be devolved through primary legislation and those that should be devolved through secondary legislation?
I am obliged to my noble friend. There is considerable difficulty in identifying where that line should be drawn. However, where there is a significant tax, the view from this side is certainly that there would be virtue in its being found in primary legislation. If one were using a power under new Section 80B, it would be primary legislation in the context of the Scottish Parliament. I hope that helps.
My Lords, I think I should allow the noble and learned Lord, Lord Davidson of Glen Clova, to continue; he seems to have made the points in a way that I could not hope to match. I suppose I should do more than say that I agree with everything that he said and sit down.
I do not want to reopen all the discussions that we had in the previous Committee session but it is important to recognise that, as the noble and learned Lord said, there is an appropriate series of checks on both sides before any power could be devolved under Clause 28. I remind my noble friend that a similar power exists under Section 30 of the Scotland Act. I see the noble Lord, Lord Sewel, nodding. A power already exists for the Scottish Government to request new powers, including on taxation, under Section 30 of the Scotland Act. Perhaps I should not have gone into this territory, but it provides important background to this matter.
My other point is that Scottish Ministers referred to the Section 30 power when seeking legislative responsibility for a whole range of things, from firearms to consumer protection. As noble Lords will know, in each case the Government rejected the requests made by the Scottish Government. As background to this discussion about air passenger duty, it is important to remind ourselves that there are proportionate powers under Clause 28.
I have the Explanatory Notes to the Scotland Act here. They state:
"Section 30 ... permits certain alterations to be made to the legislative competence of the Scottish Parliament but only with the agreement of both Parliaments".
As I am sure my noble friend will agree, tax has always been dealt with entirely differently, not least in the exclusion of this House from consideration of tax matters since the 1911 Act. Tax is dealt with by a procedure under the Finance Act and is subject to a proper Committee stage on the Floor of the House of Commons. I believe that that is still the case. To suggest moving to a situation in which taxes can be introduced and imposed by orders-which are not amendable and which, traditionally, we do not vote against in this House-is to stretch the elastic to breaking point.
I merely refer my noble friend to the arguments that I made on this point in our previous Committee session two weeks ago. I will not repeat them because it would take up too much of the Committee's time to refute those points. It is important, as other noble Lords, including my noble friend, have said, to remind ourselves of the context in which specific taxes are referred to in the Bill. I certainly agree that, as the noble and learned Lord, Lord Davidson of Glen Clova, said, the reason not to take the issue of air passenger duty further at this time rests partly on the existence of the powers in Clause 28.
I thank the noble Lord for giving way. I have had a reply to my question from my noble and learned friend on the Front Bench; perhaps the Minister could also reply. Where does he draw the line between those taxes that can be transferred or created through primary legislation and those that should be created or transferred through orders?
No, my Lords; I do not propose to repeat the arguments and debates-interesting, important and lengthy though they were-because we should turn to the specifics of air passenger duty, which is the subject of the proposed new clause. Air passenger duty is an important issue on its own account, but it is not an easy one, for reasons to which my noble friend and others have referred. It is precisely because air passenger duty is so important that the Government have specifically sought views on the merits of devolution from a UK and a devolved perspective in their recent consultation. The responses provided arguments both for and against. Several respondents argued that devolution was necessary to reflect the distinct economic and social conditions in Scotland, and the impact that this has on flights to and from Scotland, in support of the Calman recommendations. Others opposed any devolution of air passenger duty, arguing that it would complicate the APD system and create potential distortions in the market for flights. There was no clear view either way. The Government's response to the consultation was published on
I hope that the Minister will forgive my ignorance on this matter, but he put forward in support of his argument the power under Section 30 of the Scotland Act. My noble friend Lord Forsyth was looking at that, as am I. Section 30(4) states:
"An Order in Council under this section may also make such modifications of-
(a) any enactment or prerogative instrument (including any enactment comprised in or made under this Act), or
(b) any other instrument or document".
Does that cover tax?
My Lords, I think my noble friend will find that taxation is set out in Schedule 5 to that Act, if memory serves. Section 30 can amend Schedule 5, so tax-
My Lords, it would be appropriate to allow the Minister to finish answering one point before the next one is made.
I hope that I may finish. I merely wanted to remind noble Lords, as a background to this discussion of whether it is appropriate for this tax to be in the Bill at this time, that there is a power, which we debated extensively, that would enable air passenger duty to be devolved in due course, if appropriate. I also remind noble Lords that there are similar powers in Section 30 of the Scotland Act. Of course they are not exactly the same; they work in different ways. However, we are not going into uncharted territory. This is territory in which the Government have been requested to devolve powers-not tax powers, although they could have been requested, but powers in other important areas. The Government have consistently said no because they do not believe that the arguments for that have been made.
Section 30 clearly does not provide for tax powers. But if my noble friend is correct and it does, then why does he need the powers contained in the Bill to implement the taxes?
My Lords, I think that we will have to differ on the construction of powers under the 1998 Act. However, I am quite clear on it. Now, instead of an Act with a construct providing for a general power for the Scottish Government to make requests to the UK Government, and for the UK Government to accede to those or not, and because we are now getting to a very significant devolution of tax powers, it is entirely appropriate, as I hope my noble friend will agree, that if such devolution is to go ahead as the Government wish, the full structure should be set out as it is in this Bill although not in the 1998 Act. I hope that that explains that one. Perhaps I should carry on with air passenger duty, which is the narrow but important subject of these amendments.
If the Minister is discussing air passenger duty then it is surely incumbent on him to try to put it in another context apart from the rather narrow one of revenue-raising, namely its impact on the provision of transport. Transport is a devolved responsibility, but sometimes that devolved responsibility seems a moveable feast. We talk about a high-speed train and claims are made that it should start in either Edinburgh or Glasgow, or at least finish in one, but there is no clear indication of who will fund it. But let us face the fact that regardless of whether the funding comes out of a block grant or a form of increased air passenger duty, a fast train would largely eliminate the need for Edinburgh-to-London or Glasgow-to-London air journeys. However, that would be the case only within the United Kingdom. The paradox is that were we to have the power to reduce airport duty, we might well have a situation in which transatlantic travel from Edinburgh or Glasgow is a more attractive option than travelling from Manchester and London, which are currently the main-almost oligopolistic-providers of transport across the Atlantic.
It is therefore incumbent on the Minister to get away from this narrow tax-raising, shopkeeper approach. This is a matter of greater significance to Scotland, given the devolved powers. The Government must consider this issue rather more seriously than their current, somewhat blinkered approach would suggest. Although I realise that the noble Lord, Lord Forsyth, has framed the issue in the context of taxation, it has implications which make taxation itself not a sufficient context in which to consider it. It has to be done on a broader basis. I would therefore be grateful if the Minister considered it in his response.
Before this stream of questions and interventions I made precisely the point that, in response to the consultation, arguments were raised pro and against the devolution of APD on grounds relating to distinct economic and social conditions-indeed, those were the points that I was addressing rather than revenue-raising points. I am slightly surprised at the noble Lord's intervention on this. I completely agree with him that APD has all these potential effects. Some of the effects that he suggested go very wide, but I agree that this is complicated and the economic and social issues are relevant.
I would suggest that it is really very long for this amendment. The previous intervention from the noble Lord asked me to address points that I had precisely addressed: the non-tax-raising issues indeed include important issues related to APD. Those were the issues that, among others, came up in response to the consultation. That is why, in the response to the consultation published last December, we continued to explore the feasibility and likely effects of devolution of APD to Scotland-for the very reasons, among others, that the noble Lord sets out. That is what we will do.
I should like to think that not only the noble Lord, Lord O'Neill, but other noble Lords would recognise that it would be inappropriate for the Government to devolve APD until we have considered the impact of the proposals fully from both the Scottish and the UK perspectives. In this connection, I say to the noble Lord, Lord Kilclooney, that a particular consideration applies in Northern Ireland because of the land connection in Ireland and competition on flights of a different nature, which is why a particular stance was taken on Northern Ireland.
I certainly accept that point, but my question particularly related to Scotland. There are people in Scotland and Northern Ireland who increasingly want tax-raising powers devolved to Edinburgh and Stormont. They seem to think that they can then reduce taxes in Scotland and Northern Ireland without any implications. If the Scottish Government has air passenger duty devolved to Edinburgh and reduces the duty in Scotland, will that or will it not mean a reduction in the block grant to the Scottish Government?
I thought that the noble Lord, Lord Kilclooney, asked me two questions. I answered one; I was coming on to answer the second; although I know that he asked them in the other order. It is completely clear that there will indeed be a permanent adjustment to the block grant for any devolved tax, including, if it came about, APD. That is unequivocal.
We need to consider the full impact. The Bill contains powers in Clause 28 which would enable the Government and Parliament to devolve APD should they decide to in future. Although I fully agree with my noble friend about the importance of the recommendation for APD, I agree on this point with the noble and learned Lord, Lord Davidson of Glen Clova, that now is not the time to amend the Bill. APD can be looked at on its merits under the framework of the Bill in due time. I therefore again urge my noble friend to withdraw his amendment.
My Lords, the St Augustine approach to the Calman commission is upon us. We have heard repeatedly that the Bill is to implement the Calman recommendations, which included devolving air passenger duty. Now we are being told by both Front Benches that the time is not right: "Oh Lord, make us have air passenger duty, but not yet". The reason that the time is not right is that the Government are reviewing air passenger duty. We learnt from the noble Lord, Lord Kilclooney, that the Government are prepared to devolve it to Northern Ireland and that the Secretary of State is prepared to give it to Northern Ireland. We are told that it would be difficult to include it in the Bill because there could be all kinds of implications because of changes to air passenger duty. We already have differences between Scotland and England. My noble and learned friend Lord Wallace will know the answer to this question, but I am pretty certain that highlands and islands airports are exempt from air passenger duty.
Only one way. One-way tickets. Perhaps I may suggest that this is a possible area for the Office of Tax Simplification to consider. You can just see how a committee has sat down and said, "Which way is it? If you're leaving Inverness there's no air passenger duty, but if you're arriving there is". I am told that it applies in both directions for Inverness.
From memory, it applies both ways for Inverness but the relief is available only one way for airports in the islands and Wick. For the life of me I cannot remember in which direction. I think it is when travelling from the islands and Wick but I would have to check.
So it is a policy that encourages emigration from the highlands and islands. The very fact that there is this degree of complexity torpedoes any suggestion that it would be possible to give this power to the Scottish Parliament now. Of course, if the regime changed then the revenue would change, and we have already heard at great length how this would be compensated for under the principle of "heads you win, tails you win", which is apparently central to the Bill.
I entirely take on board the noble Lord's chastisement. He was absolutely right. I tried to talk about the economic benefits but he is right to focus on the fact that this is not about tax. Actually, the tax revenue is not hugely significant but I believe that the impact of the tax could be, and he gave an example. I remember all the battles that we used to have in the late Lord Younger's day about saving Prestwick, and I am aware of the stress and pressure on these islands services. I hope that I will not embarrass my noble and learned friend Lord Wallace but this is highly political to the extent that I think the Scottish Government leant on an airline-Loganair-to withdraw an invitation to him to address its 50th anniversary dinner. That is a disgraceful example of the poisonous way in which members of the SNP-led Government behave. Therefore, this is very political and very important to the islands, and I am disappointed that my noble friend is maintaining this St Augustine position, saying that he favours it but the time is not right.
So my noble and learned friend was right. That is odd, as it encourages people to leave and not to arrive. It is very strange, although I am sure there is an explanation for it.
Perhaps I may put it to my noble friend that it is entirely possible that the Bill will be amended at a later stage to remove this general power to create new taxes by order. It is a very important constitutional development which goes way beyond the importance of air passenger duty and the aggregates levy. It seems that my noble friend's assumption that we can always just use this general power and not have the tedium of primary legislation may not survive the passage of the Bill through this House. What will he do then in order to give the Scottish Parliament the opportunity to benefit from air passenger duty? If the position of the opposition Front Bench is one of "not yet but this is something that we can do in due course", I have to say that I think the chances of getting primary legislation to amend the Scotland Act to provide for air passenger duty in the absence of this order-making power are pretty limited. However, being a reasonable sort of chap, I have a compromise to propose to my noble friend. Many of us in this House do not like the general order-making power for introducing new taxes. This is being justified on the basis that we might want to introduce air passenger duty at a later date, or introduce an aggregates tax at a later date-I do not think that we have heard about any others.
