House of Commons

Monday 14th March 2011 Commons Chamber

Monday 14 March 2011

The House met at half-past Two o’clock

Prayers

Monday 14th March 2011 Commons Chamber

[Mr Speaker in the Chair]

Oral Answers to Questions

Monday 14th March 2011 Commons Chamber

The Secretary of State was asked—

[Tom Brake (Carshalton and Wallington) (LD)]

1. What recent assessment he has made of the security situation in Afghanistan; and if he will make a statement.

[The Secretary of State for Defence (Dr Liam Fox)]

The whole House will want to join me in paying tribute to Lance Corporal Stephen McKee, from 1st Battalion The Royal Irish Regiment, who was killed in Afghanistan on 9 March. The House will want to join me in paying tribute also to the station commander of RAF Northolt, Group Captain Tom Barrett, who was killed in a road traffic accident on the evening of Thursday 10 March. Many members of the current and former Governments will have known him well. Both men served their country with honour and distinction, and our thoughts and prayers are with their friends, colleagues and families at this very difficult time.

The security situation in Afghanistan varies significantly across the country. About 64% of violent incidents take place in just three of Afghanistan’s 34 provinces, Helmand, Kandahar and Kunar, which have about 11% of the total population. The insurgency’s heartland remains in the south. The increases in the international security assistance force and Afghan national security force have helped us to make real progress over the winter in all aspects of our counter-insurgency operations: security, governance, and development.

[Tom Brake]

I join the Secretary of State in his tributes to our fallen soldiers.

The security situation in Afghanistan may have a permanent impact on service personnel after the conflict. Taking into account valuable lessons learned from previous conflicts, such as the Falklands, whereby more servicemen took their own lives afterwards than died during fighting, what measures are in place to support servicemen and women who experience mental health or social problems either during or after the conflict?

[Dr Fox]

My hon. Friend makes a very valuable point. It is all too easy to see the physical scars of war; it is much more difficult to see the mental scars of war. It is because of the importance given to the matter by the Government that, cross-departmentally, we are making more funding available to mental health projects for our armed forces. We are looking at the scientific evidence available to see whether we can better target that help, but the measures that we are putting in place include the new phone line for service personnel.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

The Secretary of State will recall that on 14 February he made a moderate and encouraging statement to the House, saying that he thought that the second half of this year would be a good time to make a political push towards a settlement. He also said that we would pay a heavy price if we failed to take the opportunity that would then occur. He has since no doubt seen the Defence Committee’s report, which says that at the moment the Americans seem disinclined to pursue a political settlement. Can he assure the House that he will use his best endeavours to encourage the Americans to take the course that he has recommended?

[Dr Fox]

I am not sure that I am required to make efforts to get the Americans to make such a change in their posture, as the hon. Gentleman describes it. In fact, I spoke to Secretary Gates at the ISAF meeting in Brussels at the weekend, and it is very clear that we are all now moving together. The process of transition, including which parts of Afghanistan will undertake that transition, will be announced by President Karzai on 21 March.

[Mr John Baron (Basildon and Billericay) (Con)]

The Defence Secretary brings a welcome dose of realism to his post, but given that counter-insurgency operations in the past, such as in Malaya, suggest that not one of the pre-conditions for success exists in Afghanistan today, why does he think this is going to be different, and why does he think that we are going to beat the Taliban?

[Dr Fox]

Our aim in Afghanistan has been to create a stable enough Afghanistan so that it is able to manage its own internal and external security without the need to rely on the international community. We have put in place improvements in governance, as well as an improvement in the security position. We have seen a big increase in the size and capability of the Afghan national security force, which should enable Afghanistan to maintain that position when the international community leaves in an active role.

[Mr David Hanson (Delyn) (Lab)]

2. What recent assessment he has made of the potential role of UK armed forces in north Africa.

[The Secretary of State for Defence (Dr Liam Fox)]

The Government keep plans for the use of our armed forces under constant review, and planning with our NATO partners is also ongoing. A number of contingency plans with respect to Libya are being considered by NATO, including further humanitarian assistance, enforcing an arms embargo and the implementation of a no-fly zone. No decisions have yet been taken and no assets have yet been committed.

[Mr Hanson]

Will the Secretary of State confirm that, prior to any no-fly zone in Libya being undertaken, he will get the support of the United Nations and the Arab League to achieve that objective? Will he also look at the resources in the strategic defence review to ensure that our troops and our aircraft have the support of air force personnel and aircraft to meet those objectives?

[Dr Fox]

The Government have made it clear, alongside our NATO allies, that in relation to a no-fly zone, three criteria have to be met: there has to be a demonstrable need; there has to be a clear legal basis; and there has to be involvement of the countries in the region. Clearly, we would not be planning if we did not have the assets readily available for the task.

[Mr James Arbuthnot (North East Hampshire) (Con)]

On Friday, the BBC carried a report that two Nimrod R1 aircraft, which had been due to come out of service at the end of this month, had been reprieved, at least until June. Was it true? Are there any other recent decisions that are being reconsidered or perhaps should be reconsidered as events in the Arab world unfold?

[Dr Fox]

As I have just said, we always ensure that the assets are available. I asked the armed forces to look at whether we could have a temporary extension for the R1 until we were sure that we had sufficient alternative assets to be able to provide us with the same capability. That work is being undertaken at the moment.

[Mr Jim Murphy (East Renfrewshire) (Lab)]

We all pay tribute to the work that our forces are carrying out in and around Libya at the moment, and we support the Government’s work in attempting to achieve a no-fly zone. However, there remain serious issues about earlier decisions, not least on HMS Cumberland, which has done so much off Benghazi, but whose next journey will be to be decommissioned. Also, some Nimrod aircraft that were previously bound for scrap may have won a temporary reprieve. Given that the National Audit Office report says that the RAF currently has only

“eight pilots who are capable of undertaking ground attack missions on Typhoon”,

and that that will not be sufficient in future, why does the Secretary of State think it is right to sack almost 200 trainee pilots?

[Dr Fox]

As I have said repeatedly in the House, we have had to reduce the number of aircraft available for the future as part of the strategic defence and security review, not least because of the budgetary position that we inherited. It does no good whatsoever to the credibility of the Opposition to complain about reductions made as a result of their budgetary incompetence when they will not tell us what their budget would be or what cuts they would support or not support.

[Mr Murphy]

The Secretary of State should spare us the lecture. This from a Government who allow soldiers to be sacked by e-mail, whose actions mean that this week, for the first time in decades, we do not have the ability to put an aircraft carrier to sea, and who will not guarantee that anyone currently serving in Afghanistan will be exempt from being sacked. The defence review was rushed; it has not survived the first contact with world events. Three words missing from it were Tunisia, Egypt and Libya. Many experts are worried about new gaps in capability. Will the Secretary of State guarantee that there will be no future cuts in military capability in the lifetime of this Parliament?

[Dr Fox]

The word missing from the right hon. Gentleman’s comments was “sorry”—sorry for the position in which he left our armed forces, with an MOD budget massively over-committed at £158 billion. What Labour Members still have not recognised is that their own economic incompetence is a liability for this country’s national security in the long term. We are taking the measures to put this country back on a firm footing in a way that they never could and never had the courage to do.

[Paul Maynard (Blackpool North and Cleveleys) (Con)]

3. What recent progress his Department has made on its consultation on the defence industrial, security and technology policy Green Paper.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

Our Green Paper, “Equipment, Support, and Technology for UK Defence and Security: A Consultation Paper”, was published on 20 December 2010, and progress on the consultation is encouraging. Ministers have engaged extensively with a wide range of interested parties, including right hon. and hon. Members of this House and of the House of Lords. Last week, a consultation conference took place at which over 200 people from industry, academia, service providers, trade bodies and the public discussed the Green Paper issues with Ministers and senior officials. I encourage anyone interested to send in their views on the issues outlined in the Green Paper before the consultation period ends on 31 March 2011.

[Paul Maynard]

Can the Minister give me an assurance that he will give due weight to the need to have a steady and constant stream of graduates in the complex scientific disciplines that underpin the research and development work on which the future of our defence industry rests?

[Peter Luff]

I am delighted to give my hon. Friend precisely that assurance. I am constantly amazed and delighted by the excellent work done by our scientists. I am in regular discussions with my colleagues in other Departments to ensure precisely that outcome, and he is right to highlight its importance.

[Mr Bob Ainsworth (Coventry North East) (Lab)]

Does the Minister share with his colleagues in industry his plans to cut the science and technology budget by £80 million? Will he tell the House how much impact that will have on our future ability to develop military capability?

[Peter Luff]

It grieves me that the right hon. Gentleman, whom I hold in considerable regard and esteem, should ask such a question after the monstrous slashing of the science budget under the previous Government. Last year alone, £100 million was taken from the science budget by his party and his Government. I am glad to tell him that the science budget has been largely protected—[Interruption.] It has been largely protected from the massive problems that we inherited from him and his colleagues on the Opposition Front Bench. The budget will rise in cash terms over the spending round period. That is a remarkably successful outcome, and I am delighted by and proud of it.

[Mark Menzies (Fylde) (Con)]

Is the Minister in a position to update the House on the Government’s proposals to support the unmanned aerial vehicles programme, because that has a direct link to the skills that my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard) spoke about?

[Peter Luff]

My hon. Friend is right to highlight the importance of protecting skills in the fixed-wing sector in general. I cannot give him that update at present, but good work is proceeding in this area and there are some very interesting things that I hope to report to the House in the relatively near future.

[Michael Dugher (Barnsley East) (Lab)]

At last week’s consultation conference on the Government’s Green Paper, which was hosted by the Minister, Mr Neil Stansfield, the head of security and counter-terrorism, science and technology at the Home Office, warned the Government of the dangers of taking equipment “capability holidays”, and argued that it is not possible to dip in and dip out. In light of that, do the Government think that it is wise to take a nine-year capability holiday in carrier strike, a decision that the noble Lord Ashdown described at the weekend as “illogical”?

[Peter Luff]

They just don’t get it, do they? We do not wish to have that capability gap, but were forced to take additional risks in the defence budget because of the mess we inherited from the Labour party. I regret that and do not welcome it, but it is a risk that we have to take.

[Dr Julian Huppert (Cambridge) (LD)]

4. What assessment he has made of the implications for his Department’s policies of proposals for further regulation of the international trade in arms; and if he will make a statement.

[The Minister for the Armed Forces (Nick Harvey)]

We strongly support proposals for an arms trade treaty. It should reduce the proliferation of conventional weapons and technology in unstable regions. By agreeing and implementing criteria that set high standards for the export of conventional weapons and technology, the Government maintain a rigorous and transparent arms export control system, whereby all export licence applications are assessed case by case against the consolidated EU and national arms export licensing criteria. The arms trade treaty will better regulate the international trade in conventional weapons and contribute towards preventing conflict, which is a key interest for the Department.

[Dr Huppert]

Our Government should be congratulated on their strong role in the international arms trade treaty talks in New York last week, which will lead to a great improvement around the world. However, does the Minister accept that sales of British defence and security equipment, licensed under this Government and the previous Government, to countries such as Libya and Bahrain show that we need to take a far more careful look at our exports, as well as advising the rest of the world?

[Nick Harvey]

I agree with my hon. Friend that the progress towards an arms trade treaty is encouraging. The recent preparatory committee meeting certainly went well. As I have said, the UK maintains rigorous controls. Clearly, the changing political situation means that we will have to monitor sales to various countries far more closely. When considering future export licensing applications, we will follow the terms of the newly agreed UN arms embargo in the case of Libya. In terms of other countries, such sales have been going on for some time, as my hon. Friend said, but I am pleased to say that there have been no recent sales to Bahrain, for example.

[Mr John Spellar (Warley) (Lab)]

We should all welcome the advances towards an international treaty. However, I urge the Minister to point out to the hon. Member for Cambridge (Dr Huppert) the huge importance of the British aerospace industry to the economy not only of the country, but of the regions where it employs many thousands of skilled workers. In that context, the criteria for deciding to whom we sell should be current criteria. For example, we should consider the huge advances made in Indonesia under President Yudhoyono, not only in its economy, but in human rights and democracy in that country. Will there be an up-to-date assessment of which countries are appropriate?

[Nick Harvey]

We keep under constant review the progress made in different parts of the world, and apply that against the criteria. I assure the right hon. Gentleman that the Government recognise the significance of defence exports and the rigorous controls that are in place. Exports bring great value to the economy, industry and defence. They contribute not only to our defence diplomacy, but to the interoperability of our systems with those of our allies around the world.

