Scotland Bill - Report (2nd Day)

Part of the debate – in the House of Lords at 9:15 pm on 29th February 2016.

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Photo of Lord Dunlop Lord Dunlop The Parliamentary Under-Secretary of State for Scotland 9:15 pm, 29th February 2016

My Lords, again a number of points have been raised and I shall try to address each in turn. If I do not address them now I will be happy to write to noble Lords.

The noble Lord, Lord Kerr, said that his amendment sought to include annual limits on the borrowing and debt that can be undertaken by the Scottish Government. As he acknowledged, the Governments have now agreed the fiscal framework and, as a result, the Government are now bringing forward amendments to the Bill which will put the new borrowing arrangements into effect. I am grateful to the noble Lord for his view that the Government’s amendment addresses the intent of his own amendment. The noble Lord also raised a number of specific questions, and if I may I will write to him about them.

The amendments spoken to by the noble Earl, Lord Kinnoull, raise a number of specific points that I shall seek to address. On the need for separate limits for capital and resource borrowing, the agreement already sets separate limits and the UK Government are therefore proposing to amend the Scotland Bill accordingly. As is clear, the Scottish Government’s aggregate borrowing limit for capital spending is being increased from £2.2 billion to £3 billion, while the aggregate borrowing limit for resource spending is being increased from £500 million to £1.75 billion, reflecting the additional risks that the Scottish Government will take on. On the definition of how these limits are calculated, I can confirm that they are based on the principal, with interest payments not included.

On the issue of currency, the amendments proposed to the Scotland Bill by the Government require the Scottish Government to borrow in sterling to fund additional capital spending. As the Scottish Government can only borrow from the National Loans Fund for current spending, this will also therefore be in sterling.

On the issue of responsibility, I reiterate that the Scottish Government are responsible for all of their borrowing. But while the UK Government do not explicitly stand behind Scottish Government borrowing, the borrowing limits have been set at a level that the Scottish Government should be able to manage. I would like to remind the House of what the Chancellor of the Exchequer said when giving evidence to the Treasury Select Committee last Session:

“the UK stands behind its citizens wherever they live. The fiscal credibility of the UK is one of our most precious assets and we have had lots of debates in this Parliament about how we preserve that credibility. Of course we would not allow Scotland to go bust, but in order for that situation not to arise we will have to agree fiscal rules, independently verified, that make sure that that does not happen, so that we never reach that situation where the sovereign backstop has to be deployed”.

Again the noble Earl raised a number of specific points on which I will write to him.

The noble and learned Lord, Lord McCluskey, did not move his amendment but a number of points were raised. My noble friend Lord Sanderson asked about independent forecasts. I can confirm that as part of the fiscal framework agreement, amendments will be made to the Scottish Fiscal Commission Bill that is currently going through the Scottish Parliament, and there is no reason to think that the Scottish Government will not act with anything other than good faith in that regard. The noble and learned Lord, Lord McCluskey, also raised a specific point about the OBR’s right of access and asked whether there is any uncertainty in that. I think that there is a good understanding between the Governments about the information exchange that is required and I do not anticipate this being an area of great dispute between the two Governments. The provisions in this Bill will be underpinned by a memorandum of understanding as to how in operational terms this will work in practice.

I turn now to the amendments tabled by my noble friend Lord Higgins. Smith set out that extensive new tax powers should be devolved to the Scottish Parliament and Part 2 of this Bill does exactly that. Amendment 56B deals with whether we need two consequential powers in the Bill with regard to the income tax clauses. As has been referred to, this was covered in the Government’s response to the Delegated Powers Committee report which is now available online.

Perhaps I may explain the Government’s approach in this regard. The powers are separate and different, and both are required. Clause 15(8) allows the Treasury to make consequential amendments that arise in connection with changes made to the Scotland Act 1998 and the Income Tax Act 2007 by Clauses 13 and 14. The power in Clause 13, amending Section 80G of the Scotland Act 2012, allows the Treasury to make consequential amendments that are needed in consequence of or in connection with the exercise of the new income tax powers by the Scottish Parliament through a Scottish rate resolution. Income tax powers within this Bill are more extensive than those in the 2012 Act, so it is entirely natural that the changes made by Clauses 13 and 14 to the structure and terminology of the Income Tax Act 2007 that facilitate this devolution may give rise to the need for consequential amendments elsewhere in the taxes Acts.

I now turn to Amendments 56D, 56E, 56H and 56J which deal with whether all SIs should be via the affirmative procedure. This is not an issue unique to the Scotland Bill; the approach is common across legislation. The Government agree that substantial changes to primary legislation should be made using the affirmative procedure. However, non-textual and minor technical changes should be possible under the negative resolution procedure. This minimises the burden on the House and also on government resources.

On Amendments 56C and 56G, which would deny the Treasury the power to amend by order the Scotland Bill, or Act itself, there will be a length of time between the Bill receiving Royal Assent and the Scottish Parliament exercising the new powers conferred by this Bill for the first time. The gap will be longer in some cases than in others. Income tax will be the shortest. We expect this to come into effect in 2017, then APD in 2018 and finally the aggregates levy. In the case of the aggregates levy, the length of time is uncertain as it will depend on resolution of the levy’s legal challenges.

There may be circumstances where changes are made to the UK structure of those taxes in the intervening period which would require amendment to the Bill in the period between Royal Assent and the commencement of devolved powers. For example, given the outstanding litigation on the aggregates levy, we must have flexibility to respond to future judgments to ensure the levy and the powers that we are devolving remain fully lawful. Similarly, there may be future enactments relating to the taxes which would need amendment. Any amendments to an enactment will be subject to the affirmative resolution procedure. On that basis, the Government cannot accept the amendments tabled by my noble friend.

Turning to the amendment moved by the noble Lord, Lord McAvoy, the Government have listened very carefully to concerns, such as those raised in the context of Amendment 57A, on the transparency of how we operate the Barnett formula. In our response to the Lords Economic Affairs Committee’s valuable report on this Bill, the Government committed to look into what more we could do. We are currently doing that and I hope to be able to report progress to the House in due course. This is not an issue just for Scotland; it impacts across the UK, so we have not tied this work to the Scotland Bill alone.

In the mean time, let me reassure noble Lords that the Government have already set out changes to the devolved Administrations’ Barnett-calculated block grant allocations at every spending review, as well as twice a year—at Budgets and Autumn Statements, as required. In November, at the spending review and Autumn Statement, tables were included setting out the overall impact on the block grant of that important event. Alongside this, the Treasury has also recently published an updated version of its Statement of Funding Policy, copies of which have been placed in the House Library. This document outlines the principles underlying the calculation of the block grant. On that basis, I would ask noble Lords not to press their amendments.

Amendment 56A agreed.

Clause 15: Consequential amendments: income tax

Amendments 56B to 56E not moved.