Why not bring forward a government amendment to amend that order-making power in line with the Calman recommendations so that it is for specified taxes and not generally open? In that way, everyone will be happy, constitutional propriety will be fulfilled, and the Government will meet their commitment set out in the manifesto in respect of Calman. On that basis, I beg leave to withdraw my amendment.
Amendment 59 withdrawn.
Amendments 60 to 62 not moved.
Moved by Lord Forsyth of Drumlean
62ZA: After Clause 36, insert the following new Clause-
(1) In Part 4A of the 1998 Act (as inserted by section 28), after Chapter 6 (inserted by section 36C) insert-
"CHAPTER 7Aggregates Levy
80N Aggregates Levy
(1) A levy charged on aggregate subjected to commercial exploitation is a devolved tax.
(2) In this section "aggregate" means (subject to subsections 4 and 5 below)-
(a) any rock, gravel or sand, together with whatever substances are for the time being incorporated in the rock, gravel or sand or naturally occur mixed with it, and
(b) the spoil, waste, off-cuts and other by-products resulting from the application of any exempt process to any aggregate;
but does not mean anything else resulting from the application of exempt process to any aggregate.
(3) In this section any quantity of aggregate is, in relation to any occasion on which it is subjected to commercial exploitation, a quantity of taxable aggregate except to the extent that-
(a) it is exempt under subsections 4 and 5;
(b) it has previously been used for construction purposes (whether before or after the commencement date);
(c) it is, or derives from, any aggregate that has already been subjected to a charge to aggregates levy in the United Kingdom;
(d) it is aggregate that on the commencement date is on a site other than-
(i) its originating site, or
(ii) a site that is required to be registered under the name of a person who is the operator, or one of the operators, of that originating site.
(4) Aggregate is exempt under this section if-
(a) it consists wholly of aggregate won by being removed from the ground on the site of any building or proposed building in the course of excavations lawfully carried out-
(i) in connection with the modification or erection of the building; and
(ii) exclusively for the purpose of laying foundations or of laying any pipe or cable;
(b) it consists wholly of aggregate won-
(i) by being removed from the bed of any river, canal or watercourse (whether natural or artificial) or of any channel in or approach to any port or harbour (whether natural or artificial); and
(ii) in the course of the carrying out of any dredging undertaken exclusively for the purpose of creating, restoring, improving or maintaining that river, canal, watercourse, channel or approach;
(c) it consists wholly of aggregate won by being removed from the ground along the line or proposed line of any highway or proposed highway and in the course of excavations carried out-
(i) for the purpose of improving or maintaining the highway or of constructing the proposed highway; and
(ii) not for the purpose of extracting that aggregate;
(d) it consists wholly of aggregate won by being removed from the ground along the line or proposed line of any railway, tramway or monorail or proposed railway, tramway or monorail and in the course of excavations carried out-
(i) for the purpose of improving or maintaining the railway, tramway or monorail or of constructing the proposed railway, tramway or monorail; and
(ii) not for the purpose of extracting that aggregate;
(e) it consists wholly of the spoil, waste or other by-products, not including the overburden, resulting from the extraction or other separation from any quantity of aggregate of any china clay or ball clay; or
(f) it consists wholly of the spoil from any process by which-
(i) coal, lignite, slate or shale, or
(ii) a substance listed in subsection 5(b) below,
has been separated from other rock after being extracted or won with that other rock.
(5) For the purposes of this Part a quantity of any aggregate shall be taken to be a quantity of aggregate that is exempt under this section if it consists wholly or mainly of any one or more of the following, or is part of anything so consisting, namely-
(a) coal, lignite, slate or shale;
(b) the spoil or waste from, or other by-products of-
(i) any industrial combustion process, or
(ii) the smelting or refining of metal;
(c) the drill-cuttings resulting from any operations carried out in accordance with a licence granted under the Petroleum Act 1998;
(d) anything resulting from works carried out in exercise of powers which are required to be exercised in accordance with, or are conferred by, provision made by or under the New Roads and Street Works Act 1991; or
(e) clay, soil or vegetable or other organic matter.
(6) For the purposes of subsection (3)(c) aggregate subjected to exploitation in Scotland is aggregate that has already been subjected to a charge to aggregates levy if, and only if-
(a) there has been a previous occasion on which a charge to aggregates levy on that aggregate has arisen; and
(b) at least some of the aggregates levy previously charged on that aggregate is either-
(i) levy in respect of which there is or was no entitlement to a tax credit; or
(ii) levy in respect of which any entitlement to a tax credit is or was an entitlement to a tax credit of an amount less than the amount of the levy charged on it.
(7) For the purposes of subsection (5)(b) above, any credit the entitlement to which arises in a case which-
(a) falls within section 30(1)(c) or 30A of the Finance Act 2001, and
(b) is prescribed for the purposes of this subsection,
shall be disregarded.
(8) In this section-
"coal" has the same meaning as in the Coal Industry Act 1994;
"highway" includes any road within the meaning of the Roads (Scotland) Act 1984;
"exempt process" means-
(a) the cutting of any rock to produce (stone with one or more flat surfaces);
(b) any process by which a relevant substance is extracted or otherwise separated (whether as part of the process of winning it from any land or otherwise) from any aggregate;
(c) any process for the production of lime or cement from limestone or from limestone and (anything else); and
"relevant substance" means any of the following-
(b) ball clay;
(d) china clay;
(h) fuller's earth;
(i) gems and semi-precious stones;
(k) any metal or the ore of any metal;
(p) rock phosphates;
(q) sodium chloride;
(r) talc; or
(9) The Treasury may by order made by statutory instrument-
(a) modify the list of relevant substances in subsection (8) above by adding any substance to that list or by removing any substance from it; and
(b) make any such transitional provision in connection with the modification of that list under this subsection as they may think fit.
(10) The Treasury shall not make an order under subsection (9) above by virtue of which any substance ceases to be a relevant substance unless a draft of the order has been laid before Parliament and approved by a resolution of the House of Commons.
(11) A statutory instrument containing an order under subsection (9) above that has not had to be approved in draft for the purposes of subsection (10) above shall be subject to annulment in pursuance of a resolution of the House of Commons."
(2) Duty may not be charged in accordance with the provision inserted by this section if the exploitation occurs before the date appointed under section (Disapplication of United Kingdom Aggregates Levy)(4)."
This feels like Groundhog Day.
I thought that the committee of the Scottish Parliament that looked at the latest Bill just before Christmas last year had wanted to include air passenger duty in it, but I am told that that is not the case and that the committee was prepared to wait. It is certainly not prepared to wait on the aggregates levy. As noble Lords will see, it takes three pages of legislation to provide for the power to obtain the revenue from the aggregates levy. Here, once again, we have a case of St Augustine: "We are in favour of this, but we don't actually want to do it now".
The argument being put against including this in the Bill is that it would be subject to legal challenge-the power might be put in the Bill but the result might be that no revenue for the Scottish Parliament arises from it. That is not an argument for not putting it in the Bill. Primary legislation is difficult to achieve, and it is even more difficult to achieve in a decent time in Westminster. I think that my noble friend should accept my amendment-which is probably technically deficient-and extend the range of tax powers available to the Scottish Parliament, if for no other reason than to mitigate the effects which we have talked about at length today of having a narrower income tax base. I beg to move.
While the noble Lord, Lord Forsyth, has been talking, and now that he is talking about aggregates tax, I have been aggregating the time that we have taken to deal with half a dozen or so groups of amendments. I see that we have about twice as many groups still to deal with before we reach the target that the Government have set themselves. We have taken six and three-quarter hours to deal with these half a dozen or so groups of amendments, and at the rate we are going it will take until about 7 o'clock tomorrow morning to deal with the rest.
Although I am prepared to stay here, I think that it really is unfair on the staff-on Hansard, on the catering staff, the doorkeepers, the civil servants and the clerks of course; on all the staff-who do such a wonderful job on our behalf. It is incumbent on the Minister and the noble Baroness the Whip to start thinking about how the Government will deal with this. We lost one whole day of our Committee stage because the Welfare Reform Bill took it up. We all sat round for a whole day but eventually the Government said, "We are not having it today. You can all go home". That was a wasted day for many people. We are having a detailed debate on this Bill. I have not participated in much of it but I have been listening to all of it-and yes, as a noble Baroness says, I nodded off on one occasion as well.
It is incumbent on the Government to give an indication to the staff-to everyone around the House-of what will happen. How late will we go tonight and what is the target? They should also give us more time to deal properly with this very important constitutional Bill. It was not dealt with properly in the other place, but it is our responsibility to deal with it properly. There is plenty of time after Easter for Report. We could continue the Committee stage in the two days that are allocated for Report and deal with it properly then. I hope that the Government will give that serious consideration. Otherwise, we will not be treating dedicated staff as we should if we are to be a good employer.
First, on my count of the progress that we are making, I have ticked off 19 groups and we have 10 to go, given the breaking up of groups and regrouping. My understanding is that the usual channels agreed that we should target and complete Amendment 87A. It was made quite clear in everything that I have read that there was that expectation. I very much appreciate all those who support us in keeping the House going, but I know that their expectation and our expectation over the past few days is regrettably that we will rise considerably later than normal today. Rather than spending too much time confirming what the usual channels have agreed, I think we should press on.
Perhaps the Minister's count is more accurate than mine-I would split the difference-but it is still going to take a long time. We have important issues to deal with such as the Barnett formula, the referendum, the Scottish Consolidated Fund, the Civil Service in Scotland, surcharges, financial privileges, legislative consent Motions and the delay in legislation on a referendum. If we are going to deal with all these things properly, we cannot deal with it. We have all been sitting here for six and a quarter hours already. We cannot deal with it properly, and it really is important that we consider the staff in this. I hope the usual channels will have another look at this.
Right. I had quite forgotten that we are on the aggregates levy. Let me answer my noble friend's points. Yes, the Calman commission recommended the devolution of the aggregates levy and, as my noble friend knows, the Government agree with that recommendation. We are committed to devolving the aggregates levy to the Scottish Parliament but, to confirm what he said, we believe that that can and should be done only once the complex legal challenges against it in the European and UK courts have been fully resolved. The Government were clear about their position in the Command Paper for the Scotland Bill, and we remain firmly committed to it.
The position is still moving on the court challenge. The European General Court delivered its judgment in the case of British Aggregates Association v the Commission on
To make sure that things continue and we do not lose momentum on this, as a practical and necessary step to prepare for devolving the levy the independent Office for Budget Responsibility will start to provide forecasts of Scottish aggregates levy receipts from April 2012. The Treasury will also notionally assign these forecast receipts to the Scottish budget. Together with the tax powers in the Scotland Bill, this will allow for the speedy devolution of the levy when the legal challenges have been fully concluded. At that time, the order can be drawn up to reflect the position post the completion of the challenges.
I hope I have made it clear that the Government's desire to devolve the levy as soon as is feasible continues. It is not feasible to do it while the legal challenges are ongoing. The Bill gives adequate powers for that devolution in future. I thank my noble friend for putting forward a carefully thought through amendment, but I ask him to withdraw it.
My Lords, I am very puzzled by this. The Minister says that the amendment is competent. The Minister says that it was included in Calman. The Minister says that the Bill is about implementing the Calman proposals. The levy is certainly subject to a legal challenge. He did not explain why the fact that it is subject to a legal challenge precludes accepting my amendment and putting it in the Bill, and making that a devolved tax for the Scottish Parliament.