[Julie Hilling (Bolton West) (Lab)]

5. How much of the sum allocated by his Department to the Trident replacement concept phase has been transferred from its budget for the assessment phase.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

The concept phase for the programme to replace the Vanguard submarine was extended to allow potential designs to be developed more fully, and to allow the value for money of the programme to be reviewed. The previous Government approved a sum of about £255 million for that extension, and this January the coalition Government authorised an additional sum of about £25 million.

[Julie Hilling]

On 19 October last year, the Prime Minister said that

“a proper full replacement of Trident is the right option for the future.”—[Official Report, 19 October 2010; Vol. 516, c. 805.]

However, on 10 March, the Liberal Democrat chairman, the hon. Member for Westmorland and Lonsdale (Tim Farron), said:

“I’m pretty confident there will not be a full replacement.”

Will the Minister please tell us what the formal, agreed coalition Government policy is on Trident replacement?

[Peter Luff]

The coalition Government are committed to the replacement of the Trident submarine, but our Liberal Democrat colleagues have the right to argue another position.

[Mr Matthew Offord (Hendon) (Con)]

Can my hon. Friend assure the House that the decision set out in the strategic defence and security review will not alter the nature or credibility of our nuclear deterrent, and that it will ensure that we maintain Britain’s ultimate insurance policy?

[Peter Luff]

I am delighted to give my hon. Friend that categorical reassurance.

[David Mowat (Warrington South) (Con)]

6. What recent representations he has received on the acceptance by licensed premises of his Department’s form 90 as a means of identification.

[The Parliamentary Under-Secretary of State for Defence (Mr Andrew Robathan)]

Since this Government came into office, the Ministry of Defence has received a number of letters from Members of Parliament, including my hon. Friend, and from the public concerning the use of MOD form 90 as a means of identification for non-official purposes. I am delighted to confirm that we have now agreed to a change in policy, allowing service personnel to use their service identity card as proof of age, and have written to the relevant trade associations encouraging their members to accept it.

[David Mowat]

I thank the Minister for the answer and for the support that he has given my constituent, ex-Coldstream Guard Lance Reah, in his campaign on the matter over the past year. Does my hon. Friend agree that the change will have a big impact on the morale of our soldiers, and that the fact that the Opposition failed to make any progress on the matter in 13 years demonstrates that their actions do not match their words?

[Mr Robathan]

I can confirm to my hon. Friend that when I was serving in the Coldstream Guards it was a matter of some upset when young-looking soldiers who were prepared to lay their lives on the line were denied entry to pubs. I pay tribute to my hon. Friend for his campaign, and I am particularly pleased to see that I am on the front of “Warrington Matters” in connection with it. I do not think the photograph of me is very flattering, though.

[Dr Julian Lewis (New Forest East) (Con)]

7. What progress he has made on the implementation of the Trident replacement programme.

[The Secretary of State for Defence (Dr Liam Fox)]

The programme to replace the Vanguard submarine completed the initial concept studies, and we expect an announcement on initial gate approval in the coming weeks. There remain ongoing discussions, which have simply taken longer than it was anticipated a few months ago. It is important, given the size of the project, that we get the decision right.

[Dr Lewis]

At a press conference organised by the anti-nuclear deterrent front organisation, the British American Security Information Council, a Liberal Democrat Defence Minister stated that a very thin paper trail had led to the last Government’s decision to renew Trident. Does my right hon. Friend agree that the White Paper produced by his Department and the last Government was actually a first-class piece of work, was recognised as such by my right hon. Friend who is now Prime Minister and gave every good argument for why we went into the Division Lobby with the Labour Government to support that renewal?

[Dr Fox]

The White Paper was a thorough piece of work. It was the basis on which the House made a considered decision on the issue, and I still believe that for the long-term well-being and security of the United Kingdom, a continuous at-sea, submarine-based, minimum-credible nuclear deterrent in the form of the replacement for the Trident programme is the best way forward.

[Jeremy Corbyn (Islington North) (Lab)]

There seems to be a non-sequitur on the funding of the construction of this new weapon of mass destruction. In answers to me, the Secretary of State has pointed out that £300 million has been spent on advance orders for new steel and other things. In answer to my hon. Friend the Member for Bolton West (Julie Hilling) a few moments ago, however, the Government talked of a figure of £25 million. Where exactly has the authority come from, other than the honeyed words “custom and practice”, for the expenditure of apparently up to £1 billion on preparation for the development of this new weapons system?

[Dr Fox]

On the broad picture, if we choose to go ahead on the dates set out since the White Paper—we have changed them slightly since coming into government —long-lead items need to be ordered. The Government have set out clearly that we believe that that is the best course for the UK. The main gate decision will be taken some time after 2015.

[Angus Robertson (Moray) (SNP)]

Will the Secretary of State confirm whether UK nuclear submarines rely on back-up power supplies to run their coolant pumps, just like Japanese nuclear power stations? Is that why Commodore MacFarlane, the defence nuclear safety regulator, recently said that UK submarine reactor safety falls

“significantly short of benchmarked…good practice”?

[Dr Fox]

One decision in the Trident replacement will be whether we move to pressurised water reactor 3 for improved nuclear safety. The Government’s view is that that is the preferred option, because those reactors give us a better safety outlook. That is a debate on both sides of the Atlantic, but we believe that in terms of safety, the case is very clear-cut.

[Harriett Baldwin (West Worcestershire) (Con)]

8. What recent assessment he has made of progress in the reform of NATO.

[The Parliamentary Under-Secretary of State for Defence (Mr Gerald Howarth)]

The UK is a leading proponent of reform in NATO. Encouraging progress has been made over the past year, with agreement on streamlining NATO’s command structure and supporting agencies and improvements to its financial management. However, swift implementation of the reforms will be key, as my right hon. Friend the Secretary of State made clear at the meeting of NATO Defence Ministers last week.

[Harriett Baldwin]

In addition to those reforms, the NATO Parliamentary Assembly has the capacity to help with democratic institution-building in countries such as those in north Africa which we hope are emerging into stronger parliamentary democracies. Did the Minister’s discussions with NATO involve those capabilities?

[Mr Howarth]

I pay tribute to the NATO Parliamentary Assembly—indeed, I was speaking earlier to the right hon. and learned Member for North East Fife (Sir Menzies Campbell) who leads for the UK on that, and I would very much like to meet other Assembly representatives. However, I ought to point out that NATO is principally a military alliance. As my right hon. Friend the Secretary of State made clear last week, three principles will guide any intervention in Libya: demonstrable need, a clear legal mandate, and solid support from the region. That is the policy that NATO has adopted.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

Does the Minister agree that NATO reform would be pretty meaningless unless we can convince our fellow NATO members to step up to the plate and spend 2% of gross domestic product on defence?

[Mr Howarth]

I have to agree wholeheartedly with the hon. Lady. That point has been made by the NATO Secretary-General to those recalcitrants, and by my right hon. Friend the Secretary of State to his counterparts. She is absolutely right and I am very pleased to support her.

[Robert Halfon (Harlow) (Con)]

9. What his policy is on cyber-security in the defence estate; and if he will make a statement.

[Geoffrey Clifton-Brown (The Cotswolds) (Con)]

12. What his policy is on cyber-security in the defence estate; and if he will make a statement.

[The Minister for the Armed Forces (Nick Harvey)]

As we set out in the strategic defence and security review, we attach a high priority to the cyber-defence of our systems. Since I last updated the House in December, we have made considerable progress in this area. Our new global operations and security control centre is now up and running, and we have commissioned a new monitoring system to detect cyber-attacks against our defence systems. We have also appointed a very senior military officer to lead a defence cyber-security programme to transform our approach over the next four years and to meet our SDSR commitments. The House will understand if I do not comment further on the detail of the measures we take to protect our systems, but we are not complacent—we must outmatch a rapidly changing threat.

[Robert Halfon]

Is the Minister aware of the concerns expressed by Dr Kim Howells, former Chairman of the Intelligence and Security Committee, regarding the close links between BT and the Chinese telecoms firm, Huawei, which has close links to the red army? Does the Minister agree that that could make us more vulnerable to cyber-attack from China, and what steps can he take to reduce that risk?

[Nick Harvey]

The recent Green Paper on equipment, support and technology identified cyberspace as both one of the benefits and one of the risks of the modern world. We are developing a joint approach with industry because of our mutual reliance on networks, which gives us the opportunity to discuss with BT and others both those benefits and the risks to which the hon. Gentleman alludes.

[Geoffrey Clifton-Brown]

Given that the important threat from cyberspace affects both the private and public sectors, what steps is my hon. Friend taking to encourage innovative solutions from the private sector to help the public sector?

[Nick Harvey]

We have started a relationship with the private sector, and there has been an initial meeting with private sector leaders at Downing street. It is essential that we have the maximum co-operation between the private and public sectors, because many of the networks on which public services depend are managed under contract by the private sector. It is also essential that there is good international engagement with our allies, and there will be new memorandums of understanding with some of them shortly.

[Chris Bryant (Rhondda) (Lab)]

In the light of allegations that I gather will be made tonight on the “Panorama” programme that the News of the World was hacking into mobile phones and computers used by the Army in Northern Ireland, will the Minister ensure that the security of mobile telephones used by the Army will be protected from newspapers as well as from other agents?

[Nick Harvey]

The hon. Gentleman makes a good point, and we will do everything we can to ensure the maximum security of all our communication methods.

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

With the reporting of an ever increasing number of cyber-attacks and the increasing costs of such attacks, will the Minister confirm that the £650 million announced in the SDSR for cyber-security has been ring-fenced for new capabilities? Will he also confirm the time scale for full delivery of those capabilities?

[Nick Harvey]

The money to which the hon. Gentleman alludes covers the whole SDSR period. It is new money intended to help prime the efforts of both the public and private sectors, as I said a moment ago, to ensure that the nation as a whole has in place the maximum possible defences over the next few years. It is a fast-changing scene, and it is essential that we keep up with the ever changing threat.

[Mr David Ruffley (Bury St Edmunds) (Con)]

10. What progress his Department has made on the joint search and rescue harmonisation project; and if he will make a statement.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

My right hon. Friend the Secretary of State for Transport announced the cancellation of the previous procurement process on 8 February. The Department for Transport and the Ministry of Defence are now considering the potential procurement options to meet the future requirements for search and rescue helicopters in the United Kingdom. We will make a further announcement once a way forward has been agreed.

[Mr Ruffley]

I know that the Minister is aware of the great concern in the search and rescue service, particularly at Wattisham in my constituency. Does he agree that a private finance initiative route might not necessarily be the most cost-effective way forward in reforming such services?

[Peter Luff]

I am delighted to pay tribute to the strong and close interest that my hon. Friend has taken in this issue, not least because of his close constituency interest. I can confirm that we are beginning again with a blank sheet of paper. We have learned the lessons from the previous process, which has been so unfortunately terminated, and will look again at what is the correct procurement route. That will include a thorough review of whether PFI is right for this particular procurement.

[Sir Alan Beith (Berwick-upon-Tweed) (LD)]

What is the mechanism for making the decision? Would it not make more sense if the Department for Transport acted as the purchaser and the MOD put forward a bid to continue the involvement of the RAF and the Navy in the provision of the service?

[Peter Luff]

I understand the interesting point that my right hon. Friend makes. The present intention is that current procurement arrangements should be stuck to, and I have every confidence that the defence, equipment and support organisation at Abbey Wood can do an excellent job of it this time.

[Mr Alan Reid (Argyll and Bute) (LD)]

11. What plans he has for the future of RAF Machrihanish; and if he will make a statement.

[The Parliamentary Under-Secretary of State for Defence (Mr Andrew Robathan)]

The disposal of RAF Machrihanish was announced in October 2008, and it will be sold as soon as possible. We are currently committed to working with the local community body to achieve a sale under Scottish community right to buy legislation. A final decision from the Scottish Executive on whether the community can proceed is awaited.

[Mr Reid]

As the Minister will know, the main problem is the age and condition of the water supply system. I hope that the MOD will continue to work with the Scottish Government, the local council and the Machrihanish airbase community company to ensure that it will be viable for the community company to buy the base and use the facilities to regenerate the local economy. This is an ideal big society project. Will he meet me to discuss the matter further?

[Mr Robathan]

I would be very happy to meet the hon. Gentleman. He is quite right. For more than two years, the MOD has been trying to dispose of this site, and the sooner we can do so the better for all concerned.

[Sir Menzies Campbell (North East Fife) (LD)]

The Minister will know that Machrihanish is not the only Royal Air Force base in Scotland facing uncertainty. Is he aware that aircraft have yet again had to be scrambled from RAF Leuchars to protect our airspace from unwelcome intrusion? Will he therefore ignore the siren voices apparently emanating from the Treasury which would put both the base and that capability at risk?