I tried to make it clear that while we could draw up-as he has had a shot at drawing up-a technical solution within the framework of the levy as it exists now, and put through something in the form that he has proposed or a government amendment to do it, until we know whether it is premised on a legally sound basis it would be a waste of time to do so. We need to have a firm legal basis on which the levy exists before we can be sure of the proper basis to devolve it to Scotland. It is as simple as that.
I am surprised that he expresses such puzzlement. As I said, in the mean time we are doing all the practical things we can to make sure that when we have the legal green light, the devolution powers can be progressed as speedily as is appropriate.
An argument that says, "We cannot put it in the Bill because we are not sure about the legality but we are still taking in the money" is a bit thin. I can give way to my noble friend and he can explain why it is not at all thin-it seems pretty thin to me. If the Government think that the legal basis is uncertain, why are they collecting the cash and spending it? As we know, their spending is way beyond their income. It is a very curious argument that says, "We are still collecting the tax but we cannot put this in the Bill"-which is subject, by the way, to commencement provisions that give the Treasury pretty considerable powers as to when it is enacted. The legal position is going to be sorted out one way or the other. If it means a change, there are already powers in the Bill to enable the Government to deal with that. I am at a loss to understand the logic of the Minister's position.
Let me make one last attempt at trying to help my noble friend as to why particularly the legal challenge means that it would be foolish and unsafe to try to draft an appropriate devolution mechanism now. As he may know, a central aspect of the challenges has been allegations of tax discrimination across borders. We do not know where it will come out and what the constraints may be, but since we might be doing something where borders would be relevant, we need to understand the legal ruling before we can construct a robust, devolved approach to this. It would be a ridiculous waste of our time and would make no sense to put up something if we thought that it would be immediately knocked down and that we would have to rewrite it in a year's time.
I have to say to my noble friend that at 7 pm on a Thursday night, after six hours of this Bill, to use an argument about wasting time is grave to say the least. The whole process that we are going through is in order to work out an appropriate Bill in terms of the Calman recommendations. If he is saying that if we make aggregates tax a devolved tax, although it might change as a result of changes arising from the legal challenge, I can just about get there, but when he says that it is about cross-border issues, presumably that refers to such issues between countries in the European Union and not within countries in the European Union. If we are now starting to say that we cannot devolve measures because of cross-border issues within the United Kingdom, are we not ceding a very important principle? He surely is not talking about the Scottish border in this context.
I simply do not know where the courts will come out, but there are some constraints. As regards some of the amendments that my noble friend did not speak to, alcohol duties are one area where we are constrained by Europe, which says that there should be a uniform rate nationally. Therefore, there are other areas, although my noble friend might not like it. Alcohol duty is one area where there are precisely those constraints.
This illustrates why I do not think that it would be productive-there is a challenge, which is still not resolved and final-to base new legislation on an insecure foundation. In the mean time, as I have explained, we are operating the levy on a shadow basis, with the help of the Office for Budget Responsibility, so that we know what is attributable to Scotland from April 2012.
That is to concede the point. If my noble friend is saying that the legal challenge might result in the Scottish Parliament not being able to have a higher or lower duty, should there have to be a uniform duty throughout the United Kingdom because of EU rules, that is not an argument for allowing the Scottish Parliament to have the revenue that arises from the aggregates levy. It is not just about setting the rate; it is also about having the revenue and broadening the tax base.
Perhaps the noble Lord is right. Who knows what the EU is capable of? The fact that we may end up with a uniform application, as in the case of alcohol duty, is not in itself a reason for not providing for this power in the Bill. If my noble friend's concern is that the nature or the application of the tax may vary as a result of the legal case, and if he says to me, "Withdraw your amendment and I will come forward with a government amendment that provides for the aggregate levy but gives us the flexibility", and my goodness, this Bill is bristling with examples, "for the Treasury to provide for it in secondary legislation", that would be a much more desirable position-I know my noble friend hates it when we go back to this-than the general power to invent new taxes that is being justified on the basis of the Government's inability, which I do not understand, to include in the Bill provisions that would allow for the aggregates levy and for air passenger duty. Can he help me with that?
No, my Lords, I am afraid that I will not be able to help my noble friend. There is one subsidiary point on which perhaps I can do so. To be clear, I have said that it is a case against the Commission. For the avoidance of doubt, it is not that the UK is continuing to collect this levy on some inappropriate basis; it is just that the Commission is facing a case that may mean that the whole basis on which the levy system operates may have to change. I am afraid that I cannot give him any comfort on that. We shall draft the provisions as and when we have a safe basis on which to bring them forward.
When my noble friend says that we will draft them when there is a safe basis on which they can come forward, I hope that by the time this Bill is given Royal Assent there will not be an open-ended power for him to come along and, by order, invent taxes that have not been subject to proper scrutiny as this aggregates tax would be, if he were to accept the amendment, by the House of Commons using the established procedures that we have always had for the consideration of tax.
There is one other question I want to ask my noble friend. Given the very strong line that he has taken on this matter-that it would be impossible to do so because of the legal challenge-and on the previous matter, the development land tax, which we have been told that it is not possible to put into the Bill, can I assume that this is no part of the negotiations that are going on with the Scottish Parliament to get legislative consent? I hope that the Government are not saying one thing to this House and another thing privately. Can he confirm that we are not going to be faced with this being delivered as the result of some deal, because of course that could not be done given the very firm line that my noble friend has taken on the impossibility of including those taxes in the Bill?
My noble friend may have misunderstood me because I am not sure that it would not be out of mischief, but I have never said that any of this is impossible. This Parliament can do whatever it wants in this area, but I have explained the practical and other reasons why it would be inappropriate at this time. I certainly do not want him to go away with the suggestion that any of this impossible. It would just be wrong in the case of both of these taxes to proceed at this time for the reasons that I have set out at greater length than I thought I would have to, but I am happy to have had this debate.
I am sorry that my noble friend is getting bored with this, but he has not actually answered my question. Let me put it in another way. Is he saying that if this House was minded to see the inclusion in the Bill of both these taxes-let us stick to the one we are on at the moment, the aggregates tax, although the development land tax had the support of those on both Benches-that whatever the strength of the arguments that are put, or even if this House were perhaps to vote in that direction, although that does not particularly likely, he would resist it, but that it could be conceded as part of a negotiation with the Scottish Parliament in order to get its legislative consent, which is not required by statute? If he is saying that, that gives us considerable cause for concern, because what that says-and my noble friend talks about wasting time-is that it does not really matter what we say or do, or what arguments we advance.
In the end, what goes into the legislation will be determined by a backroom deal between Ministers and the First Minister on the basis of a legislative consent Motion that, right at the beginning of our debate, my noble friend refused to say would allow the Bill to go forward if it was accepted. It is a very simple question: will the line that my noble friend has given be held in the negotiations with the Scottish Parliament? It is a relevant question, because the committee that has looked at this wants it included in the Bill.
I am struggling to see where this is going. The Government have said all along that we intend to devolve the aggregates levy. I think there was a slip somewhere, and perhaps I misheard, but the aggregates levy and the APD are the two taxes that we are talking about, for which it is inappropriate to bring forward measures at the moment. On the aggregates levy, we have been completely clear all along, so there is no question of any negotiation on this.
Right. Well, on the basis of that undertaking, I am happy to beg leave to withdraw my amendment.
Amendment 62ZA withdrawn.
Amendment 62ZB not moved.
Clause 37: Borrowing by the Scottish Ministers
Moved by Lord Davidson of Glen Clova
62A: Clause 37, page 29, line 2, after "may" insert "with the consent of the Treasury"
My Lords, this is a very, if I may put it this way, gentle, probing amendment. It looks at Clause 37 and, in particular, subsection (3). The reason that one is advancing this is that one understands from the Command Paper, Strengthening Scotland's Future, that there would be a current borrowing capacity for Scottish Ministers of up to £500 million. In the terms of subsection (3) that seems to be designed to cover, putting it broadly, a temporary shortfall in receipts.
When one looks at Clause 37, one sees that, in terms of capital expenditure borrowing, if Scottish Ministers wish to use that power they are required to obtain the approval of the Treasury. In subsection (5) there is reference also to the Secretary of State making an order pursuant to,
"the consent of the Treasury".
What one is endeavouring to ascertain by the amendment is the thinking of the Government in relation to how temporary shortfalls may be met by borrowing, and what control there would be over that. Plainly, at least in Scotland but certainly in other jurisdictions, temporary shortfalls have a way of becoming fairly permanent. Borrowing by subsidiary jurisdictions can occasionally get out of hand, which requires being brought back under the control of central government. One is simply endeavouring to find for what reason no consent order or other order was put specifically on this power in the Bill.
I can perhaps put it better. One sees that there is a power here. It is going to be controlled, we are told in the Command Paper. Why is it not being controlled in the Bill, given that it is the very nature of borrowing that it might run out of control?
My Lords, the short answer to the noble and learned Lord, Lord Davidson of Glen Clova, is that the additional safeguard proposed in his amendment does not need to be written into the Bill in this way because the limit and sources of borrowing are already controlled in the legislation and the Command Paper. I could leave it that, but I feel that I should say a little more, because I understand what the noble and learned Lord and the noble Lord, Lord Browne, are driving at in their amendment. I agree that control over the borrowing powers needs to be careful and considered. They have given us an important opportunity to look at this matter and to confirm what I believe to be the case; namely, that sufficient controls exist.
The extended current borrowing facility proposed will provide Scottish Ministers with a lever to deal with the deviation between forecast and actual outturn receipts from devolved taxes. It will also enable them to deal with the volatility in revenue flows from taxes as they enter the Consolidated Fund at different times over the tax year and beyond. The current borrowing power will come into operation when the taxes are devolved, up to a limit of £500 million. I do not think that the noble and learned Lord is suggesting that there is anything inappropriate about that-he is confirming that he does not challenge the logic of that. In addition to the current borrowing facility, Scottish Ministers will have the power also to borrow to fund capital expenditure to a limit of up to 10 per cent of the Scottish capital budget in any year, with the overall stock of debt for capital purposes not exceeding £2.2 billion.
Such borrowing will need to be self-financed through increased revenue from taxation in Scotland or a reduction in public spending. So there are controls in place on the levels of borrowing, as there must be. On that basis, the Bill allows Scottish Ministers to access the most competitive source of lending, which is the National Loans Fund.
All other things being equal, Scottish borrowing will increase UK borrowing and debt. The limits in the Bill and the controls set out in the Command Paper will ensure that the Scottish debt is affordable from within the UK fiscal position.
While I support the intention behind the noble and learned Lord's amendment, which is that borrowing by Scottish Ministers must not risk the UK's fiscal position, I believe that the borrowing limits reflect a judgment of what is affordable and do not put that position at risk. The limits on borrowing for capital expenditure were judged by my right honourable friend the Chancellor of the Exchequer to represent an acceptable level of risk that he was willing to place on the UK's public finances. The limits on borrowing for revenue expenditure were based on an assessment of the size of forecast errors in income tax in normal times. Unlike capital expenditure, where a stock may build up, borrowing for revenue expenditure is related to a technical assessment of forecast errors and the timing implication.
The protections already in place in the Bill are sufficient to ensure that the UK's fiscal position is fully protected. I again thank the noble and learned Lord for stimulating this short discussion, but ask him to withdraw his amendment.
Amendment 62A withdrawn.
Amendments 63 and 64 had been withdrawn from the Marshalled List.
Clause 37 agreed.
Moved by Lord Forsyth of Drumlean
65: After Clause 37, insert the following new Clause-
"Allocation of public funds to Scotland
(1) The allocation of public funds to Scotland shall be based on a needs assessment, rather than the population basis of the Barnett formula.
(2) The Chancellor of the Exchequer shall, by order, establish a commission-
(a) to agree a methodology for assessing Scotland's needs; and
(b) periodically to review the allocation of public funds to Scotland in the light of its needs.
(3) The first review by the commission must be completed no later than
My Lords, the noble Lord, Lord Barnett, left me a note saying that unfortunately he had been detained and would not be here to move his amendment, and asking me whether I might find the time to do so. As I have added my name to it, I will do so with pleasure. I know that the noble Lord was keen to discuss the issue in Committee.
We had a good preparatory discussion for the amendment when we heard from the Minister how any reduction in the tax base would be compensated for by an addition to the block grant. The fundamental flaw in the Bill is that it is presented as being about accountability, but the accountability is limited. This is partly because of the limited nature of the taxes being devolved and partly because of the compensation for changes in policy in the tax base, to which I have just referred. However, the accountability is limited mainly because the bulk of the funding in the block grant is still based on the world as it existed in the 1970s, as amended and altered by subsequent Governments, including those of which I was a member. I plead guilty to using some of the techniques to enhance the effects of the Barnett formula and to reduce the squeeze that otherwise would have occurred on Scotland's budget.
A Scottish Parliament has to be accountable when it pursues its different policies, whether they are on health, free care for the elderly, free tuition fees, free bus travel, extra nursery care provision or free prescriptions on the NHS-all of which are no doubt popular. Indeed, I venture to suggest that one reason why Mr Salmond did so well in the elections was because he was able to make such promises. I am not sure he will be able to keep them, but he certainly benefits from the fact that Scotland is more generously funded relative to need than the rest of the United Kingdom. That is historically the position and I do not apologise for it. When I was in office I did everything that I could to keep it that way.
However, we are going to move to a Parliament which has its own tax-raising powers. It was interesting that at the start of our discussions people tried to maintain the idea that the tax-raising powers might be used to lower taxes. That finally fell over and the debate swung toward the consequences of higher taxes. One can imagine what the consequences would be of lowering taxes while providing additional services and being funded at a rate of 20 per cent more per head-perhaps a little less-as a result of the impact of the Bill and the 10p tax-raising power. Over time it would cause great resentment and great difficulty in other parts of the United Kingdom. As the noble Lord, Lord Browne, pointed out, we should always focus our attention on what the consequences are for the United Kingdom and the union as a whole.
The noble Lord, Lord Barnett, has a habit of landing me in it on this subject. He had several goes on the Floor of the House, as he did today in the car park-and if it is in order to give advice to Black Rod, I would urge him to give in gracefully, because the noble Lord is a terrier. He tried and tried to get the House to set up a special Select Committee to look at the Barnett formula. I served on that committee, along with my noble friend Lord Lang and a number of distinguished Members of this House. We laboured long and hard, took lots of evidence and were absolutely unanimous that the funding for Scotland needed to move to a system based on needs. Various arguments have been put against that. The one put by the Government is perhaps the weakest-that the time is not right and that they are concentrating on reducing the deficit. Both of those reasons seem to be difficult to understand and illogical. Surely, the right time to address this is when you are seeking to set out hugely innovative constitutional change.
Will the noble Lord not concede that this is probably the wrong time to change the Barnett formula, given the failure of the nationalist Administration's economic policy in Scotland, where unemployment is rising at a faster rate and the economy is growing even more slowly than in the rest of the United Kingdom? Sadly, we need the Barnett formula to keep the show going in Scotland. I admit that there are areas of expenditure that we may well dispute-I am not happy about the priorities of the nationalist Administration-but nevertheless, the money is required to try and keep our economy limping along at this very difficult time.
The noble Lord may be surprised to hear that I agree with him. I am deeply concerned about what is going to happen to jobs and public services in Scotland as a result of the impact of the Bill. If he is saying that this is the wrong time to fiddle around with the Barnett formula, I would say that this is absolutely the wrong time to introduce tax-raising powers in Scotland that are limited in scope, with an Administration that appear to spend money without any idea of where the resources will come from. The Scottish budget is very stretched-the promises that have been made are on a very large scale and the revenue that can be raised from the income tax provisions is very limited. Despite that, the damage that will be done will be considerable.
Earlier in our proceedings, people said that I seemed to think that politicians were just going to keep putting up taxes, even though they have to get elected. However, it is not just about tax but about preserving our public services: our schools and so on. It is a fact that spending per head on health and education is very much higher in Scotland than in England and in Wales, but that spending has not produced the same levels of productivity. The noble Lord is absolutely right that despite all the bluster, the Brigadoon economics and the Braveheart talk, the nationalist Administration have singularly failed to deliver on any of the outputs that they promised. Among the real concerns are the rising levels of unemployment and youth unemployment. The noble Lord may be surprised that I agree with him on this. I personally would take this Bill, put it on the shelf and get on with deciding whether Scotland wishes to remain part of the United Kingdom-and then have a proper look at the consequences that follow from the Bill.
This Bill is from another time. Its genesis or midwife was an attempt by the unionist parties to avoid the nationalists getting a majority. It failed, and the world has moved on; the senior civil servant in the Scottish Office writes blog posts to his colleagues saying that it is lost in the mists of time and is irrelevant. No one who spent even a quarter of an hour listening to our proceedings this afternoon-whichever side of the argument they were on-could say that the Bill was not a huge constitutional change. It is taken for granted and people do not know what is happening. If we are going to go down this track-and I certainly would not want to-and if the idea is to make the Scottish Parliament accountable, the basis on which it is funded from Westminster should be one that is fair and is seen to be fair by the rest of the United Kingdom.
I return to the Barnett committee, which took a huge amount of our time, and on which there were some real experts, such as the noble Baroness, Lady Hollis. I am sorry that she is not here, and I think that she must be the only person who understands local government finance as well as welfare finance-as with the Schleswig-Holstein question, which only three people understood. She was tremendously helpful in the deliberations on how to create a needs-based system of funding that would work and be fair.
One argument that was put was that this could not be done for Scotland because it has large geographical areas and particular problems. The interesting thing is that when the block grant lands in Edinburgh, hey ho, who are the biggest recipients? They are health and education, distributed by means of a needs-based formula. So it is okay to have such a formula to give out and allocate money but not to decide how much you receive. There is a very good reason for that, which comes to the noble Lord's point.
Again, we had serious academic evidence showing that the consequences of the Barnett formula were that Wales was severely underfunded and Scotland overfunded on the basis of need. The frightening thing is that the numbers are very large. Professor Bell at Stirling University reckons that it is of the order of £4 billion to £4.5 billion-which would mean quite a lot on Scottish income tax just to stand still. Clearly, it would be absolutely impossible to make the adjustment overnight.
The Select Committee recommended moving to a needs-based formula over a period of 10 years and that there should be an independent commission, as they have in Australia, to deal with federal funding-an independent commission to work out the formula, free of any political input and seen to be independent. The commission would be responsible for the basis on which the funds were allocated. This is not rocket science; it is done all over the world. The proposals in the Bill on tax do not come into effect until 2014. In answer to the noble Lord's question, "Why now?", we need to get a stable basis for the funding so that the accountability of those who advocate the principle is there.
I have my doubts about accountability. It reminds me of the argument that we used to have on local government, when people would say, "Get rid of rate-capping because you'll have more accountability", which eventually morphed into, "Let's have a poll tax, because that will produce accountability; everyone will pay, which will make local authorities more responsible". That did not quite work out as intended, because the level of the tax was too high. My concern about this whole project is that the level of the tax will have to be very high indeed to deal with the consequences of Barnett, which already favours Scotland. I would have left things as they were, but the voters decided otherwise.
We are now in territory which, as the noble Lord, Lord Browne, reminded us, we should look at in the context of the independence debate. Some people might say that the last thing we should do is interfere with Barnett, because that will mean Scotland will get less money, the nationalists will argue that Westminster is responsible for the tax increases, and we will end up with independence. Every time we have discussed this in this Chamber, there have been no speeches at all in favour of retaining Barnett apart from those of the Minister on the Front Bench, whose words seem to turn to ashes in his mouth as he reads out the brief from the Treasury.
There is no constituency for it down the Corridor; in fact, there is a considerable constituency of people who have an exaggerated view of how generous Barnett is. I say to the Government that if they are to achieve their objectives, which I think are misguided, of having an accountable Scottish Parliament which raises its own revenue and is held to account for its policies, it would be more than sensible-indeed it would be essential-for the Government to have a funding basis that is uniform and seen to be fair throughout the United Kingdom.
I believe that is the genesis of the amendment, and why my noble friend Lord Barnett was so concerned to table it. It seems a particularly cruel thing to saddle a Treasury Minister with a formula named after him, in which everything he believes in and stands for is offended. There is a bit of a conspiracy here. We all know that the Barnett formula is unfair and not sustainable in the long term. However, it is a bit like my noble friend's attitude towards the aggregates levy: "Not yet, but this is something we will turn to". Even Calman acknowledged that the Barnett formula would have to be dealt with, and that in time we would have to move to one that was based on need.
I say to my noble friend that if we are going to do this, it will take at least two years for a commission to work out what should be done, and how it could be done. It will need to be phased in over a very long period. It can be phased in gently and we can take the heat out of the argument that says that Scotland gets too much money. We can do something that is generous considering the considerable patience and forbearance which other parts of the United Kingdom have shown, most notably the Welsh, in terms of their deal in the United Kingdom. As we move into the phase where the future of the United Kingdom itself will be debated, and decided in Scotland on a referendum, it will be essential to address the matter. If, by the way, we are going to go down the track of devo-max, as some people suggest, there will have to be a referendum in the rest of the United Kingdom on that issue.
In moving the amendment on behalf of my noble friend Lord Barnett, I ask my noble friend to consider it very carefully indeed. I understand of course the superficial reasons why people might recoil from it, but quite honestly an argument-from a Government who are introducing a Bill to create a Scottish income tax and invent completely new taxes in Scotland-that says, "We can't deal with the formula because we are concentrating on reducing the deficit", is not really one which sustains much scrutiny. It is essential to the future of the United Kingdom, and I believe to the Government's own declared policy of making the Scottish Parliament responsible for the political decisions that it takes and for having to raise its revenue, that the basis on which any allocation is made that is not covered by the tax-gathering powers of the Parliament is done on a fair and sensible basis. I beg to move.
My Lords, very briefly, I cannot support this amendment. It will not achieve what the noble Lord, Lord Forsyth, thinks it will in terms of fiscal responsibility. I understand why he is suggesting a change from the present arrangement to a needs-based arrangement. That is perfectly valid and he has argued the case very well. However, for as long as we still have mixed funding for the Scottish Parliament-powers to raise taxes and the block grant-there could always be a situation in which the Scottish Government hold the UK Government to ransom and say, "We are not going to raise more taxes. We want more money from the United Kingdom Parliament".
That is why I think the noble Lord, Lord Forsyth, was coming round in his logic earlier, and will ultimately come round, to full fiscal responsibility. The Scottish Parliament should be given a basket of tax-raising powers, which is what I think Calman recommended, to raise money not just for part of its expenditure but for all of it. Until we get to the stage where the Scottish Government are responsible for making not just spending decisions but revenue-raising decisions, they will not have full fiscal responsibility. I know why the noble Lord is putting this forward but his amendment would still leave an Oliver Twist situation, whereby a First Minister such as the one we have now keeps pressing the UK Government for more and continues to blame them.
Could the noble Lord just explain to me how that would work? What basket of taxes could meet the bill, given that there is a gap between the taxes that are raised and expenditure? How would that work?
That is the conundrum that needs to be resolved, but it can be resolved by giving the Scottish Parliament a full range of tax-raising powers. I know that the argument is that Scotland does not have a big enough tax base to enable it to raise money to fund its domestic services. That cannot be the case if it has tax-raising powers, or you concede the argument that there is a major transfer of resources from England to Scotland to keep services going in Scotland. The First Minister of Scotland says that that is not the case. He says that Scotland is a wealthy country that can manage on its own. Therefore, you should take that as a challenge.
I am most grateful to the noble Lord. However, the First Minister also says that Scotland could join an "arc of prosperity" with Iceland, Ireland and the rest. What the First Minister says and what the facts are are not the same thing. There is a gap; if there was not, we would not be arguing about the nature of the Barnett formula. Of course we spend more per head and of course we do not raise more taxes per head. Therefore, by definition, there is a gap-that is the point. My worry is that the road we are going down will narrow the gap and we will end up with less money and higher taxes in Scotland. That is the challenge. I live in Scotland and I want to die in Scotland. I worry about how services will be funded if we go down this road.