[Mr Speaker]

Order. I know that the Minister will want to focus his answer on the question on the Order Paper, while skilfully referring to the concerns expressed by the right hon. and learned Gentleman.

[Mr Robathan]

I will concentrate on the disposal of Machrihanish, but also say—if I may, Mr Speaker—that the future of bases in Scotland, about which the right hon. and learned Gentleman is rightly concerned, is being looked at carefully, and announcements will be made soon.

[Laura Sandys (South Thanet) (Con)]

13. What resources his Department has allocated to strategic planning in 2010-11.

[The Secretary of State for Defence (Dr Liam Fox)]

At departmental level, strategic planning is overseen by the director general, strategy. He has 51 military and 75 civilian staff, and an overall budget for 2010-11 of some £12 million. If my hon. Friend is interested, I recommend that she should read the excellent report by the Select Committee on Administration.

[Laura Sandys]

I have certainly read the executive summary. Does the Secretary of State agree that we should continue to maintain a focus on building our risk assessment strategic planning and scenario capacity, to ensure that we can anticipate the future in a changing environment and the threats to our national interest?

[Dr Fox]

My hon. Friend is entirely right, and that is why in the strategic defence and security review we chose an adaptable posture for the UK’s defence and security. We specifically rejected the concepts of fortress Britain or an over-committed Britain, which would result in a lack of agility. The events of recent days have shown how unpredictable the external environment can be. That is why we were correct to maintain that flexibility and agility in our armed forces.

[Mr Kevan Jones (North Durham) (Lab)]

A week ago 50 senior military figures called for the SDSR to be reopened. They signed a letter saying that the SDSR

“seems to have been driven by financial rather than military considerations”.

However, when the Secretary of State gave evidence to the Defence Select Committee last week, he refused to deny reports that the Ministry of Defence was facing another £1 billion of cuts. Is it not becoming clear that it is the Chancellor of the Exchequer who is in the driving seat in the MOD, not the Secretary of State?

[Dr Fox]

If we have financial difficulties in the MOD or elsewhere in the Government, we know where they came from. When we look across what we do in the Ministry of Defence—and, indeed, in the rest of Government —we look to see what risks the UK may face and how we might best mitigate them. We have decided that the United Kingdom needs an adaptable posture, and we have therefore decided to build flexibility into the programmes leading to Future Force 2020, which I believe provides the best security for this country.

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

14. If he will assess the merits of placing currently unrequired defence equipment in reserve.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

A wide range of options are routinely considered for all defence equipment that is not required for operational use. They include extended readiness, long-term preservation, sale and disposal. In relation to preservation, we take into account factors such as the threats against which regeneration of the capability would be predicated; the cost and practicality of preservation arrangements, which may be significant; and the lead time and costs for ensuring that suitably trained personnel could be made available to operate the equipment.

[Gordon Henderson]

I welcome the Minister’s answer, but I am a bit concerned about cost. The shipping industry often lays up ships at minimal cost for a number of years, using small maintenance teams and dehumidifiers. Given recent events in north Africa, does my hon. Friend agree that keeping Britain’s reserve defences strong enough to meet unexpected challenges ought to be a priority, especially if it can be done at minimal cost to the taxpayer?

[Peter Luff]

Nothing would give me and my ministerial colleagues more pleasure than to be able to keep all decommissioned equipment in storage, but we can do so only when it makes sense financially and strategically. Sadly, it is not as simple as switching off the engine and placing the kit in an air-conditioned environment. We need to be able to maintain the equipment, retain and maintain stores, have personnel trained to use it and—something my hon. Friend may not be aware of—pay the cost of capital needed to hold it in reserve. Sadly, it is more complicated in the MOD than it is in the private sector.

[Toby Perkins (Chesterfield) (Lab)]

15. What assessment he has made of the effectiveness of his Department’s contribution to the operation to evacuate UK nationals from Libya; and if he will make a statement.

[The Secretary of State for Defence (Dr Liam Fox)]

My right hon. Friends the Prime Minister and the Foreign Secretary have already paid tribute to the members of the armed forces and the diplomatic service and all those who put themselves in harm’s way to help our people to leave safely. I would like to add my thanks to all those involved, in particular the members of the armed forces and civilian personnel, who demonstrated courage and professionalism in the co-ordinated effort to rescue British and other nationals from the crisis. The Ministry of Defence utilised a range of assets to support the Foreign Office-led operation to recover UK and other citizens from Libya. We successfully transported 926 entitled persons, of whom 286 were British nationals.

[Toby Perkins]

I would like to associate myself with the Secretary of State’s comments on the work done by our armed forces in Libya. Will he tell the House who in the Ministry of Defence authorised the use of special forces in the operation that started on 2 March, and what advice led to that decision?

[Dr Fox]

The Foreign Secretary has already set out the circumstances in which—[Interruption.] I have no intention of commenting further on special forces. I am glad that the hon. Gentleman has joined me in thanking those who took part in that work. I visited HMS Cumberland in Malta at the weekend to thank on behalf of the Government and the House of Commons the crew for their tremendous work. The fact that we were able to take 926 citizens, of whom only 286 were British, shows just how far we were ahead of the curve and doing our utmost to help those of other nations as well.

[Mr James Gray (North Wiltshire) (Con)]

Does the Secretary of State agree that the successful evacuation of several hundred of our own nationals, together with large numbers of overseas nationals, with not a single casualty among those people or our armed services, should be an occasion for rejoicing and congratulation, rather than for the negative party politicking that we have heard from the Opposition?

[Dr Fox]

It is interesting to compare the coverage that the operations led by the United Kingdom, including the command and control organisation in Malta, gets in the United Kingdom with the coverage that we get in other countries in Europe and beyond, where there cannot be high enough praise for our armed forces and for the organisation put forward by the United Kingdom. Perhaps this is a time to praise our people rather than to condemn them.

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

18. What assessment he has made of the likely date for HMS Illustrious to return to service; and if he will make a statement.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

HMS Illustrious is scheduled to return to operational service, to assume her new landing platform helicopter role, in spring 2012. I should add that she has had 180 days’ notice to move, and that that period can be reduced, should the need arise. She will be supplementing the capability provided by HMS Ocean.

[Thomas Docherty]

I am sure the House will agree that the fact that HMS Illustrious is coming back into service ahead of schedule is a testament to the professionalism of the work force and the management, led by Mike Pettigrew. Will the Minister find the time to come to the dockyard to see HMS Illustrious before she sets sail, so that he can see yet again why the best place for the refit and refurbishment of the Queen Elizabeth class carriers is Scotland, rather than France?

[Peter Luff]

Although it is far too early to decide where that work will be conducted, I would be delighted to try to accommodate such a visit in my diary, if that proves possible. The hon. Gentleman’s constituents have certainly done a first-rate job.

[Stuart Andrew (Pudsey) (Con)]

19. What recent assessment he has made of the implications for his Department’s policies of the security situation in the middle east and north Africa.

[The Secretary of State for Defence (Dr Liam Fox)]

In response to the changing security situation in the middle east and north Africa, work is under way to understand the implications that the changing environment will have on our policies in the wider region.

[Stuart Andrew]

I am grateful to my right hon. Friend for that answer. Will he give an assurance that our regional basing and overflight rights will ensure that we can effectively deploy ground attack aircraft in the region if necessary?

[Dr Fox]

The assumption that we made in the SDSR was that we had sufficient basing and overflight rights to be able to project air power where required. Nothing has happened in recent days to change that assumption.

[Patrick Mercer (Newark) (Con)]

The Secretary of State has rightly focused on Libya and the excellence of our operations there, but can he assure the House that his policies, in regard to resource and planning, are also focused on what might happen in other north African countries if evacuations or operations were required there?

[Dr Fox]

My hon. Friend is of course correct. We are looking not only at what is happening in Libya but at other countries in the region where there has been instability in recent times. They include countries such as Yemen, where we already have forward positioning of assets, should we be required to evacuate any British nationals.

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

20. What recent representations he has received on the implications for airfields on the defence estate of the outcome of the strategic defence and security review; and if he will make a statement.

[The Minister for the Armed Forces (Nick Harvey)]

I have received a considerable number of representations from hon. Members, Ministers and Members of the devolved Administrations, as well as from members of the public. I have regular discussions with Government colleagues and I will make an announcement as soon as I am in a position to do so.

[Miss McIntosh]

Will the Minister accept another representation from me about the excellence of public service shown by RAF Linton at times of public tragedy, in respect of floods on a number of occasions and the Selby rail crash in particular? Will he give an assurance that the future of RAF Linton will be secure, in training RAF pilots in the future?

[Nick Harvey]

The strategic defence and security review said that RAF Kinloss and two other RAF bases would close. We are in the middle of a comprehensive basing study, covering the needs not only of the RAF but of the Army in the future. It is a complex piece of work. As soon as we are able to balance all those competing requirements, we will make a full statement to the House.

[Jack Dromey (Birmingham, Erdington) (Lab)]

T1. If he will make a statement on his departmental responsibilities.

[The Secretary of State for Defence (Dr Liam Fox)]

My departmental responsibilities are to ensure that our country is properly defended now and in the future, that our service personnel have the right equipment and training to allow them to succeed in the military tasks, and that we honour the armed forces covenant.

[Jack Dromey]

Will the Secretary of State explain in detail and publish in full his views on the unfunded liability—supposedly left by the last Labour Government —on equipment, procurement and support programmes over the next 10 years?

[Dr Fox]

I will not be the only one to set out that information, as I am sure the National Audit Office and the Public Accounts Committee as well as the Select Committee on Defence will want to make it perfectly clear. I have made it clear, including in the evidence I gave to the Select Committee last week, that I would like to see greater transparency in how the Department makes its information available. As for the unfunded liability we inherited from the previous Government and the damage it has done to our ability to plan for the future—

[Mr Kevan Jones (North Durham) (Lab)]

Where has the £38 billion gone?

[Dr Fox]

The hon. Gentleman asks where the £38 billion has gone; he should know; he left it behind. It was his Government who were responsible for it. We shall diminish that unfunded liability and put the Department back on a sound footing—something that Labour Members were incapable of doing.

[Dr Julian Huppert (Cambridge) (LD)]

T2. The United Nations Secretary-General’s special representative on children and armed conflict recently reported on the Afghan national police’s recruitment of children to fight and on the sexual exploitation of young boys by Afghan police and military commanders. Given this disturbing evidence, will the Secretary of State explain what guidance is given to British military and police trainers when they encounter children in the Afghan national security forces?

[The Minister for the Armed Forces (Nick Harvey)]

Afghan civilians must be 18 or above to join either the Afghan national police or the army. That is checked as rigorously as possible through the much-improving recruitment process. If there is any allegation of wrongdoing brought to the attention of the British forces, it will be taken extremely seriously and reported to the Afghan commanders. We would unreservedly condemn any act of abuse or brutality. The Afghan Ministry of the Interior addresses children’s rights issues and certainly recognises 18 as the age of majority. If there are any specific allegations, he should—

[Mr Speaker]

We are most grateful to the Minister.

[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

T3. I am not sure that the Secretary of State’s earlier answer was entirely clear, so perhaps he will try again. Will he tell us who specifically in his Department authorised the involvement of special forces in Libya on 2 March?

[Dr Fox]

I have already made it clear that the Foreign Secretary set out the exact details, as far as we are able to disclose them, on that particular operation. When force protection is to be offered to the sort of diplomatic mission that was undertaken, it is quite usual for the Ministry of Defence to be asked and to agree to do it.

[Mr Mark Williams (Ceredigion) (LD)]

T5. The Secretary of State and his Department regularly meet the Royal British Legion and other veterans organisations. At those meetings, how much emphasis is placed on the fact that the military covenant is enshrined in law and, critically, on determining in what form and when that military covenant will be met?

[The Parliamentary Under-Secretary of State for Defence (Mr Andrew Robathan)]

I last met the director general of the Royal British Legion last Monday to discuss this very matter. There are many organisations involved and they all have their views to put forward. I think that the covenant is proceeding well. As the hon. Gentleman said, it has been written into law in the Armed Forces Bill and I hope that he will speak further about it on Report and Third Reading when they happen, shortly.

[Gemma Doyle (West Dunbartonshire) (Lab/Co-op)]

Ministry of Defence police do an essential and difficult job with a great deal of professionalism and expertise, but they face a potential cut of one third in their numbers. That would mean more than 1,000 officers losing their jobs. What assessment has the Secretary of State made of the impact of such a drastic reduction in the number of MOD police officers on the protection of military bases?

[Mr Robathan]

I pay tribute to the work done by the MOD police, and the protection of military bases is of course essential. However, we are constrained by the lack of funds left behind by the last Government. [Interruption.] It is no good Opposition Members grimacing; it is true. For that reason, we are having to consider savings in all areas, and I am afraid that everyone must play their part.