I hope the noble Lord will continue to live in Scotland for a long time and that his life will not end too soon. From what he said earlier, I gathered that he wanted, in his heart, to move towards full fiscal responsibility. He said that in an earlier intervention. How can he not see the point that I am making? I may not have the right solution, but does he not see my point in relation to the continuation of a dual function? If the Scottish Government have the power to raise money and can still get a substantial amount of their expenditure from the United Kingdom Government, the incentive will be not to raise taxes-we have seen that with plus or minus 3p in the pound-but to ask the UK Government for more. That is why mixed funding would create tremendous problems.
I support the premise made by the noble Lord, Lord Foulkes. To my mind it is utterly ridiculous for any Government or Executive to have responsibility for 60 per cent of the expenditure but only 4 per cent of the income. That is a certain way in which to upset every other member within the union. If one looks at that 4 per cent, it is quite staggeringly low. When countries such as Germany raise closer to 30 per cent of taxes locally, it seems that a huge amount of leeway can be given to Scotland. It is only by giving Scotland tax-raising powers that one will get accountability. You cannot get it any other way.
The so-called Barnett formula never started off as a formula; it was a device, as the noble Lord, Lord Barnett, has admitted. It has become a formula, and a political formula at that. All that it does at the moment is transfer to Scotland the equivalent of the oil revenues that Scotland is due. It is interesting to note that the needs spending gap in Scotland derived through the Barnett formula over the past 24 years totals about £128 billion in real terms yet the amount of revenue from North Sea oil that Scotland would have been due is about £134 billion. The great advantage that the Barnett formula has given to Scotland is that it has evened out the funds. If Scotland had had to rely on the oil revenue alone, given price fluctuations it would have had much greater difficulty in balancing the books than has been the case.
Therefore, in principle I agree with my noble friend Lord Forsyth that we should amend the Barnett formula. However, in doing so, I follow the noble Lord, Lord Foulkes, in saying that we should give the Scottish Government the responsibility for raising a lot more revenue and thereby make it more accountable.
My noble friend, who has far more experience of finance than I ever will have, mentioned Germany; I used to call it the Federal Republic of Germany. In 1983 I took a course in German at the Berlitz language school. I was given excellent advice on how to pay tax. Your Lordships may have heard me refer to this matter on Second Reading. I will quickly go through it again. For every €100 you paid in tax, the local tax office took €15 of that. For the noble and learned Lord, Lord Davidson, and me, the local tax office would probably be in Forfar or Dundee. The balance of €85 was split, with 50 per cent going to the state, which might be Baden-Wurttemberg, Bavaria or North Rhein-Westphalia, and 42.5 per cent going to the federal budget. My noble friend mentioned 30 per cent. I do not know how much of that would go to his Gemeinde-his local area-how much would go to the state, say Baden-Wurttemberg, and how much would go to the federal system. That is one example of how taxes are distributed.
My noble friend and the noble Lord, Lord Foulkes, are right to suggest giving the Scottish Parliament the power to raise taxes. However, the whole system should be looked at. As my noble friend Lord Forsyth has pointed out, we are planning what I call an asymmetric federal system. I am delighted to warn my noble friend on the Front Bench that we have hardly started to have a proper dig into the matter of who is a Scottish taxpayer. It is rather like a sort of dance that he goes on about; he talks about a close connection as if one is dancing with someone. When we consider who is a Scottish taxpayer, we should be aware that that will affect masses of English people, but we will come to that matter another day. In replying to my noble friend Lord Forsyth, will my noble friend the Minister take on board his idea that this Bill may go through but at least we can look at having a better tax system than that which is planned-certainly in the Bill before us-possibly on the lines of what happens in the Federal Republic of Germany or Switzerland? You can look at how this is done elsewhere, but what is proposed in the Bill is a mishmash that will provide eternal difficulty, eternal grounds for gripe, and screams of, "We are not satisfied". There will be all this and more. There is a problem, and I hope that when the Minister winds up he can give me some reassurance and take on board the point made by my noble friend Lord Forsyth.
My Lords, I have listened to this debate with fascination and I agree with the basic view of the noble Lord, Lord Barnett, and my noble friend Lord Forsyth about the injustice and unfairness of the Barnett formula. The aspect of the amendment that I appreciate and support most is the notion of establishing a commission, but it should go wider than one that is charged with the task of looking at only Scottish needs-it should look at the needs of the United Kingdom as a whole. The amendment, in so far as it suggests that the first report should be completed by April 2015, is also sensible.
The general view is that the Barnett formula is unjust. This is becoming the backdrop to consideration of devolution in other parts of the United Kingdom. There is a serious risk that this will turn a large part of our population into a very angry opposition to devolution or any advance in self-government or self-taxation. This is not the right time to decide precisely how far these matters should go. Since the Calman commission reported, there has been a considerable widening of the debate due to the success of the Scottish National Party in the previous Scottish election. It may well be that many who would not have taken seriously what is now called devo-max will now take it more seriously. However these things need to be looked at in the round and I would not go down that line at this time.
What is given out by public funds to all parts of the United Kingdom is a matter for the United Kingdom Government, and they do not need specifically to be empowered in the Bill to base their decisions on a needs assessment. As I understand it, the Barnett formula is not based in statute, and it would be perfectly possible for the Government of the day to advance a change. I say yes to a commission to enable us to make a decision, if appropriate, at the right time. When I say that the decision should be made by us, I mean the Government of the United Kingdom. The postponement of consideration of ways and means-the process for changing the allocation of public funds-has been delayed for too long. We have had all kinds of academic input into this discussion. The committee on which my noble friend Lord Forsyth served was absolutely clear on this, and there has been too much delay in taking this issue seriously and getting down to the small print. Only when we have that nexus of information are we going to be able to make a judgment-against the backdrop of what has been decided about tax-as to what would be the appropriate way to deal with the Scottish question.
My Lords, I am opposed to the amendment on the basis of the rather feeble argument of the doctrine of unripe time, which is always a favourite for people to hide behind. I say so because, as I said in my intervention on the noble Lord, Lord Forsyth, I do not think that the Scottish economy is sufficiently robust at the moment to have a dramatic ground shift in financing. We have to be far sharper and more accurate in our criticisms and attacks on the Salmond Administration and the consequences of their failure to protect Scotland from the worst aspects of the economic crisis that we are going through.
Secondly, on the suggestion in the amendment that we set up a commission, a considerable part of the speech of the noble Lord, Lord Forsyth, if not half, was certainly taken up by a paean of praise not only for the noble Lord, Lord Barnett, but for the Select Committee which the noble Lord set up here. I am not sure whether the commission will come up with anything very much different by way of information regarding the Barnett issue. In the first instance, to start talking about ending the Barnett formula is a bit premature; in the second instance, I do not really see that a commission is going to do much more than the Select Committee of which the noble Lord was a distinguished member.
The Barnett formula is not set in stone. Some of us are old enough to remember the Goschen formula, which was the predecessor of Barnett and which was a lot simpler to understand. As I recall, 11-80ths was the ratio and there was a needs resources element. The formula of the noble Lord, Lord Barnett, was probably too clever by half at the time and it certainly requires review 30-odd years on from its conception.
Even allowing for that, I think it is foolhardy at this stage to lay out a stall for devo-max. Discussion of devo-max is something that happens after a referendum on the question of separatism. Once the separatist cause has been defeated in a referendum, we can look the options and what Scotland actually wants. At the moment, there is an assumption that if we do not move quickly we will get hammered in a referendum and that the result could be anything up to 65:35. Personally, I think that if we had a referendum, we would have a very close run thing one way or the other. I would desperately hope that the unity of the kingdom was sustained, and would hope to play a small part in achieving that result. Let us not forget that less than half of the Scottish electorate voted in the elections last year, and 45 per cent of them voted nationalist. So we are talking about a separatist party enjoying 23 to 24 per cent of the votes of the Scottish electorate as a whole. I know that Governments get elected on low turnouts and less than 50 per cent shares, but for us to start developing a complete political construct to accommodate what might be a negotiating position once the fundamental question has been resolved one way or the other is a bit of a waste of time.
In a number of respects, the noble Lord, Lord Forsyth, and I are not that far away, but the implication of his remarks is that the commission would transform Barnett fairly quickly. I think that we must focus our attention on the inadequacies of the Salmond Administration and make sure that the money currently available to the Scottish Government is used more effectively for the Scottish people. Therefore, I do not think that we need to look at the formula in the way that he is suggesting, and we certainly do not need another talking shop. We have had one already and, no matter how distinguished the personnel involved in it were and no matter how good the information and evidence they produced, it did not have a great deal of effect. At present, it would be far more sensible for us to carry on with this muddled legislation-which nobody really likes but not many folk want to get rid of-and try to get it finished, not necessarily this evening but in the fullness of time.
My Lords, first, it is a pity that the noble Lord, Lord Barnett, has not been able to join us this evening to discuss his eponymous formula. Nevertheless, we have had an interesting debate. I am afraid that, in the words of the noble Lord, Lord O'Neill of Clackmannan, I am probably going to take the feeble-argument way out of this, although he has given it a degree of respectability. I fully share the concerns about the formula that have been expressed in this House and in another place, but I think that this is the wrong time and place to be dealing with it. Perhaps I may explain a little more fully why I say that.
What is the Bill about? It is about increasing the accountability of the Scottish Parliament to its people by devolving fiscal powers from Whitehall to Holyrood. In this debate we have heard a number of Peers say that they would like much more to be devolved. I suppose that at the extreme end the noble Lord, Lord Foulkes of Cumnock, my noble friend Lord Caithness and others have pointed out the limits to the amount of devolution of tax powers and accountability that can take place. Nevertheless, I still contend that an important and significant step in the right direction is contained in the Bill and we should not minimise that.
Future decisions taken by Scottish Ministers will affect the overall level of funding for Scotland's public services as they decide whether to increase or decrease devolved taxes relative to the UK. That happens whether or not there are any changes to the Barnett formula in the future. I think it is quite appropriate to link considerations of the Barnett formula with what we are discussing in the Bill. On the other hand, I argue that it is not necessary to reform the Barnett formula for the Bill that we are discussing to have real impact. I would not go as far as saying that reforming the Barnett formula is an entirely separate issue but I do not think that it is necessary in order to let the Bill have full effect. Incidentally, the Calman commission remarked on the Barnett formula but it made no recommendations in relation to it.
I have been listening quite carefully to my noble friend's argument and I see the logic of where he is coming from. It is this wretched Augustinian argument-the time is not right. My noble friend may not want to say this but if he thinks that the Barnett formula is unfair and will need to be dealt with at some stage in the future, would it not be much harder to deal with it then? At the moment, if you dealt with Barnett you could phase in the reduction in the grant that would follow. In circumstances when the Scottish Parliament has the power to raise income tax to make up the gap, it would be politically very much more difficult to deal with Barnett because people would be able to translate the reduction in Barnett into huge and geared increases in income tax. I wonder whether my noble friend will think about that and indicate whether he thinks that that may be a reason why it is better to proceed with funding and tax-varying powers in parallel.
My Lords, I do not know whether it was an Augustinian argument but I was going to start by saying that the pace is not right rather than that the time is not right. However, we might come on to the time as well. I appreciate that the two things are much of a muchness. Let me continue with the reasoning.
First, as my noble friend knows full well, the current formula is an administrative procedure. It does not appear in legislation so it is not itself something that requires to be dealt with in legislation. More importantly -something that has been alluded to by one or two noble Lords-we need to have in the centre of our thinking that it is not specific to Scotland; it is a mechanism for allocating funding across all four countries of the UK. It would not be appropriate to legislate to alter the formula-a formula that is not in legislation anyway. If we were to legislate for something else, we could not do it in isolation for Scotland.
To reiterate, the Government understand the concerns that have been expressed in both Houses about the devolved funding arrangements. I say that loud and clear, I hope, to my noble friend Lord Lyell in particular. He gave examples of how other countries do it and sought reassurance that we have the matter under consideration. I certainly believe that it is a matter that will not and should not go away. My noble friend Lord Maclennan of Rogart also stressed the importance of this. Unlike some other noble Lords, he made the point that this is a United Kingdom and four-country matter. I agree with the noble Lord, Lord O'Neill of Clackmannan, that while we recognise the difficulties, the Government's position-Augustinian or otherwise-is that at this time the priority has to be to reduce the deficit. I hear my noble friend loud and clear, and he would not expect to hear anything else from me. Any change to the current system and to the formula must await the stabilisation of the public finances.
Let us remember that the Bill does nothing to rule out or rule in reform of the formula in future, so we are doing nothing through this Bill to make it any more difficult to do it. I understand the logic of much of what my noble friend says but, as he would expect, I conclude that the Barnett formula is not the purpose of this Bill. It would not be appropriate to legislate for it in this more targeted piece of legislation, so I ask my noble friend to withdraw the amendment in his name and that of the noble Lord, Lord Barnett.
I am a wee bit suspicious of Conservative government Ministers when they tell me that they agree with me. I want to make it perfectly clear that I do not criticise the Barnett formula in respect of any aspect of deficit reduction, because I consider that we have reduced too much too fast. I would be in favour of the reallocation of resource within the United Kingdom and the reallocation of resource within Scotland, because the priorities of the Scottish Government are wrong at this time. I may agree with the Minister on this Augustinian position, but not on any other aspect of his analysis of the economic situation.
I am very glad that we have that clearly on the record. I did think at one point at the beginning of the remarks by the noble Lords, Lord O'Neill and Lord Foulkes, that I would be able to say that I agreed with everything they said. I agree with their conclusion that this amendment should be opposed or, I hope, withdrawn, but I certainly accept that we are probably not in full agreement.
While I am on my feet, it gives me the opportunity to say that the Calman report said that the Barnett formula should continue to be used as the basis for calculating the block grant so, for the avoidance of doubt, when I said there were no recommendations, there were no recommendations to deal with it along the lines proposed in the amendment. The report went on to say quite a lot of things because this was only recommendation 3.4, but perhaps I can end by asking my noble friend to withdraw his amendment.
I am most grateful to my noble friend. The only sadness I have about this debate is that we did not have the noble Lord, Lord Barnett. We will clearly have to have another go at this when he can attend at a later stage in the Bill. My noble and learned friend Lord Wallace has lost his sense of humour-I was joking.
As I said, it is a shame that the noble Lord, Lord Barnett, was not here. We have had some interesting speeches. I have to say that I am not an authority on Calman. The report certainly says that, but I think it goes on to say that it should be reviewed. I think it was important to have this debate. I entirely accept that it does not have to be included in the Bill, but given that the Government are bringing forward this Bill, it was an opportunity to raise the important question of Barnett and the consequences of not addressing the issue now.
I thought that what my noble friend Lord Maclennan had to say was entirely sensible both because this is a United Kingdom issue, not a Scottish issue, and because there should be a commission. I think it was the noble Lord, Lord O'Neill-or was it someone else? I cannot remember-who said that there are endless commissions, that we had the Barnett commission that did not make much difference and that commissions come and go.
I think there is a misunderstanding. The Select Committee on Barnett recommended that a statutory commission along the lines of that in Australia should be set up with the job of working out the formula on a fair basis for the United Kingdom as a whole. I do not know, because he is not here, but I suspect that that is what the noble Lord, Lord Barnett, is referring to in his amendment. I agree with my noble friend Lord Maclennan that it would be sensible to get that work under way because the tax-raising powers are not going to happen until 2015.
I also agree with the noble Lord, Lord O'Neill, that this is probably not the moment to start unwinding the Barnett formula, but we would need to have a commission of that kind in order to move to a fairer system, and that work will take four or five years. The Select Committee of this House on the Barnett formula recommended that any changes, and they would be considerable, should be phased in over a very long period of 10 to 12 years. My anxiety is that as we move down this track and as it generates heat and anxiety in parts of the United Kingdom, it may be very much more difficult to do this in an orderly way that produces the minimum stress for the union and for our public services in Scotland. That is where I am coming from on this issue.
I have to say to my noble friend Lord Caithness, who seems to have joined the devo-max party of the noble Lord, Lord Foulkes, and wants to have more taxes, I have not seen his name on any of the amendments that have argued for an extension of the tax-raising powers of the Scottish Parliament: the aggregates levy, the air passenger duty and so on. Of course, this whole Bill as it is currently constituted in respect of the income tax powers is very narrow. It is only the product of 10p.
The noble Lord, Lord Foulkes, is trying to get me into his camp because I said that I was beginning to see the merits of the argument for fiscal autonomy. However, that was only in the context of what my noble friend was saying, which was that the Scottish Parliament will be compensated for any changes that are made in the tax base south of the border.
My amendment may well not be appropriate for inclusion in the Bill, but it is certainly appropriate that the Government should consider how they will address these issues of funding in the context of the massive changes that they propose. My noble friend has performed valiantly today and I can just about get along with his argument that the time was not right, but not the argument that says, "We are concentrating on reducing the deficit"-they must have lines to take in the Treasury that they pull out for things that they do not want to do. The last time I heard this line was before the Scottish elections when I was trying to persuade my right honourable friend the Prime Minister to go for an early referendum. Even when we were in opposition, and the late lamented Wendy Alexander bravely said, "Bring it on and let us have a referendum", the argument put by my own party colleagues in Scotland was, "We must concentrate on the economy".
She may still be alive but she is no longer leading the Labour Party in Scotland. I do not want to ruin what career she may have ahead of her, but in any discussions I had with her I found her to be exceptionally able and far-seeing, looking beyond the immediate prospect of events and what is in today's newspapers.
I am not enthusiastic about this whole devo train that we have got on. I believed from the beginning that it would lead to the nationalists dominating the Parliament and that it could lead to the break-up of the United Kingdom. I am not particularly smart for thinking that. Enoch Powell was arguing that years ago. All I am saying is if we are going to go down this track, we should anticipate some of the problems and that Barnett is going to be one of them.
I sense that the House probably does not want to discuss this at any more length, so I beg leave to withdraw the amendment in my name and that of the noble Lord, Lord Barnett. I look forward to receiving some criticism by him for not making all the points that he would have made, and for not making them as eloquently as I am sure he would have done.
Amendment 65 withdrawn.
Moved by Lord Foulkes of Cumnock
66: After Clause 37, insert the following new Clause-
"Referendum about further devolution of taxation
Referendum about further devolution of taxation
In section 30 of the 1998 Act (legislative competence: supplementary) insert-
"(5) Her Majesty may not by Order in Council amend Schedule 5 or make any other provision which removes any tax or excise duty from being a reserved matter ("the proposed devolution of taxation competence") unless subsection (6) is satisfied.
(6) This subsection is satisfied if a referendum has been held throughout Scotland about whether the proposed devolution of taxation competence should take place and the majority of voters in the referendum vote in favour of the proposed devolution.
(7) Her Majesty may by Order in Council cause the referendum to be held.
(8) The Order in Council shall contain the question that is to appear on the ballot paper.
(9) An Order in Council under subsection (7) may not be made unless a draft of the statutory instrument containing the Order has been laid before, and approved by a resolution of, each House of Parliament.
(10) For further provision about a referendum held by virtue of this section, Schedule (Referendums under this Act) to the Scotland Act 2011 applies.""
Hours ago, when we started this Committee, we got into a terrible fankle over which amendments we were dealing with, the groupings and how one amendment related to another. As we go on through these amendments, that problem will manifest itself even more. There is a lot of overlap and interrelationship, and I am not sure of the groupings. That is probably my fault as well as other Members, as much as it is of the clerks or anyone else. Nor am I sure that the groupings are as sensible as they might be.
However, this group is fairly sensible. The confusion is not in terms of the grouping. The confusion, which is in here to some extent but outside to a greater extent, is when we talk about referenda. That is because we are talking about different referenda. I accept what my noble friend Lord Browne said about this earlier. He is absolutely right and probably we would get unanimity in this House. The crucial referenda is the yes/no on separation. That is absolutely essential and vital. We will discuss that later in Committee. We will all focus on that and will have a really important debate.
I know where I stand on that and I have put down a number of amendments. One amendment deals with a yes/no vote and then moves on-I say a month or so later but it might not need to be later-to looking at how we deal with the situation post that referendum, assuming that we have rejected separation, as I hope that we will. Rightly, there is discussion in advance of the referendum as to whether the parties-the unionists, the devolutionists and the federalists: I keep reminding the Liberal Democrats that they are federalists-all of us, should have a common understanding of how we move forward in relation to the situation post that major referendum. It does not have to be a totally agreed position, which might be difficult.
I was going to move this amendment without reservation until I heard my noble friend Lord Browne earlier. I know that he wonders sometimes whether I listen to him but I listen very carefully to him. I was going to argue that we had a two-question referendum in 1997. The second question was:
"I agree ... OR ... I do not agree that the Scottish Parliament should have tax varying powers".
Some 63.5 per cent of the electorate agreed and 36.5 per cent disagreed. A very substantial number were in favour of a tax-varying power.
In his intervention earlier, my noble friend said that, as far as the Official Opposition is concerned, that gives us a mandate not just for the plus or minus 3 pence but a mandate effectively for any tax-raising powers for the Scottish Parliament. That was my understanding of what my noble friend Lord Browne said. If I am wrong, I am sure that he would intervene.
If that is the case, there is an argument that we do not need a further referendum on tax-raising powers. We have effectively the mandate with the second question of the 1997 referendum. That now appears to be the view of the Official Opposition. Before we come to whether this amendment is voted on, withdrawn or whatever, is that also the view of Her Majesty's coalition Government? Do they believe that the vote on the second question in the 1997 referendum gives a mandate for this Parliament to give, without a referendum, the Scottish Parliament any tax-raising powers-and I mean any powers, not just income tax? My belief that we needed another referendum was based on the fact that there was an implicit understanding that it was going to be plus or minus a percentage of income tax. That would be the limit of the tax powers that were going to be devolved. That was my understanding, but I would accept correction. If that is the mandate, I would welcome it.
I was going to quote at length from an interesting article in Scottish Affairs, written in the winter of 1998 by Charles Pattie, David Denver, James Mitchell and Hugh Bochel, but because of the hour I will shorten it. It is an analysis of the results of the 1997 Scottish referendum. I want only to quote one part, and this is really in tribute to the noble Lord, Lord Forsyth:
"In 1995, however, Labour came under serious attack on the issue from the Scottish Conservatives when Michael Forsyth became Scottish Secretary. Forsyth focused on the tax varying powers in Labour's proposals, the 'tartan tax' as he called it. Labour struggled to find an effective response and there was a fear that New Labour's carefully constructed image as a low tax party might be tarnished. In the face of considerable controversy within Scotland, therefore, the Labour leader, Tony Blair, announced in 1996 that a referendum would be held consisting of two questions, one on the principle of devolution and the other on tax varying powers".
So we have the noble Lord, Lord Forsyth, to thank for the fact that our Prime Minister took what I think was the correct decision-under pressure, according to this article, from the Scottish Conservatives and particularly from Michael Forsyth, as he was then-to include the second question.
That second question having been included and having had such a substantial majority, my noble friend Lord Browne having given us an assurance that the next Labour Government will accept this as a mandate and the current Opposition accepting it as a mandate to introduce any taxation, the question remains: what is the position of Her Majesty's Government? Assuming that it is the same position, I would argue that this Parliament can then legislate for what the noble Earl, Lord Caithness, and I agree is the best way forward, which is full fiscal responsibility. Some people call it full fiscal autonomy, but it is important to have the word "responsibility" in it. The noble Earl put it very well indeed when he said that it is the responsibility for raising money as well as for spending money.