[Robert Halfon (Harlow) (Con)]

T6. As well as supporting the movement opposing Gaddafi in Libya, what steps can my right hon. Friend the Secretary of State take to support the democratic movements in Bahrain and Yemen, especially in view of the events of recent days?

[Dr Fox]

I think there is a difference between the two cases that my hon. Friend has cited. There is great concern about the possibility that the collapse of the Yemeni state would lead to an increase in the influence of al-Qaeda. It is therefore of great importance to the United Kingdom’s national security that we do what we can to stabilise the situation, while ensuring that we can evacuate United Kingdom citizens safely if the regime cannot hold.

[Alun Michael (Cardiff South and Penarth) (Lab/Co-op)]

T4. Given that Wales contains a fifth of the United Kingdom’s population but 8% of its military population, does the Secretary of State accept that the consequences of cuts that come too fast and go too deep will affect Wales disproportionately? What will he do to ensure that loyalty is repaid not with penalties but with respect?

[Dr Fox]

Decisions on the footprint of the United Kingdom’s armed forces are made primarily on the basis of military effectiveness. However, notwithstanding the level of cuts that must be made in order to balance the books, I personally ascribe great importance to maintaining a footprint throughout the Union. [Interruption.] What we are hearing is a very boring record. The difference between the main parties and the nationalists in the House is that we believe in maintaining a footprint throughout the Union, whereas they do not believe in having UK armed forces at all.

[Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con)]

T10. I am sure that the Minister will agree that while our British forces are in Afghanistan, it is important for them to contribute to the development of a strong humanitarian legacy of basic health care, education and clean drinking water for the people of Afghanistan. What steps is his Department taking, in conjunction with the Department for International Development, to help to secure that legacy?

[Dr Fox]

We work very closely with DFID on all those issues. As my hon. Friend correctly implies, if we are to have a sustainable legacy in Afghanistan, it cannot simply involve the strength of the armed forces or the police; there must also be strong governance and a strong infrastructure.

[Nick Smith (Blaenau Gwent) (Lab)]

T9. Given the consideration in recent weeks of no-fly zones over Libya, do the Government still intend to make 170 trainee pilots redundant?

[Dr Fox]

The number of trainee pilots is designed to mirror the number of airframes that we intend to be able to fly in future. That was set out in the SDSR. As I remind hon. Members on every occasion, one of the reasons that we are having to make reductions in the budget is the £158 billion deficit left behind by the Labour Government, on which the interest payments alone are greater than next year’s defence, Foreign Office and aid budgets put together.

[Bob Russell (Colchester) (LD)]

The House rightly pays tribute to our military personnel who are serving in Afghanistan. On Friday the Minister for the Armed Forces visited the Colchester garrison, where he will have seen on one side of the road former Army housing that is now social housing, on which millions of pounds are being spent by one arm of Government. Can the Minister explain why the same amount cannot be spent on housing on the other side of the road, where the fathers and husbands of military personnel in Afghanistan live?

[Mr Robathan]

My hon. Friend has rightly taken up this cause. We want to see all service personnel, whether single or married, in good-quality accommodation. As he will know, there is a huge backlog but we are working on it, although our work is constrained by the £38 billion deficit with which we were left. I hope very much that we shall be able to continue that work, particularly in the Colchester garrison.

[Mark Tami (Alyn and Deeside) (Lab)]

The Minister will be aware of the widespread concern at Defence Support Group in Sealand about ongoing job losses—and, indeed, the Government’s proposals to find a buyer for the business. Why, therefore, has he barred me from visiting the site?

[Dr Fox]

I am not aware of any such condition, but if the hon. Gentleman wants to come and see me about it, I will be very happy to discuss it with him.

[Caroline Dinenage (Gosport) (Con)]

Given that the Batch 3 Type 22s have recently proved their value in both evacuating British nationals and vital intelligence gathering, and that no other platforms have such persistence, would it not be prudent to keep them intact during the current uncertain times in the world?

[Dr Fox]

It would be very attractive to be able to maintain a great deal of capability but, sadly, we are unable to do so because of financial constraints. It would be wonderful in a perfect world for us to be able not only to retain these assets but to invest in future assets as well, but if we are to be able to make investments in the future to deal with the threats we may face, we have to disinvest from some of the capabilities of the past, albeit with regret.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

The Secretary of State will know of the commitment of the people of Plymouth to keeping the Royal Navy at sea, using all the skills we have in Plymouth. However, we need to know what is going to happen with regard to the Type 23s and the replacement for Endurance. What is the time scale for telling the people of Plymouth whether or not any of those ships will be base-ported in our city?

[Dr Fox]

It gives me great pleasure to be able to commend the people of Plymouth for the great commitment they have made over many years. We will have announcements to make in the very near future on some of the issues the hon. Lady mentions, and I will ensure she is made aware of them before we make them available to others.

[Mark Lancaster (Milton Keynes North) (Con)]

Given the unique relationship between the sovereign and members of the armed forces, will the Secretary of State update the House on what his Department intends to do to commemorate next year’s diamond jubilee?

[Dr Fox]

The Government will cross-departmentally set out their proposals on the diamond jubilee in the near future. The House will be informed in the usual way.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

Further to the question from my hon. Friend the Member for Bolton West (Julie Hilling), exactly how are the public supposed to maintain confidence in our programme to replace the Trident deterrent when the president of one of the governing parties is apparently given carte blanche to cheer up his battered activists by telling them it probably will not go ahead at all?

[Dr Fox]

The coalition agreement made it very clear that the Liberal Democrats within the coalition would be free to advocate alternatives to the replacement programme. The overall Government policy remains the replacement of the Trident programme however, and, as I said earlier today, the best solution for the United Kingdom is a submarine-based, continuously-at-sea, minimum-credible nuclear deterrent that protects the UK while contributing to overall reductions in international nuclear arsenals.

[Duncan Hames (Chippenham) (LD)]

It is a sorry state of affairs when calls for a no-fly zone from the interim national Libyan council are endorsed by the Arab League but the European Union fails to back them. What is the Secretary of State’s assessment of the security risk of inaction, should the international community fail to take responsibility to protect the Libyan people from Gaddafi?

[Dr Fox]

My hon. Friend makes a useful point. The Government’s aim is very clear: we want to see the isolation of, and a diminution in the size and effectiveness of, the regime in Libya, which we believe has lost legitimacy. The aim is for the international community to speak with a single voice, and the more we are united, the more we send a signal to Colonel Gaddafi that the game is up and he has no friends and no future in Libya or beyond.

[John Cryer (Leyton and Wanstead) (Lab)]

Will the Secretary of State now answer the question from my hon. Friend the Member for Islington North (Jeremy Corbyn): how much has so far been spent on the Trident replacement?

[Dr Fox]

I have set out on a number of occasions the different areas in which we spend. We have to spend in advance because there are long-lead items that need to be spent on in order to make sure we are able to take the decisions at the points we have set in initial gate, and main gate when we get to 2015.

[Jack Lopresti (Filton and Bradley Stoke) (Con)]

Last week, we saw evidence that Iran continues to supply the Taliban with weaponry. Has the Secretary of State had any discussions with our allies to ensure that weapons intended for the Taliban are being actively intercepted?

[Dr Fox]

At the weekend’s NATO summit in Brussels and at the subsequent international security assistance force meeting we raised with our allies our concerns about the arming of the Taliban by Iran. This is a clear example, if we needed any, of the potentially malign influence that Iran can have in the region and it should be a warning to us all about its potential intent.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

I recently visited the Merseyside garrison headquarters, where I met Territorial Army soldiers. Does the Secretary of State share their concerns that changes to the home-to-duty travel allowance will mean that by 2013 a TA soldier who lives 9 miles or more from their TA centre will receive £4 less every time they attend their place of duty for training?

[Dr Fox]

It is with a great deal of regret that one of the savings we are having to make in the Ministry of Defence is in the level of allowances available to service personnel. However, I must say to the hon. Lady that financial remuneration and allowances will be part of the picture of the wider review being undertaken of the Territorials and the reserves. We will want to look at that in the totality of the review of the reserves to make sure we get better value for money and more effective reserves.

[Christopher Pincher (Tamworth) (Con)]

As my right hon. Friend concludes his consultation on the security and technology Green Paper, will he ensure that he does not make the previous Government’s mistake of allowing MOD prime contractors to obstruct small and medium-sized enterprises in getting their fair share of the defence procurement pie?

[Dr Fox]

It has been an aim of the Government from the outset when looking at defence technology and the procurement process to ensure that SMEs are given more than a fair crack of the whip. For too long, this has been about the prime contractors, with too little consideration given to the SMEs, which represent in this country not only vibrancy in technology and innovation but a major source of employment.

[Paul Flynn (Newport West) (Lab)]

On the arms trade, does the Secretary of State agree with Mr Tom Porteous of UK Human Rights Watch that our country is being made to “look stupid” because of the conduct of our special trade representative? Should we not be employing trade representatives on the basis of their knowledge of industry, ethics and human rights, rather than on the hereditary principle?

[Dr Fox]

Mr Speaker, you made it very clear last time that because members of the royal family cannot answer back we should be very careful what we say in this House about them. It is fair to say that not only do we follow the legislation set down by the previous Government, but we have some of the tightest regulations on arms trading in the world.

[Mr Speaker]

Last but not least, Henry Smith.

[Henry Smith (Crawley) (Con)]

We are entering a time of increasing geomagnetic solar flare activity. Will the Secretary of State say what mitigating effects are being considered to protect military communications?

[Dr Fox]

This issue is being looked at globally. I may have responsibility for many things, but solar activity is not one of them.

Japan and the Middle East

Monday 14th March 2011 Commons Chamber

15:33

[The Prime Minister (Mr David Cameron)]

Before I turn to discussions at last week’s European Council, I am sure that the whole House will wish to join me in sending our deepest condolences to the Japanese people following the earthquake and tsunami that struck their country on Friday. We are all deeply shocked and saddened by the devastation that we have seen, and by the loss of life, the full scale of which will take many days, and possibly weeks, to comprehend. I am sure that the thoughts of everyone in this House, and indeed of everyone in our country, are with the Japanese people—we stand with you at this time.

As yet, there are no confirmed British fatalities, but we have severe concerns about a number of British nationals. I have spoken with our ambassador in Japan, who was one of the first to get to the affected region, and his team are working around the clock to help British nationals. Over the weekend we have had three rapid deployment teams of staff operating in the worst-affected areas, and they will be augmented by a further team that will be arriving in Tokyo this afternoon and advancing to the north-east of the country tomorrow. They will help to find out information for the families who are rightly very worried about relatives potentially caught up in this tragedy. We have set up a helpline for these families. It has taken several thousand calls and we are following up each lead. We have, of course, offered humanitarian assistance to the Japanese Government and we stand ready to assist in any way that we can. At their request, a 63-strong UK search and rescue team, which includes medical personnel, has already been deployed and it arrived in Japan yesterday morning.

The whole House will have been concerned at the worrying situation at the nuclear power station at Fukushima. The Japanese Government have said that the emergency cooling systems at three reactors at the plant have failed because of the tsunami and there have been explosions due to the release of hydrogen gas at both the Fukushima 1 and Fukushima 3 reactors. This is clearly a very fast-moving and rapidly changing picture and the Japanese Government are doing everything they can to manage the situation they face. We will keep the House updated. We are in close touch with the Japanese authorities and have offered our nuclear expertise if we can help to manage this very serious incident.

The Energy Secretary has asked our chief nuclear inspector, Dr. Mike Weightman, for a thorough report on the implications of the situation in Japan. The UK does not have reactors of the design of those in Fukushima and neither does it plan any; nor, obviously, are we in a seismically sensitive zone. But if there are lessons to learn, we must learn them.

Cobra has met several times over the weekend and again this morning, and we will keep our response to this tragedy and our support for Japan and the wider Pacific region under close and continuous review. Of course, that goes for our travel advice as well.

The devastation we are witnessing in Japan is of truly colossal proportions. It has been heartbreaking to listen to people who have had all their relatives, their friends, their possessions and their homes simply washed away. Those who have survived will not recognise the place where their homes once stood. We do not yet know the full and dreadful death toll, nor can anyone truly understand the impact that these events will have, but Japan and the Japanese people are a resilient and resourceful nation. Britain and the British people are your friends and we have no doubt you will recover.

Let me turn to Friday’s special European Council and north Africa. The reason for having this Council was twofold: first, to make sure Europe seizes the moment of opportunity to support the Arab people in north Africa and across the middle east in realising their aspirations for a more open and democratic form of government; and, secondly, to address the difficult situation in Libya. The Council addressed both issues and I will be frank with the House about where progress has been made and where more needs to be done.