It may be that the lateness of the hour and the number of amendments we have dealt with have addled my brain, but I do not really understand what the noble Lord is arguing. I thought that this amendment was about providing for a referendum, but he appears to be saying that the power in the Bill which allows for the imposition of new taxes by order before both Houses should be used to deliver complete fiscal autonomy. Can that be true?
I have been listening carefully to the debate, but my brain might be addled as well. When did we start? I believe it was at 3.30 this afternoon-I am sorry, we started at 12.30 pm, so we have been debating for eight and a half hours. Perhaps I did not explain myself properly. I said earlier that I would move this amendment, but that before we introduce full fiscal responsibility we need a referendum. That is because if we had a referendum for plus or minus 3 pence on income tax, this will go a great deal further than that and therefore we need a referendum to give the authority to introduce that extra tax-raising power. However, my noble friend Lord Browne said earlier that the referendum result in 1997 gives us the necessary mandate to introduce full fiscal responsibility. No doubt he will repeat that when he comes to speak. What I want to know is what the Government think about it.
When I talk about full fiscal responsibility, that is not what some people talk about as devo-max. There are two things. One is the fiscal devolution, the tax-raising powers. The other is the spending powers, or the powers over services being devolved. We have effectively gone far enough in relation to that. Some people would argue that devo-max should include devolution of welfare, pensions or other aspects that are currently part of the United Kingdom responsibility. I would counter and argue very strongly against that. Donald Dewar, my noble friend Lord Sewel and others worked very hard on this to make sure that we gave maximum devolution of functions. We did that. Where we did not do it was to give the responsibility for raising the money to pay for exercising those functions. That is what I am arguing today.
I am moving the amendment regardless of whether I withdraw or press it. I have been trying to explain to some people outside this House, particularly one or two of the cybernats-with whom I have had a dialogue, believe it or not-that the purpose of the Committee stage is to explore issues, to listen to debate and, if necessary modify your view in relation to the arguments that have been put forward. We have not had any Divisions; we will, perhaps, on Report. I have listened to what my noble friend Lord Browne has said. If it is confirmed that this gives us the mandate, I would seriously consider withdrawing the amendment and not even moving it at a later stage.
My Lords, it is inevitable that this bit of our proceedings will be dominated by an argument not so much about a referendum but about fiscal autonomy and fiscal responsibility. I follow my noble friend only in the sense that I speak after him, not in the sense of following his arguments. He is a great and genuine supporter and exponent of fiscal autonomy. I am afraid that I am a total opponent of fiscal autonomy. A unitary system like ours has the great benefit of being able to move resources-public expenditure-around from richer areas to poorer areas. It so happens that that is a political objective, a political process that I am more than happy with. That is what we ought to be about: reducing inequalities.
The difficulty with fiscal autonomy is, in fact, that you lose that ability. It is not so much that you freeze inequalities; you are most likely going to make them worse. The rich areas will have a strong tax base, a relatively high tax take and very few deep-seated problems to deal with. The reverse will be the case for poorer areas. Their tax base will be fragile and they will have a low tax take, but they are faced with enormous social and economic problems. Only through a unitary system does-let us say it-the state have the power to move resources around to enable those inequalities to be lessened. That is an agenda that I wish to support. Fiscal autonomy leads us in completely the opposite direction.
My Lords, I thought that I was going to agree with the noble Lord, Lord Sewel, but I find that I take a third and different position from those advocated by the two noble Lords who preceded me. Like the noble Lord, Lord Foulkes of Cumnock, I am a federalist and I do not believe that federalism is to be indentified with the unitary model that the noble Lord, Lord Sewel, recommended. However, we should look at different levels of taxation and at giving greater fiscal responsibility for the matters that have been devolved.
I hope, however, that we will not confuse the issue at this stage, before the federal option has been properly explored and ways of dividing tax-raising powers between the different levels of government adequately set out, so that people not only in Scotland but in Wales, Northern Ireland and England can grasp what this is about. We should include in our explanation details of the provision for the redistribution of the wealth of the United Kingdom to its constituent parts-not only to the four nations but to some of the regions of England, which seem to be doing rather badly out of the Barnett formula.
The timing of the referendum seems inappropriate. It turns not only on whether the earlier referendum gave the mandate to Parliament that the noble Lord, Lord Foulkes, has come round to thinking that it did. It seems to me that at the time-and I am basing my remarks entirely on memory-we were thinking about varying the rates of income tax and not about extending taxation. I was interested to listen to what the noble Lord, Lord Browne of Ladyton, said on that, and I dare say that he has done more historical research on the point than I have. It will be interesting to hear from the Minister, who I am sure will answer these questions, whether the noble Lord, Lord Browne, was right, and I hope that we can accept that there are more than two ways of imparting the responsibility for fiscal tax-raising. There is also a federal way. We should explore that, because it operates more fairly throughout the United Kingdom and will take care of the other countries, whose needs also need to be thought of in this context.
My Lords, given the journey that we have embarked on, I suspect that the noble Lord may get his wish if we do not see the fragmentation of the United Kingdom. I have an abiding image in my head of the noble Lord, Lord Foulkes, sitting at 3 am in his underpants responding to these cybernats.
As my noble friend Lord Sewel said, that would not be a pretty sight, I can assure you. The cybernats deal with these things at 3 am; I can assure the noble Lord, Lord Forsyth, that I do not-I do it at very sensible hours in a careful, co-ordinated way. I urge him to remove that picture from his mind, otherwise it might corrupt him.
I am doing my best. I am very worried, because I am also tempted to divide the Committee, if only for the pleasure of seeing the noble Lord vote against his own amendment. He started off making the case for his amendment and then seemed to argue that it was not appropriate.
The noble Lord, Lord Browne, was right to warn us that the world has moved on and that referenda are dangerous in the context of taking our eye away from the main issue, which is independence. All this chat about devo-max and additional powers puts us exactly where the separatists want us to be. The last thing they want us to discuss is what the consequences of independence will be for Scotland. My party leader contributed to that by suggesting that we could look at that after the referendum. Others have said the same, and I am sure that the right focus is to do that.
However, the Bill has been caught out by the passage of events and it does not seem unreasonable for the considerable tax powers to be subject to a referendum. I was therefore attracted to the noble Lord's amendment. However, I do not for the life of me understand his argument that that question, given its limited scope, gives permission to go down the road of fiscal autonomy. At the very least I would like the opportunity to see some numbers. The speech of the noble Lord, Lord Sewel, was right on the button. It went to the heart of the difficulties being created by people embracing concepts and policies without looking at the numbers, the arithmetic and the fiscal and financial consequences, which are subject to assumptions.
The other day, someone in my party-an accomplished policy wonk-was challenged with the notion that the Scotland Bill and the move towards taxation would inevitably result in discussion of the Barnett formula. He said: "Oh, there is no way that people will ever take that money away from Scotland. We are safe". We must not make these assumptions. These are deep waters. I am not with the speech of the noble Lord, Lord Foulkes, in support of his amendment, but I think that the amendment is reasonably sensible. We should be guided very much by the pertinent point made by the midwife of this whole exercise, who must feel like someone whose child has turned into a delinquent adolescent. We have to find a way of gripping the issue. Whether it is a federal or some other solution I know not, but I am sure that we should not distract attention from the referendum on the future of the union.
My Lords, almost everyone who is in the House now will recollect that when I last spoke at any length in Committee it was on the group led by Amendment 53. As I had expected that that group would be much bigger and would include my noble friend's amendments, I told the Committee that it was my intention to address those in anticipation. I had intended to restrict my remarks to referring your Lordships and my noble friend, in particular, to the speech I made earlier, but he has drawn so much support for his greater agenda from one part of that speech that I think I should pause for a few moments and remind him of what I said and the context in which I said it. It will then be open to him, of course, to draw any conclusions he chooses. I feel like a government Minister at this point, repeating words.
I remember the shock when I said, in making a broader argument about the political circumstances that informed the decision that we needed to make on ordering our priorities in terms of a referendum-no doubt the Official Report will correct me if I am wrong -that, as the Calman commission noted, a mandate had at least partially been granted by the 1997 referendum on Scottish devolution. It was a partial mandate, in one part of a broader argument.
I have probably gone further in explanation and beyond my prepared script than any Minister has in this House today. Perhaps I was unwise to do that. However, my noble friend is well able to read the rest of the context of that shortened quotation. If that gives him the comfort that he seeks-should there be any future Labour Government within a timescale that would allow him to resurrect his ambition for full fiscal autonomy-then I would be surprised.
However, the noble Lord addressed his question to the Minister, and I am sure that the noble and learned Lord will be well able to respond. No doubt he will make his decision on whether to press his amendment on the basis of the ministerial response rather than mine. It should not surprise anybody who has witnessed any of these debates in Committee that we went long on the amendment before we got on to a much broader and wider subject and found ourselves debating full fiscal autonomy, devo-max and transfer of resources. Latterly, the noble Lord, Lord Maclennan of Rogart, reminded us that he is a federalist, and we had a debate about federalism.
I am sure that noble Lords will appreciate it if I resist the temptation to have a debate about the second stage of the process of settling the devolution deal in the United Kingdom and continue to devote my resources to the first part of that process. The argument does not involve reminding the people of Scotland-as the noble Lord, Lord Forsyth, suggested-of the consequences of separation and independence, but reminding them of what they already know and instinctively feel, as recent polling shows, about the value of continuing to be part of the United Kingdom; and showing a way forward for shared prosperity, including through the transfer of resources.
I am glad my noble friend Lord Sewel made his contribution to the debate. There are many aspects and strengths to being a citizen of the United Kingdom. One of the greatest strengths is the recognition that we do not all have the same advantages-because of where we are placed geographically-and the willingness to transfer resources to support each other in a common endeavour. It has been present almost all my life and I hope that it will continue for the rest of it.
My Lords, we return to the issue of the referendum. In the group of amendments to which the noble Lord, Lord Foulkes of Cumnock, has spoken, there is an amendment that would require a referendum to be held before further taxation powers can be devolved and a referendum that would be required before Part 3 of the Bill would come into force. Somewhat curiously, Amendment 75 would ensure that the finance provisions in Part 3 of the Bill-other than the consequential amendments related to the Scottish rate of income tax and the powers in Clause 37-and the clause related to Antarctica in Clause 14 would come into force only two months after a referendum in which the majority of participants had voted in favour of Parts 1, 2 and 3 of the Act. We have an opportunity for many referenda-or referendums. I am a supporter of referendums in the grammatical sense-not in the sense of holding them-but we are not going to down that route at the moment.
As the noble Lord, Lord Browne indicated, the debate quickly moved on to devo-max and other variations on that. I do not intend to follow that, as I think that the amendments are about whether we should hold a series of referendums. On that issue, I remind the Committee what the Calman commission said in paragraph 3.91 of its report:
"Tax devolution can provide accountability. We concluded in our First Report that the devolution of all taxes to the Scottish Parliament would not be consistent with the maintenance of the Union, and this remains our view".
That was a view that the noble Lord, Lord Sewel, was expressing. I am biased, because I was a member of the commission, but in much of the analysis that it did in trying to devise the balance of taxation between the United Kingdom Parliament and the Scottish Parliament the commission looked at the implications of any proposal for social and economic union. That echoes the speech of my noble friend Lord Maclennan of Rogart. I refer to a social union not only of constituent countries of the United Kingdom but of the many regions within Scotland, Wales, Northern Ireland and England.
The noble Lord, Lord Foulkes, asked about the 1997 referendum and the noble Lord, Lord Browne, has indicated his interpretation. It is difficult, 14 and a half years after the event, to be too prescriptive about what interpretation you may make of it, but it is clear in 1997 that the Scottish electorate gave a clear mandate for a Scottish Parliament with tax-varying powers. Some 63.5 per cent declared in favour in terms of tax-varying powers and 10 per cent more than that on the idea of having a Scottish Parliament. We have to recognise that the debate leading up to the referendum was around a specific proposal for tax-varying powers, plus or minus 3 pence. Equally, many argued that it was an argument on the ability of the Parliament to assume a degree of financial accountability for taxation and spending decisions. It was an important principle, and a mandate flows from the 1997 referendum that the Parliament should have a degree of financial accountability for taxation and spending decisions.