First, on supporting the building blocks of democracy in the Arab world, the aim should be a big bold offer to those countries in our southern neighbourhood that want to move towards being more open societies. There was some real success on this point. The Council declaration talks of a “new partnership” founded on

“broader market access and political cooperation”

with an approach that gears support to those countries where progress is being made in meeting their citizens’ aspirations. That could be so much better than the failed approach of the past, but now Europe needs to follow through on its declaration with a real and credible offer to those countries. In my view, it must be based on the prospects of deeper economic and trade integration with the EU and free movement of goods, services and investment.

Turning to Libya, it was right for the EU to meet and discuss how we can work together to deal with the crisis. There has been considerable international co-operation on evacuation and I will bring the House up to date on the figures. We now have got more than 600 British nationals out and assisted more than 30 other nationalities. About 220 British nationals remain in Libya. The overwhelming majority of these are long-term residents and many, of course, are dual nationals or spouses of Libyan nationals. Many of that group have told us that they wish to remain in Libya, but a number of other British nationals are now contacting us for the first time. We will stay in contact with these people and continue to assist those who wish to leave.

We have also been at the forefront of the response to the humanitarian situation in Libya and on its borders. We remain deeply concerned by the situation for people inside Libya caught up in fierce fighting and the Development Secretary has repeatedly called for the protection of civilians and for unfettered humanitarian access to those in need.

On the subject of further isolating the Gaddafi regime, the European Council also made some progress. Two weeks ago, we put in place a tough United Nations Security Council resolution and agreed in record time asset freezes, travel bans and an arms embargo, as well as referral to the International Criminal Court. At this European Council, all leaders were united, categorical and crystal clear that Gaddafi must “relinquish power immediately.” We widened the restrictive measures against individuals close to Gaddafi and strengthened the financial sanctions on the regime, adding the Libyan Central Bank and the Libyan Investment Authority to the EU asset-freezing list. In doing so, the UK has increased the total of frozen Libyan assets in this country from £2 billion to £12 billion. We now need to make clear the next measures in terms of putting further pressure on the regime and planning for what other steps may be necessary.

Two weeks ago, I told the House that I believed contingency planning should be done, including plans for a military no-fly zone. NATO is carrying out that work. As we have said before, a no-fly zone would need international support based on three clear conditions: demonstrable need, regional support and a clear legal basis. In recent days, first the Gulf Co-operation Council and now the Arab League have called for a no-fly zone. In terms of the European Council, of course, the EU is not a military alliance and there is always a hesitation about discussing military options, but the Council expressed its

“deep concern about attacks against civilians, including from the air”

and agreed that all member states should examine “all necessary options” for protecting the civilian population, provided there was a demonstrable need, a clear legal basis and support from the region. That was some progress, especially compared with where Europe was in advance of Friday’s Council, but we need to continue to win the argument for a strong response in the international community—Europe included. Along with others in the United Nations Security Council, the UK is following up urgently the lead given by the Arab League by drafting a resolution that sets out the next measures that need to be taken, including the option of a no-fly zone. Included in the resolution, in our view, should be much tougher measures against mercenaries and the states from which they come, as well as against others who are attempting to breach the sanctions and assist Gaddafi.

Every day, Gaddafi is brutalising his own people. Time is of the essence and there should be no let-up in the pressure we put on this regime. I am clear where the British national interest lies. It is in our interest to see the growth of open societies and the building blocks of democracy in north Africa and the middle east. When it comes to Libya, we should be clear about what is happening. We have seen the uprising of a people against a brutal dictator and it will send a dreadful signal if their legitimate aspirations are crushed, not least to others striving for democracy across the region. To those who say it is nothing to do with us, I would simply respond, “Do we want a situation where a failed pariah state festers on Europe’s southern border, potentially threatening our security, pushing people across the Mediterranean and creating a more dangerous and uncertain world for Britain and for all our allies as well as for the people of Libya?” Of course we do not want that, and that is why Britain is and will remain at the forefront of the response to this crisis. I commend this statement to the House.

[Edward Miliband (Doncaster North) (Lab)]

May I start by associating myself with the Prime Minister’s remarks about the Japanese earthquake and tsunami? The tragedy that has hit that country is of almost unimaginable horror and scale, as all of us will have felt after seeing the pictures on our television screens over the weekend. We fully support the Government in their efforts to help the Government of Japan in their hour of need and, indeed, to help Japan’s people.

This is clearly an anxious time for the friends and family of UK nationals and I thank the Prime Minister for what he said about our consular activity. I am sure that consular staff will be working around the clock to deal with the inquiries that they receive. Let me also associate myself with the Prime Minister’s remarks about the work of British search and rescue teams.

On nuclear power, we should clearly see if there are lessons to be learned, but should avoid a rush to judgment given that we have a good safety record in this country. It is important not to lose sight of that.

Turning to the European Council, I want to focus on three issues: the military options available to the international community regarding Libya, the wider response to the Libyan crisis and the need to re-energise the middle east peace process. Let me take each issue in turn.

First, I welcome the clear and unequivocal statement in the Council declaration that the Libyan regime should relinquish power immediately. As the Prime Minister made clear in his statement, the situation in Libya is grave and pressing. I said, when the Prime Minister first publicly floated the idea of a no-fly zone two weeks ago, that we welcomed the possibility. It is disappointing that Friday’s communiqué did not mention it, although it is, as he has said, encouraging that the Arab League has expressed support for it. In view of the gravity and urgency of the situation, and to win greater support for the idea, it seems to us that the priority must be to translate the no-fly zone phrase into a practical plan. To that end, may I ask what progress has been made since he asked the Ministry of Defence to draw up such a plan two weeks ago? Specifically, was such a plan presented by the UK at the NATO Defence Ministers meeting last Thursday or by him at the European Council?

On the European Council, may I ask whether the ambivalence among our EU partners is based on opposition to a no-fly zone in principle or is because of practical doubts about the workability of such a proposal? Can he give us a clearer picture, because that is necessary to win broader support, of what he believes the no-fly zone would involve and, furthermore, whether it is contingent on the US Government’s participation, given that some parts of the Administration have expressed reservations about the idea?

On timing, I note that the Prime Minister repeated his statement of last week that the UK is now working on a new Security Council resolution, which I welcome. Given the urgency of the situation, to which he rightly drew attention, what is his best judgment about when such a resolution will be tabled? Above all, may I emphasise to him the importance of matching what is said in public with the diplomatic spadework needed to win international support for a practical and legal plan?

I have one more question on the military options that are available. Given the position expressed this morning by the former Foreign Secretary, the right hon. and learned Member for Kensington (Sir Malcolm Rifkind), on providing arms to some of the rebels against Colonel Gaddafi, what is the Government’s position on the legality and wisdom of that idea?

Secondly, let me turn to the other actions that we can take. I welcome what the Prime Minister said about asset freezes and sanctions. May I make a further suggestion? To maximise pressure on the regime, have the Government made any formal communication to the International Criminal Court to impress on Libyan leaders and commanders the importance of individual accountability for the commissioning and carrying out of crimes against humanity? If he has not done so—and I believe that it is open to individual countries to do this—may I suggest that he looks into the UK Government doing so?

On the humanitarian crisis, to which the Prime Minister referred, may I ask him whether the Department for International Development is planning to provide additional support to other multilateral organisations such as the World Food Programme and the United Nations High Commissioner for Refugees?

Thirdly and finally, may I discuss briefly the middle east peace process? He and I both had the chance last week to meet President Abbas during his visit to London. May I reiterate to the Prime Minister something with which I know he agrees—the central importance of not losing sight of that issue as other, more immediate crises face us. Will the Prime Minister therefore tell us what discussions took place at the European Council about how the EU can help to get the peace process back on track? In particular, what representations have been made to the United States following its recent veto of the UN resolution on settlements?

Finally, let me tell the Prime Minister that he and I are united in the view that this must be a moment when the European Union and the international community show they are more than the sum of their parts, whether it is on Libya specifically, north Africa or the middle east peace process. I hope that he and other leaders will do all they can over the coming days and weeks to put in the hard work and diplomacy that can make that happen.

[The Prime Minister]

I thank the right hon. Gentleman for his questions, and I particularly welcome what he said about Japan and the common ground there. On nuclear, he is absolutely right that we should not rush to judgment, but we should, as we have done, ask our experts where there are lessons to learn.

The right hon. Gentleman asked a range of questions about Libya, and let me try to take all of them. On the issue of no-fly zones, he said what support the Arab League had given, but the Secretary-General of the Arab League said very clearly:

“It is for the Security Council to take decisions as it sees fit. What we did in the Arab League is make an official request to impose a no-fly zone on military activities against the Libyan people.”

I think that that is a significant step forward. The right hon. Gentleman asked what work has been done. Obviously, work has been done in the UK to look at options on how that could be done but, crucially, the work is now being done in NATO, which is right. He asked a question about what it would involve. I am afraid that the answer is that that would depend on exactly how large the no-fly zone was, whether it was operating round the clock, which parts of the country it covered and so forth. However, it is perfectly practical and deliverable. Obviously, if it were to happen, if it is judged to have passed the milestones that we have set, it would be best if it were as widely supported as possible. It is something that no one country can do alone.

The right hon. Gentleman asked why some EU countries were more sceptical than others, and why they opposed the proposal. As he knows, 21 of the 27 are members of the NATO, which made it clear that this should be looked at. Many in Europe, as elsewhere, have made it clear that we must make sure that we learn lessons from Iraq. My argument is that no two situations are the same. We can listen to any number of experts who will warn about what happened in different places in different times, but what we are seeing in Libya is different. It is an uprising of a people against a leader, and it is quite different. No one is talking about invasions, boots on the ground and the rest of it. When a resolution should be put forward will depend on the support that can be guaranteed for such a resolution in the UN, but what has happened with the Arab League and the Gulf Co-operation Council is very encouraging.

On the question raised by my right hon. and learned Friend the Member for Kensington (Sir Malcolm Rifkind), the former Foreign Secretary, about arming the rebels, I repeat what the Foreign Secretary said this morning. We should not exclude various possibilities, and there is an argument to be made, but there are important legal, practical and other issues that would have to be resolved, including the UN arms embargo. We should also be clear that there is no single answer to speeding up the process of removing Gaddafi. That is why we should urgently be pursuing a broad range of options through the UN.

On the other actions that the right hon. Gentleman mentioned—the International Criminal Court—I will certainly look at the idea of contacting the court directly. It seems most important to me that we make the point publicly over and over again to all those people around Gaddafi, working for Gaddafi, and in his army, that they are being watched by the International Criminal Court. That is a message that we should do everything we can to get across.

DFID has responded very quickly, both bilaterally and multilaterally. We should be proud of the fact that it was Britain which flew so many Egyptians on the Tunisian border back to Egypt and helped many hundreds of Bangladeshis as well.

On the point that the right hon. Gentleman makes about the middle east peace process, that was discussed by the EU Council. We have made strong representations to other EU countries and also to the US that we must get that back on track. As the right hon. Gentleman said, both of us met the Palestinian President when he came to London recently. I was struck by something that one of his advisers said—that if we really want great progress and victory in combating terrorism and Islamic extremism, growth of democracy in the middle east, plus a solution to the Palestine-Israel conflict, would be the two things that could bring that victory together.

[Sir Malcolm Rifkind (Kensington) (Con)]

Does the Prime Minister agree that the Gaddafi regime has already internationalised the conflict in Libya by bringing in many hundreds of mercenaries, which is helping to put pressure on the insurgents? Against that background, is it not imperative that the international community should be able to provide military supplies to the insurgents? Of course, we must recognise the legality of the arms embargo, but does the Prime Minister agree also that the terms of the arms embargo resolution prevent arms from being supplied to what is called the Libyan Arab Jamahiriya—in other words, to the Gaddafi regime—and that it is perfectly possible to supply arms or other equipment to those who are fighting that regime, especially as the resolution itself, through the appointment of a sanctions committee, allows that sanctions committee to provide arms sales to other groups in Libya if it thinks that appropriate?

[The Prime Minister]

My right hon. and learned Friend made a strong and persuasive argument in his newspaper article this morning. I make three points. First, on the issue of mercenaries, what is happening is unacceptable. We should be sending the clearest possible message to those in Mali, Chad and elsewhere who are thinking of volunteering as mercenaries, and we should put into the next UN resolution the strongest possible language about mercenaries. Secondly, the same should apply to policing the arms embargo against the Gaddafi regime, because there are signs that he is seeking additional armaments right now. Thirdly, I hear clearly the argument —it is an ingenious argument that only a lawyer of my right hon. and learned Friend’s brilliance could make—about the specific way the arms embargo was termed towards the country that Gaddafi effectively renamed, but I am not sure it is an opinion that is shared by all other lawyers.

[Mr Jack Straw (Blackburn) (Lab)]

I was going to ask the Prime Minister about the nature of the duties on the Security Council. Five years ago, a high level working group established by the then Secretary-General, Kofi Annan, recommended that the responsibilities—the duties—of the Security Council should be broadened from protecting international peace and security to a “responsibility to protect” populations from internal humanitarian disaster, even where that did not directly pose a threat across the borders of those countries. Does the Prime Minister agree that as well as the commendable action that the British Government are taking to push the international community to deal with the immediate problem of Libya, we need to use this terrible example to press our partners internationally to broaden the remit of the Security Council so that we never get another Bosnia or Rwanda or, maybe tragically, another Libya?

[The Prime Minister]

The right hon. Gentleman has considerable expertise on this issue. The responsibility to protect has been pushed forward and debated, and I remember asking questions in opposition, at the time of problems in Burma and elsewhere, on whether it should be invoked. What the lawyers will advise, quite rightly, is that things have moved on and changed since Bosnia. It seems to me that one of the things we are trying to do here is learn the lessons of Iraq and the lessons of Bosnia, where the international community was neither fast enough, nor indeed decisive enough in responding.

[Richard Ottaway (Croydon South) (Con)]

I very much agree with the Prime Minister’s proposals to make the countries of the middle east bigger and more open societies, but those of us with reservations about the no-fly zone are concerned about where it will lead. Given that the last two no-fly zones, in Bosnia and Iraq, both needed troops on the ground to follow behind them, what does he envisage will happen if a no-fly zone is unsuccessful and Gaddafi remains in place?

[The Prime Minister]

Obviously, a lot has been written and said about this issue, and I totally understand the argument, but if we face a situation where there is a real danger of Gaddafi continuing to inflict devastation on his people, and if the conditions set out have been met, which are that there is a demonstrable need, regional support and a clear legal basis, it seems to me that this is the right sort of step to consider. Of course, it is not a solution to the problem, but I believe that it would have an effect on the ground. It might not be a decisive effect, but I think that there are strong arguments for taking steps that further put pressure on Gaddafi, and I think that this is a step that we should consider. We have already taken a number of diplomatic and sanction steps. I think that this is an additional step that could make a difference.

[Several hon. Members]

rose—

[Mr Speaker]

Order. Approximately 50 Members are still seeking to catch my eye. I am keen to accommodate them, so brevity is of the essence.

[Mike Gapes (Ilford South) (Lab/Co-op)]

The Prime Minister referred to learning the lessons from Iraq. He also said that time is of the essence. Does he agree that John Major, as Prime Minister, was right to introduce a no-fly zone to protect the Kurds and that, as a result, for 12 years Saddam was unable to attack them even though he remained in power in Baghdad? Is there not an argument today for the international community, either collectively or only some of them, to protect the people of Benghazi?

[The Prime Minister]

The hon. Gentleman makes a good point. I think that John Major was right, and I discussed this specific case with him over the past few days to make sure that we learn the lessons from that. That also relates to the question asked by my hon. Friend the Member for Croydon South (Richard Ottaway). The point is this: we cannot do everything, but that does not mean that we should not do anything. That is the key, and we have to work out where to draw the line. I am very clear that a no-fly zone is something that we should consider, because it may help to stop atrocities being committed against people who want a more democratic future.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

May I associate all my party colleagues with the condolences and sympathy expressed by the Prime Minister for the people of Japan and with the support expressed for all those coming to their aid?

On Libya, in addition to the sense of urgency that the Prime Minister has expressed on the no-fly zone, is he willing to pursue, as the crisis group in Brussels has recommended, a possible initiative for a ceasefire on the ground in Libya so that a post-Gaddafi representative and an appropriate regime could be discussed as urgently as possible, as well as military action taken elsewhere?

[The Prime Minister]

We will of course listen and respond to all suggestions. It seems to me that the first thing that needs to happen is for Gaddafi to cease what he is doing and go. That is the only way Libya can have a secure future and that is what needs to happen. We should be asking ourselves, with our allies, the Arab League and the Gulf Co-operation Council, what more we can do to tighten the noose around Gaddafi and turn up the pressure to ensure that he feels it as strongly as possible.

[Tony Lloyd (Manchester Central) (Lab)]

The Prime Minister is right that the logic of a no-fly zone is to prevent aggression by Gaddafi against innocent people in Benghazi or elsewhere. Is that not exactly the same logic, though, of providing arms to those in opposition to Gaddafi—that it gives them the capacity to defend themselves against such aggression? What assessment does the Prime Minister make of the urgency with which the international community will now deal with the legal issue?

[The Prime Minister]

First, to deal with the issue of urgency, there is a range of opinions on what is happening on the ground in Libya, but it does seem as if the rebels have had some serious setbacks, so time could be relatively short. The international community, therefore, needs to step up and quicken the pace of its response along the lines of some of the things that we have been suggesting.

In terms of whether a no-fly zone is better than other options, I think we should pursue a range of options. I put a no-fly zone on the table early on, because it takes planning and time to prepare for such a contingency. As I said in relation to arming the rebels, and as the Foreign Secretary said, we should not rule things out, but there is a range of practical and legal difficulties, so the steps that we are pushing for at the UN, which involve not just a no-fly zone, but a range of other, diplomatic steps and pressures, including what I have said about mercenaries, are the right approach.

[Nicholas Soames (Mid Sussex) (Con)]

I welcome the Prime Minister’s analysis, and his tying down of the conditions to proceed, but does he nevertheless agree that, welcome though the Arab League’s support is, there will be a requirement on it to provide some of its considerable air assets for a no-fly zone if the project is to have the wholehearted capability that it should?

[The Prime Minister]

My hon. Friend makes an extremely important point. Everyone will have seen the words of the Arab League and of the Gulf Co-operation Council, which are welcome, and it is—to some—an unexpected step that they are being so forthright in asking for a no-fly zone, but my hon. Friend is absolutely right: were that to happen, it should go ahead on the basis of the broadest amount of international support and participation, and crucially that should include participation by Arab states themselves, which do have the assets to bring to bear.

[Mr Mike Weir (Angus) (SNP)]

First and foremost, our thoughts are with the people of Japan at this terrible time, and whatever our own views on nuclear power we fervently hope that their engineers are able to bring under control the situation at Fukushima.

The Prime Minister made some perfectly valid points about the differences between the UK and Japan, but the fact remains that their reactors are specifically designed for Japanese, known seismic risk. Should that not give us pause for thought about our own nuclear plans?

[The Prime Minister]

We have an excellent nuclear safety record in this country, but we should never be complacent. When any nuclear incident happens anywhere else in the world, we should immediately examine it and ask ourselves, “Does this have any implications for what we do in the UK?” There are some important scientific points to take into account, including the different reactors and seismic conditions that we have here, but nevertheless we will make sure that the gentleman I mentioned in my statement does the work properly.

[Mr Roger Gale (North Thanet) (Con)]

My right hon. Friend has commendably promoted action rather than words. In remembering the lessons of Iraq, should we not remember also the lessons of Budapest in 1956 and the Prague spring? Is it not a fact that, when the western free world fails to act, defining moments are lost and tyrants survive?

[The Prime Minister]

My hon. Friend speaks with great passion about these issues. The point I would make about the lessons of Iraq, which a lot of people mention, is that no one here is talking about, and the Libyan opposition are not asking for, ground troops, invasions or anything like that; they are asking for a no-fly zone. But I think there is a lesson from Iraq, and it is this: if you talk to a lot of people in the Gulf, they will say, “If you don’t actually show your support for the Libyan people and for democracy at this time, in a way you’re saying you will intervene when it is only about your security, but you won’t help when it is about our democracy,” We need to bear that in mind in drawing the lessons, as people say, from Iraq.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

Was there any discussion at the European Council about the desirability of EU nations now recognising the opposition as a legitimate power in Libya?

[The Prime Minister]

There was a discussion about that, and the Council’s conclusions talk about the Benghazi council being a legitimate political interlocutor, which is important. The French have obviously formally recognised that organisation. As for Britain’s position, as I am sure the hon. Gentleman knows, we recognise countries rather than Governments, but we want a dialogue and to have contact with the Libyan opposition, so we will be going ahead with that. We do, however, have a different legal position of recognising countries, not Governments.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

Do President Obama and Chancellor Merkel support the idea of an intervention in another Islamic state?

[The Prime Minister]

My hon. Friend, who speaks with great passion about these things, puts it in a very particular way. I have spoken with President Obama; he said, very clearly, that he wants Gaddafi to go. Chancellor Merkel signed up to a European Council statement that Gaddafi should go. When we are talking about intervention here, we are talking about the world coming together, having tough UN sanctions, putting in place a resolution, turning up the pressure, and looking at possibilities like a no-fly zone that could help to protect the Libyan people. As I said in my statement, it is not in our interests that we end up with Gaddafi still in power, in charge of what will become a pariah rogue state on the borders of Europe causing huge amounts of difficulty for everyone else. This is in our interests; it is not some great adventure that is being planned, if I may reassure my hon. Friend.

[Mr David Winnick (Walsall North) (Lab)]

The United Nations Security Council is the right way to pursue this matter. Was there any explanation at the European Council meeting of the bombs, the torpedoes, the rockets and the missiles that have been sold to the Libyan regime by France, Italy and Germany—that is apart from what we have been selling up until the past few weeks? What on earth did the Governments believe those arms would be used against?

[The Prime Minister]

The hon. Gentleman is extremely consistent in his line of questioning about this issue, and he is right to raise these questions. I think that all Governments and all countries are going to have to ask themselves some quite searching questions about things that were sold and training that was given, and all the rest of it, and I will make sure that those questions are asked and answered here. But to be fair to the last Government, I can understand absolutely why relations were formed with Gaddafi after he gave up the weapons of mass destruction, although tragically not all of them have been destroyed or disposed of. The question is whether we then went into a relationship that was too blind and unthinking, and there are some serious questions to ask about that.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

I really think that my right hon. Friend deserves congratulations on the fact that a fortnight ago he was virtually a lone voice in floating the idea of a no-fly zone, and now he has the support of the Arab League and France. What exactly went on at the European Council? Whom was Baroness Ashton speaking for? What mandate does she have to give her opinions? Should she not serve the member states of the European Union rather than pretending to lead them?

[The Prime Minister]

I thank my hon. Friend for his kind remarks, and the temptation to be pulled down a particular path about Baroness Ashton, who I think does a good job. The point that I would make is this: what happened on Friday, I think, is that there was a rogue briefing by one of her spokespeople that she was extremely embarrassed about and, to be fair to her, did everything she possibly could to try to put right. But as the old saying goes, a lie is halfway round the world before the truth has got its boots on.

[Nic Dakin (Scunthorpe) (Lab)]

In several questions the Prime Minister has reinforced the point he made in his statement that much tougher measures should be taken against mercenaries and states from which they come. What sort of measures is he thinking of?

[The Prime Minister]

There is now an arms embargo that should be policed. As many hon. Members will know, sometimes the problem with UN resolutions is that we pass the resolution but we do not necessarily put in place the machinery to follow it up properly. There is more that can be done through the UN on mercenaries, but there is also more that can be done on a bilateral basis whereby countries such as Britain, and perhaps particularly France, because of its relations with some of these countries, can make it absolutely clear how unacceptable it is to supply mercenaries. The message should go out to all those thinking about it that the world is watching, the International Criminal Court is watching, and that if you take part in war crimes, wherever you are, you can still be caught and punished.

[Jo Swinson (East Dunbartonshire) (LD)]

Does the Prime Minister share my concern at the arrival of Saudi troops in Bahrain following the protests demanding democratic reforms, which have already been met by tear gas and rubber bullets? Does he agree that those desiring democracy in Bahrain should have as much right to peaceful protest as those in Tunisia, Egypt and Libya, regardless of whether Saudi Arabia approves?

[The Prime Minister]

Of course, everyone should have the right to peaceful protest. In Bahrain, the King and the Crown Prince have been making efforts to try to have movement towards a more open and democratic society. Of course people will have debates about whether they are going far enough or fast enough, but they have made that effort. Bahrain obviously has the difficulty of quite a severe divide between some Sunni and Shi’a, which can make the situation more difficult, but I hope that they keep going down that path of reform, and not repression, which is the right track for these countries to take.