The Minister used the word mandate, but my noble friend Lord Browne of Ladyton used the phrase "partial mandate", which is a new legal concept. I know that the noble and learned Lord and the noble Lord are both distinguished lawyers, but I do not understand the concept of a partial mandate. What does the Minister mean exactly by the 1997 Act giving a mandate? Is it a mandate for any tax powers or for income tax varying powers alone?
The noble Lord did not quite hear what I said. Many people argued that the Scottish Parliament should have a degree of accountability for taxation and spending decisions. As I said, there was a clear mandate that there should be that responsibility or accountability for taxation. That was why I qualified it, because we should not run away from the fact that it was in the context of a campaign that was very much focused on the plus or minus 3 pence. That was why I was not going to read more into it than that Scottish people clearly wanted a Parliament back in 1997 that had accountability for taxation as well as for spending. Nothing since then has suggested that that has in any way changed. Indeed, it is clear that the idea of increased financial accountability for the Scottish Parliament continues to have widespread support in Scotland. It was certainly the thrust of most of the representations made to the Calman commission that there should be increased accountability. My noble friend Lord Steel of Aikwood said in a Donald Dewar memorial lecture that it was not sustainable for a Parliament to exist on a 100 per cent grant voted from another Parliament and that there was a need for greater financial accountability. That is what we seek to deliver in this Bill and we believe that the scheme laid out in the Bill is significant. It offers new powers to the Parliament to match spending powers with responsibility and accountability and does so very much within the broad framework of the 1997 Act. I do not believe that the additional referendums that the noble Lord, Lord Foulkes, proposes are necessary for the powers contained in this.
The noble Lord asked about the mandate. I indicated in response to the amendment moved earlier by my noble friend Lord Forsyth that the manifestos of the Conservative, Labour and Liberal Democrat parties at the 2010 election contained the commitment to implement the proposals of the Calman commission. The fact that these were widely supported, not just in Scotland but in other parts of the United Kingdom, provides a mandate for the provisions within this Bill.
My final comment, echoing what my noble friend Lord Forsyth and others said, is that the main referendum we have to focus on is the one which will secure Scotland's future in the United Kingdom. That would not be assisted by having the plethora of other referendums which would perhaps be the consequence of the amendment in the name of the noble Lord, Lord Foulkes.
My Lords, as I said at the start, the purpose of my amendment was to have a debate on it. There are a number of amendments, as the Minister rightly said, but I am not sure that the one on Antarctica has anything to do with me. I cannot remember tabling one about Antarctica, but I certainly tabled one in relation to Calman or further fiscal responsibility. I will come back to the Minister's point on that, because there is an inconsistency in what he says. That is the main point that needs to be made.
First, I totally understand what my noble friend Lord Sewel said. He is absolutely right about redistribution, whether it be redistribution within the whole United Kingdom, within England or within Europe. I am sure that my noble friend, who is a distinguished member of the Council of Europe delegation-
He is a member of the NATO delegation, but he understands the European issues and I am sure that he will know that redistribution within Europe to the poorer areas is as important as within the United Kingdom. I am not suggesting that there should not be some kind of arrangement or formula for that kind of redistribution. There is no reason why it could not be done, and I am sure that the noble Lord, Lord Lyell, who has extensive knowledge of Germany, will be able to indicate that there are arrangements within Germany to make sure that some of the poorer Lšnder are helped by some of the richer Lšnder.
That can be done in a federal context as well, which brings me to the noble Lord, Lord Maclennan. He and I ultimately favour a federal system; that is the one stable system that is desirable. We had a unitary system which created tremendous problems and inequalities. In Scotland, it created problems through a lack of political accountability. At the other end is total separation with the break-up of the United Kingdom, which would be disastrous. A federal system has all the advantages of working together but with local autonomy. What we have at the moment is a quasi-federal system, and we need to move towards a proper federal system. I know that he and I agree on that.
The noble Lord, Lord Forsyth, said that he was unsure whether the 1997 referendum gives us a mandate. This is the crucial thing; he thinks that it does not, as I did not when I tabled these amendments. The noble Lord, Lord Forsyth, is laughing but he has spent almost all of today trying to persuade the Minister to concede, to change his mind and to listen to argument. Both Ministers have of course refused to consider any of his arguments but when I take account of what other people say, he laughs and says that I am inconsistent or doing a U-turn. I am just trying to go through the arguments as to whether a further referendum on a major extension of tax-raising powers for the Scottish Parliament would be necessary.
What I understand the Minister to have said is that although his recollection is much the same as mine, when we got that big majority for tax-raising powers in the 1997 referendum, the understanding in the surrounding debate was that it was for plus or minus 3p.
However, he extrapolates, using the new legal concept that my noble friend Lord Browne has devised, that it gives the Government a partial mandate to introduce the new tax-raising powers in Calman. These go a long way, as the noble Lord, Lord Forsyth, pointed out. However, he has reservations and does not think it is enough of a mandate to go for full fiscal responsibility. I find that strange. It is very difficult to understand why, if the referendum was a mandate in the context of plus or minus 3p and is a mandate for Calman, which goes half way towards full fiscal responsibility, it is not a mandate for full fiscal responsibility. Does it go a quarter of the way? I presume that it does if it goes half way. Does it go three-quarters of the way? We do not know. It is a very difficult concept and we really need to think about this.
If I may say so, it is a disgrace that we are discussing something vital to the future of Scotland at this time on a Thursday evening, when most of the people who want to participate have other things to do. Some have gone back to Scotland; some have other responsibilities. It is about time that the usual channels of this House organised things better to take account of serious concerns and responsibilities. It is a disgrace to Scotland that both the Conservative Front Bench and, I am afraid, that of my own side cannot organise these debates at sensible hours so that we can deal with them properly. People who genuinely wanted to participate in this debate have not been able to. We have lots more to discuss and we will be forced on late into the night because the government Chief Whip has some kind of masochistic desire to keep us going. Sorry, I meant a sadistic, not masochistic, desire; that was a Freudian slip. We have other vital matters to discuss and we are discussing them at a ridiculous time. I am glad I have got that off my chest.
The noble Lord has been very kind in referring to me. He made a passionate comment but he was very much on to something, as was my noble friend Lord Forsyth. I have heard some encouraging noises from the Minister about looking at a federal tax-raising system. I definitely take the initials CB to stand not necessarily for Companion of the Bath but for "cynical something else". I worry that we will complete our discussions on the Bill and all its mechanisms but, at some stage, this discussion will be kicked into the long grass. It is very much on the side, along with my noble friend Lord Forsyth and the noble Lord, Lord Foulkes, of looking at a federal tax system that will be fair and agreeable and will work. I am worried that, when we finish the Bill, we will have come up with a system that is asymmetric and will not work.
My Lords, I beg leave to withdraw the amendment.
Amendment 66 withdrawn.
Amendments 67 to 69 not moved.
Moved by Lord Forsyth of Drumlean
70: After Clause 37, insert the following new Clause-
"Scottish Consolidated Fund
(1) The 1998 Act is amended as follows.
(2) In section 64 (Scottish Consolidated Fund), for subsections (6) and (7) substitute-
"(6) Scottish Ministers may retain in the Scottish Consolidated Fund any amount not paid out under section 65, and may carry forward such surpluses from one financial year to the next.""
I am sure that they have been listening but they have not conceded anything. They have not moved to take account of the very sensible arguments that the noble Lord, Lord Forsyth, has brought forward from time to time.
I was going to say that I was once given the advice, which I believe is part of the Whips' Office mantra among all parties: namely, that whatever you do, you should not listen to the debate because it might make you inclined not to take the Whip. The great thing about this House is that that does not work in quite this way here, so one carries on in the hope that the arguments move Ministers a little. However, my complete failure to persuade the Minister that it is necessary to change speed limits to cover HGV vehicles as well as cars makes me think that perhaps one is trying to push water uphill. Nevertheless, I will have another go on this amendment, which I think is rather important.
The amendment would help Scottish Ministers in the Scottish Parliament to carry over expenditure which they have not spent in any financial year. I could keep going for about half an hour with stories of local authorities that rush out and buy street furniture in February and sleeping policemen in March. We are all familiar with that practice. It is an old sore. Anybody who has been a Member of Parliament can recount endless examples of constituents who have pointed out how ridiculous it is. I believe that this amendment would be welcomed by Ministers in the Scottish Parliament. The arguments are well understood so I will not dwell on them. I live in hope that my noble friend might be listening and might offer me some comfort that on this occasion he can see the sense in allowing surpluses to be carried forward from one financial year to the next. That seems to me to encourage good planning, good use of resources and proper stewardship of public money. I beg to move.
As I say, we might get through this one tonight. I well understand what my noble friend wants to achieve with this amendment. There are two aspects to this question: first, whether the amendment would achieve what he wants to achieve; and, secondly, whether it would be a good thing to achieve it. If the intention is to allow the Scottish Government to carry forward unspent funds and spend them in the next year, this is not the mechanism with which to do it. The amendment would accumulate funds in the Scottish Consolidated Fund but would not permit the expenditure of those funds since they are controlled by departmental expenditure limits which would remain controlled as they are now. Therefore, the amendment would not achieve that objective. Furthermore, it would deprive the Exchequer of revenue. The direct cost to the Exchequer of this proposal is around £100 million per annum. If the principle was extended to the other devolved Administrations, it would cost a lot more.
I shall not debate the effect of the amendment further, unless my noble friend would like me to. However, I suggest that, whatever the merits of the case, this amendment would not achieve them because it does not get round the expenditure controls which are agreed on a departmental basis. It would merely lock up funds and worsen the borrowing and fiscal position of the UK, which I know my noble friend thinks we are probably too lax about already. Therefore, I ask him to withdraw the amendment.
My Lords, I am perfectly content to accept that the amendment may not have been perfectly drafted, but I am not content with that response, because I was clearly advancing the principle that the Scottish Parliament should be able to carry forward surpluses. If my noble friend can perhaps deal with the issue of whether it is able do that, and whether he favours it in principle, I should be very grateful.
My Lords, we need to make sure that UK expenditure, including Scottish expenditure, continues to be controlled in a way that imposes appropriate disciplines. The purpose of the Bill is of course to give the Scottish Government more responsibility for a proportion of their tax-raising powers, and that is linked to the expenditure. However, the expenditure having been agreed, it is appropriate that money from taxation should continue to flow as it does now into the Consolidated Fund, subject to the current regime under the Scotland Act 1998, which permits the Treasury, after consultation with Scottish Ministers, to designate receipts that go to the Consolidated Fund.
The devolved Administration in Scotland is currently required to surrender receipts from fines, forfeitures, fixed penalties, dividends on public dividend capital and most interest collected by Scottish Ministers. So there is currently a provision to recognise the flow of funds between Scotland and the UK Consolidated Fund. At the moment, the vast majority of the income in question is derived from fines and fixed penalties, which the Office for National Statistics defines as analogous to taxes. That arrangement is consistent with the Government's view that taxes that are not devolved should be collected centrally and then redistributed across the UK. We continue to believe that, with the exception of what is explicitly devolved, the revenue should flow into the Consolidated Fund and that expenditure controls should otherwise continue to be exercised on the current basis.
There are much wider questions to be asked about end-year flexibility in individual departmental expenditure in the rest of the UK, and there is certainly a debate to be had-it is well outside the scope of the Bill-on the appropriateness for all government departments across the UK to carry forward expenditure from one year to another. The Treasury rules on this have changed over the years. I cannot remember in which year it was, but health expenditure got out of hand in the latter stages of the previous Government. I cannot remember if it was when the noble Lord, Lord Browne, was Chief Secretary. The noble Lord is indicating that it was, so he will know very well the difficulties of any regime under which expenditure is carried forward.
I do not want to be dismissive of my noble friend's point, because there is a real issue here.