[Sir Gerald Kaufman (Manchester, Gorton) (Lab)]

Will the right hon. Gentleman join me in condemning utterly the barbaric slaughter inflicted on the Fogel family in a west bank settlement over the weekend? Does he agree that no response to that savagery could be more futile than the building of further settlements, and that the only way to stop this useless slaughter of innocent people—both Jews and Palestinians—is for Israel to sit down and talk?

[The Prime Minister]

The right hon. Gentleman is entirely right. Like others, I read about that case over the weekend and found what happened extremely disturbing. Anyone who has been to Jerusalem and seen the settlement building, particularly around east Jerusalem, can understand why the Palestinians feel so strongly about building on their land. There is a danger of the two-state solution being built away if we are not careful. That is why this Government have always taken a strong view about the settlements.

[Mr Edward Leigh (Gainsborough) (Con)]

Is not one of the lessons of Afghanistan that arming insurgents against a regime that we do not like can have incalculable consequences? Is not the problem with the proposal to do so, and with a no-fly zone, that we could end up with a prolonged civil war in which there would be mounting moral pressure for us to send in ground troops? Will the Prime Minister reassure the British people categorically that there is no question of our being dragged into another war of attrition in the middle east?

[The Prime Minister]

Let me try to reassure my hon. Friend, and through him people who are concerned about this matter. There is no intention to get involved in another war or to see an invasion or massive amounts of ground troops. That is not what is being looked at. What is being looked at is how we can tighten the pressure on an unacceptable, illegitimate regime to give that country some chance of peaceful transition. We would let down ourselves and the Libyan people if we did nothing and said that it was all too difficult. My hon. Friend’s point about Afghanistan is a good one, but I would argue that the real lesson is that the mistake of the west was to forget about Afghanistan and take its eyes off that country, rather than building and investing there when it was making progress. Instead we left it alone, and we have since suffered the consequences.

[Keith Vaz (Leicester East) (Lab)]

Was there any discussion at the European Council about the situation in Yemen? The Prime Minister will know that the situation has deteriorated badly, with violence spreading to many cities. It is surely not in anyone’s interests, apart from al-Qaeda, for Yemen to drift into civil war. What can we do to help the Yemeni Government to stabilise the situation, but to continue with the reforms?

[The Prime Minister]

We did discuss the wider region. The country that is probably of the most concern at the moment is Yemen, which the right hon. Gentleman often raises in this House. Again, it is clearly in our interests that the Yemeni Government respond with reform rather than repression. Yemen is a particularly special case because of the great presence of al-Qaeda and our need to encourage its Government to take on the terrorism in their country. The situation is obviously extremely difficult and we keep it under permanent review, not least to ensure that we keep safe the British citizens who are there.

[Mr Peter Bone (Wellingborough) (Con)]

Does the Prime Minister think there is a danger that by the time the international community agrees to a no-fly zone, there will be no purpose for one?

[The Prime Minister]

My hon. Friend makes a good point—the clock is ticking. There is a strong case for saying that time could get very short. I am not arguing, and do not think that anyone should argue, that a no-fly zone is the silver bullet that will solve the whole problem. It is just one of the many options that we should look at to increase pressure on the regime and to help people on the ground. I raised it two weeks ago because a lot of contingency planning is needed. I hope that that planning can now be sped up. That is why we are pushing for it, including through the UN. Clearly, we have to make and win some arguments on the UN Security Council, where some will be very sceptical about the idea.

[Jeremy Corbyn (Islington North) (Lab)]

Will the Prime Minister explain exactly what are his principles on condemnation and potential military intervention? He has described his views on Libya. What is his view on the Saudi forces who are firing on protesters on the streets of Saudi Arabia, who have travelled over the border into Yemen in the past, and who today are occupying parts of Bahrain in support of the Bahraini Government against their own protesters? Where is the condemnation of Saudi Arabia for its human rights abuses and for its arrogance in its treatment of dissidents?

[The Prime Minister]

I do not believe that the Government are being inconsistent. We have said throughout this that the response of Governments to aspirations for greater freedom and democracy—what we call the building blocks of democracy—should be reform and not repression. That applies right across the region. What is special about Libya right now is that, as I have said, there is an uprising of people against a brutal dictator who is brutalising the people. In the international community, we should be asking ourselves, “What can we do?” We do not have a perfect answer, because there are red lines that we are not prepared to cross, but in my view that is not an argument for doing nothing.

[Rory Stewart (Penrith and The Border) (Con)]

While welcoming the consensus on both sides of the House that we need a coalition and cannot freelance this, may I ask the Prime Minister what steps are being taken to bring Brazil, India, South Africa and other new members of the Security Council on side with the no-fly zone?

[The Prime Minister]

My hon. Friend asks an extremely good question. Those discussions are actually ongoing, and the UN Security Council is meeting as we speak. I think that those who have been sceptical about needing to take further action will be struck by what the Arab League and the Gulf Co-operation Council have said, and by what the Libyan opposition themselves have said. If we were having this argument and the Arab League was saying, “No, stay out, don’t help”, that would be a different situation, but that is not the case. I hope that the Brazilians and others will look at what the Arab League is saying and say, “Actually, this is a different situation and we need to give our support.”

[Yasmin Qureshi (Bolton South East) (Lab)]

I know that the Prime Minister recognises the fact that the no-fly zone is not an easy option. In light of that, will he promise the House that if Britain decides to join in the imposition of a no-fly zone, the matter will be debated and voted on in the House?

[The Prime Minister]

I made a statement two weeks ago and I am making a statement today. We will have a further debate later this week, and I want the House of Commons to be regularly updated and to have every opportunity to discuss, debate and, if it wants, vote on the matter. I do not think we are there yet, but we now have the excellent Backbench Business Committee, which can arrange for days of debate and substantive motions, so if the Government are not fast enough for the hon. Lady, there are other options.

[Mr Julian Brazier (Canterbury) (Con)]

Does my right hon. Friend agree that a solution can be found before time runs out only if it has an Arab face on it? Does he agree that the two ways in which it can have that are, first, if weapons and ammunition are fairly rapidly allowed to reach the rebels, who face an extremely well-armed enemy, and secondly, as my hon. Friend the Member for Mid Sussex (Nicholas Soames) suggested, if the Egyptian and Saudi air forces are brought very much into the frame for any possible no-fly zone?

[The Prime Minister]

My hon. Friend speaks with great expertise about these matters. There is an Arab face on this already because of what the Arab League and the Gulf Co-operation Council have said, and that makes a big difference. When we speak to Arab leaders in the Gulf, they are very clear—unanimous, even—that Gaddafi has to go, the regime cannot continue, it is not legitimate and the situation is bad for the region. I think there would be support were a no-fly zone to happen—not only verbal support but, I hope, military support as well.

I cannot be specific about the two countries that my hon. Friend mentions. Obviously Egypt has all sorts of challenges in front of it at the moment, but I have had personal strong support from other Gulf leaders on this issue.

[Clive Efford (Eltham) (Lab)]

The fact that arms that could have been sold by this country and many other western countries are being used against the people fighting for freedom in Libya highlights the unacceptable nature of the arms trade. Were there any discussions at the European Union about the possibility of international agreement about who we should deal with regarding arms in the future, to prevent such circumstances from coming about?

[The Prime Minister]

There was not that discussion at the European Council on Friday, because we were really talking about the two issues of the immediate situation in Libya and the neighbourhood policy that Europe should have towards north Africa and countries that are yearning for democracy.

The hon. Gentleman is right to say that we have to consider such issues closely. I do not believe that the arms trade is always and everywhere a bad thing, because small countries have a right to defend themselves. A responsible trade, properly regulated, is acceptable, but although we have some of the toughest rules, we have to ask ourselves, “Are they working, and how can we improve on them?”

[Mr William Cash (Stone) (Con)]

The Prime Minister will understand if I tell him that I was a little troubled to hear him say that we would police the arms embargo. Should we not use political will rather than legal ingenuity to ensure that arms go to help those who are resisting that dreadful tyrant?

[The Prime Minister]

As I have said in answer to several hon. Members, we do not rule those things out. We will look closely at the arguments, but clearly, when a UN arms embargo is in place, there are legal and practical problems with going down a different track. We should focus on the pressures that we can put on the Gaddafi regime. We should not rule out other possibilities —we can discuss those with allies—but they are not immediately on the table.

[Mark Hendrick (Preston) (Lab/Co-op)]

Further to the question from the hon. Member for Wellingborough (Mr Bone), has the Prime Minister assessed—or is he aware of any such assessment—how soon a no-fly zone must be implemented for it not only to save civilians on the ground, but to change the course of events there?

[The Prime Minister]

That is a very good question. The point is that a no-fly zone may not make a decisive military difference, but it could make a difference. Clearly, the sooner it is put in place, the more difference it could make. However, the British Government are extremely clear that the three conditions must be in place—there must be a legal basis, regional support and a demonstrable need. Clearly, if those three conditions are met and if international partners want to go ahead, the sooner the better, because the effect, which people can debate, will be that much the greater.

[Mark Pritchard (The Wrekin) (Con)]

May I offer the Prime Minister my full support and congratulate him on his leadership? What more can be done by the international community, preferably through Arab countries, to ensure that Libyan opposition forces deliver a self-help no-fly zone by the provision of, and the giving of access to, their own portable, shoulder-launched surface-to-air missiles? That would provide a Libyan solution to what is primarily a Libyan problem, in addition to any future UN no-fly zone.

[The Prime Minister]

Clearly, while some of the military has remained loyal to Gaddafi, a lot of the military supports the rebels. Both sides in the conflict have a number of armaments, as my hon. Friend will have seen from the evidence. There are problems with arming the rebels. I mentioned the legal situation in respect of the arms embargo, but there are practical problems and questions about how quickly arming rebels would lead to any material effect. We can look at that, and we do not rule it out, but we should focus our efforts on the diplomatic efforts—the isolation of Libya—and on the contingency plans, such as a no-fly zone.

[Mr Andy Slaughter (Hammersmith) (Lab)]

I thank the Prime Minister for his comments on settlement building, but what are the Government doing to assist the people of Egypt? Egypt is still a military-run state. We should not sell it arms, but assist it to build civil society, political parties and the rule of law. How can the Government assist in those aims?

[The Prime Minister]

We are assisting the Egyptian people at this time—we hope—of transition. When I went to Cairo, I met Field Marshal Tantawi, the interim leader of that country. While we obviously want to see civilian democratic rule, and while there is at least the chance of a transition, which we are doing everything we can to help, one should not be too unfair about the Egyptian military’s role in ensuring that Mubarak left office. I have spoken to the new Prime Minister in Egypt. Our embassy, which is very well staffed and organised, is arranging a number of political contacts to ensure that we do everything to help that country with its growth towards democracy.

[Duncan Hames (Chippenham) (LD)]

Regional support has now been given, and the need is demonstrated. Five years ago, Heads of State at the UN General Assembly agreed that they

“are prepared to take collective action, in a timely and decisive manner, through the Security Council…should…national authorities manifestly fail to protect their populations.”

Is it not time that the Security Council acted collectively to protect the people of Libya?

[The Prime Minister]

The hon. Gentleman puts his point very strongly. We hope that the Security Council takes such action. There is now a discussion in the Security Council, and clearly, we must make the arguments as best we can. We can make points about the conditions that must be fulfilled before a no-fly zone comes into operation, but we should put forward other proposals, such as sanctions, asset bans and all the rest of it, that can add to pressure on the regime. We should not see one thing as a silver bullet, because there is no silver bullet—it is about ramping up the pressure.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

There are many dimensions to the tragedy in Japan, but on the lessons to be learned for emergency planning, surely one of the issues that is starting to become clear in terms of nuclear facilities is the inability of back-up systems adequately to pump around coolant when the primary systems fail. Will the Prime Minister ensure that the Health and Safety Executive properly stress tests our current and planned nuclear facilities?

[The Prime Minister]

The hon. Gentleman makes a good point. I am sure that the head of the nuclear inspectorate, who is doing this report for us, will look at this issue. As I understand it, it was a legitimate issue in Japan, where the combination of the earthquake and the tsunami meant that the systems were so severely tested. We have to stress test all our arrangements—although obviously in different circumstances on the ground—as toughly as we can.

[Tony Baldry (Banbury) (Con)]

Will my right hon. Friend confirm that the Government intend that sooner or later Gaddafi and those closest to him who are most responsible for attacks on civilians and crimes against humanity will be held to account by the International Criminal Court?

[The Prime Minister]

Yes, I can certainly make that point. It is a very strong point. We talk about pressurising the regime, but we also want to isolate it. Anyone around or thinking of supporting Gaddafi should be thinking about the long arm of the law, its long reach and its long memory, and I think that the International Criminal Court is very helpful in that regard.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

Learning from previous no-fly zones, will the Prime Minister confirm that with hindsight it was wrong in Bosnia to have insisted on an equality of sanctions and to have put in place rules of engagement that were not specific enough about helicopters and trade planes?

[The Prime Minister]

The hon. Lady makes a point. There are many lessons to learn from all stages of the conflict in the former Yugoslavia, perhaps Bosnia in particular. One can make all sorts of arguments about whether the arms embargo should have been lifted, or whether there should have been tougher action earlier against the Serbs, but the most important lesson was that the international community has to be engaged and decisive at an earlier stage. That is the lesson that we should learn.

[Geoffrey Clifton-Brown (The Cotswolds) (Con)]

In welcoming my right hon. Friend’s stance in leading the international community in taking difficult decisions against Gaddafi, will he remind it that Gaddafi has form? He launched a brutal military takeover in 1968 and became the leader of a pariah state that tried to acquire nuclear weapons in the 1970s and 1980s. Is it not imperative that the international community takes action now?

[The Prime Minister]

This is an important point for people who are traditionally sceptical about these sorts of measures. We should consider what life could be like with a Gaddafi in charge of a pariah Libyan state, with all the oil money it would have and all the ability it would have to wreak havoc internationally. We know what this man is capable of, because we have seen it in the past with Lockerbie and all the other problems, not least his funding of the IRA.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

On the one hand, the Prime Minister has been urged to take action as soon as possible, because of the urgency of the situation; on the other, he has been asked to follow the UN track. He has indicated that the Arab League and, as far as we can judge, internal opinion in Libya support a no-fly zone. Will he recommit himself to ensuring that we get the legitimacy of a UN Security Council resolution before action is taken?

[The Prime Minister]

Obviously, we want to have the widest possible international support. Also, we should not proceed without a proper legal basis. The hon. Gentleman mentions the Libyan opposition. They have made it absolutely clear in what they said that they want a no-fly zone and to have this sort of international support.

[Andrew Bridgen (North West Leicestershire) (Con)]

Does not the welcome support of the Arab League for a no-fly zone show that the Prime Minister was both forward thinking and right when he proposed it two weeks ago? Does not his stance on this issue contrast enormously with the Leader of the Opposition, who appears to have flip-flopped in a way reminiscent of his predecessor?

[The Prime Minister]

I thank my hon. Friend for what he says. The point I made two weeks ago was not that we should introduce a no-fly zone immediately, but that with such a situation we have to plan in advance for contingencies that may become necessary. I believe that the time is coming when it will be necessary for the international community to step forward and make this decision. However, I do not pretend for a minute that it is a one-shot wonder that will deal with the situation—it is not—but it could help.

[Nick Smith (Blaenau Gwent) (Lab)]

Regarding the no-fly zone, the National Audit Office says we have just eight Typhoon pilots trained for ground attack. The lives of two Nimrods planned for early retirement have been extended. Will the Prime Minister look again at the decision to retire our Harrier fleet?

[The Prime Minister]

The aeroplane that is not being used at all in Afghanistan is the highly capable Typhoon, in which this country has invested an enormous amount of money and which is now proving to be an extremely good, well-performing aircraft. In our defence review we are thinking exactly about situations such as these, where we need highly flexible, well-trained armed forces, with investment in special forces, helicopters and transport planes such as the A400M. That is exactly the situation that we are envisaging.

[Jason McCartney (Colne Valley) (Con)]

Having served in Operation Warden in the no-fly zone over northern Iraq in the 1990s, I echo the Prime Minister’s comments about how it is possible to have a successful no-fly zone without committing ground troops. What does he think of the suggestion made by one of my constituents—a member of the Stop the War Coalition who e-mailed this lunchtime—of using financial funds seized from the Gaddafi regime to buy arms for the rebels?

[The Prime Minister]

I did not know about my hon. Friend’s brave record in flying for the Air Force in a no-fly zone. He brings great personal expertise, so it is good to have his backing. The frozen resources belong to the Libyan people, and we should bear that in mind when we start thinking of different and ingenious ways of spending their money.

[Paul Flynn (Newport West) (Lab)]

Should we not avoid a rush to complacency on nuclear safety? The pictures from Fukushima have already churned up people’s deep-seated fears of a nuclear catastrophe and reduced the acceptability of nuclear installations, which are uniquely dangerous in cases of human error, terrorist attack or natural disaster. Should we not look again at our rush to nuclear?

[The Prime Minister]

We have to put aside our personal preferences and prejudices about nuclear power and ask some tough scientific questions about what recent events demonstrate and what we should learn. There are big differences between Japan and Britain. We do not yet know the full extent of what has happened at the reactors, and, as the leader of the hon. Gentleman’s party said, we should not rush to judgment in considering these issues.

[David Rutley (Macclesfield) (Con)]

I welcome the Prime Minister’s efforts to engage the international community in developing a robust response to the barbaric acts of Colonel Gaddafi. What steps are being taken to provide humanitarian aid to displaced people in Libya, especially in the increasingly isolated town of Misurata in the west?

[The Prime Minister]

My hon. Friend asks an important question. What we have done so far has focused on the Egyptian and Tunisian borders, where Britain has led the way in supplying tents and blankets and in flying people back home to Egypt, because we want to ensure that a bad humanitarian situation does not become a humanitarian crisis. His point about access to western Libya is vital. Humanitarian aid agencies do not have access to all areas; they absolutely should have, and the Libyan authorities should see to that straight away.

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

Leaving aside the juvenile and puerile crack from the hon. Member for North West Leicestershire (Andrew Bridgen), the Prime Minister will know that there is a cross-party consensus on the need for a no-fly zone. Given that time is of the essence, on how many occasions has he personally spoken to President Obama and on how many occasions has the Foreign Secretary spoken to Secretary of State Clinton?

[The Prime Minister]

The Foreign Secretary has probably lost count of the number of times he has spoken to Secretary of State Clinton—they seem to have an almost permanent telephone special relationship. I spoke to President Obama about the situation last week, and I have had a number of conversations with him about it. Crucially, now that we have a National Security Council and a National Security Adviser—which slightly mirrors the Americans’ arrangements—our teams have almost daily conversations, so we are totally up to date with each other’s thinking. We want the US to focus on what is happening in Libya and on what we need to do as an international community.

[Mark Lancaster (Milton Keynes North) (Con)]

In the light of recent events, has the time come to expand the stabilisation unit?

[The Prime Minister]

My hon. Friend makes a good point. There is now special stabilisation funding, which is under all sorts of pressure as there are so many unstable parts of the world. We looked at this in the defence review, but we should keep it under review.

[Paul Uppal (Wolverhampton South West) (Con)]

Is not the tragic situation in Japan made even more acute by the country’s demographic time bomb? Like many western European countries, Japan has an ageing population. It is in times of need that we find out what unites us rather than tears us apart, so will the Prime Minister assure me that in this darkest of hours Japan will see the full force of British friendship and generosity?

[The Prime Minister]

I can absolutely give my hon. Friend that assurance. I spoke to our ambassador at lunchtime today, and he said that the way in which we respond will be very important to the Japanese people. Japan and Britain have a very strong, close relationship, and we should do everything we can to say, “We are with you at this time of need, and we are going to give you aid and help.” Japan is an enormously capable country with fantastic technology and ingenious people, so if anyone can cope with the appalling things that have been visited on them, they can. There is also room for friends to help as well.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

Gaddafi winning would be the biggest nightmare for the Libyan people. Two weeks ago, the Prime Minister took the lead in calling for a no-fly zone, against the tide of public and media opinion. Now, however, the Arab League and the Gulf Co-operation Council have supported a no-fly zone. Considering the difficulties in Europe on Friday, if similar difficulties were to occur in the UN, would my right hon. Friend be prepared to lead a coalition of the willing to enforce a no-fly zone?

[The Prime Minister]

As I have said, the conditions for a no-fly zone must include the existence of regional support. Many hon. Members on both sides of the House have already made that point. There should also be a demonstrable need for it on the ground, and I think that that is becoming the case. There must also be a clear legal basis for it, and that is why we are pushing this matter at the UN and why we will, I hope, make persuasive arguments about why a new UN resolution should include lots of different measures and steps that we can take, including plans for a no-fly zone. I think that we should pursue that track.

[Neil Carmichael (Stroud) (Con)]

I applaud the Prime Minister for the leadership he has shown during this crisis. May I draw his attention to the problems of getting support for a no-fly zone, and to the disgraceful use of mercenaries? Is this not the time to have a debate on broadening the scope of the United Nations’ capacity to act?

[The Prime Minister]

This has been a perennial debate about whether the UN should have more specific capacity to act. We can certainly have that debate. I would make the argument, which I also make about the European Union, that, in the end, all the institutions in the world depend on the political will of their members. What was required on Friday in Europe—and we got some of it—was the political will for Europe to respond to what is happening in its neighbourhood. The same applies to the UN, and I think that there is political will there. It is incredible that a Security Council resolution was passed so quickly, and we need to continue to show that political will so that we can ensure that Gaddafi fails.

[Rehman Chishti (Gillingham and Rainham) (Con)]

In the light of the recent demands by the protesters in Bahrain for the monarchy to step down and for the setting up of an Islamic republic similar to that of Iran, has the Prime Minister made any assessment of Iran’s involvement in the events in Bahrain?

[The Prime Minister]

A number of people have speculated about that. From the information that I have, I would say that the Bahrainis have made efforts, not just recently but over the years, to make a stronger civil society and to put in place some of the building blocks of democracy. Of course there is an argument about whether they should go further and faster, and I would urge that they respond to what is happening now with further reform rather than with repression.

[David Morris (Morecambe and Lunesdale) (Con)]

Will my right hon. Friend give a categorical assurance to the nuclear power industry in the United Kingdom? What has happened in Japan is catastrophic, but there are distinct differences between the nuclear power industry here and that of Japan.

[The Prime Minister]

The nuclear industry here in the UK has a strong safety record, but it must never be complacent, because the consequences of failure can be so dreadful. We have to be eternally vigilant. What has happened on the other side of the world following an earthquake and a tsunami might sound like something that we might not experience in the UK, but if there are lessons to learn about how reactors fail, whether they fail safe and all the rest of it, of course we should learn them.

[Mary Macleod (Brentford and Isleworth) (Con)]

I know that my right hon. Friend has visited Rwanda. During the genocide there, the UN retreated and the world stood by as thousands of lives were lost. Will he reassure me that we will continue to show leadership on the Libyan situation, so that many lives will not be lost in the same way again?

[The Prime Minister]

The Rwandan example is a powerful one, partly because of the immense scale of the barbarous murder that took place. Anyone visiting that country, especially the memorial built on top of the graves of literally hundreds of thousands of people, will see it as a standing warning of the fact that genocide can take place in our world, even today.

[Mr John Baron (Basildon and Billericay) (Con)]

May I suggest a note of caution to my right hon. Friend about a no-fly zone? Our record of intervention in this region has not been good. Meanwhile, a no-fly zone could require Colonel Gaddafi’s forces to be attacked and poses the question of what happens if we fail.

[The Prime Minister]

Of course we have to show caution and forethought and we have to think through all the consequences of our action. As I have said, however, I think the consequences of inaction are going to be worse than taking the sort of steps that I have spoken about. Of course we must learn the lessons from other conflicts, but there is a real difference here: the Arab League, the Gulf Co-operation Council and the Libyan opposition are all saying, “Please will you help us in this one particular way?” Turning the Iraq example on its head, if we turned round and said, “No, there is no question of this at all”, opinion in the Arab world might well be, “You look after yourselves when it is about your perceived security, but when it is our future and our democracy, where are you when we need you?”

[Henry Smith (Crawley) (Con)]

Will the Prime Minister join me in paying tribute to fire and rescue service officers from West Sussex, based in my constituency, who are now in Japan helping with the relief effort after the earthquake and tsunami—and, indeed, to all the emergency workers from this country who so readily go out to disaster areas around the world, whether it be Haiti, New Zealand or wherever?

[The Prime Minister]

I certainly take great pleasure in praising people in the emergency services from my hon. Friend’s constituency and, indeed, from around the whole country who, at the drop of a hat, jump on an aeroplane and head off to New Zealand, Haiti or Japan and probably witness some appalling and truly harrowing scenes, which they then have to deal with. This is more than just a gesture from Britain to Japan, as these are some of the most highly trained people in our country and are great experts in what they do. I am sure they will make a real difference.

[Mr Speaker]

I am grateful to the Prime Minister and the House.

Points of Order

Monday 14th March 2011 Commons Chamber

16:42

[Jeremy Corbyn (Islington North) (Lab)]

On a point of order, Mr Speaker. During Defence questions, the Secretary of State outlined the amount of money spent on Trident preparations. In a debate in Westminster Hall a couple of weeks ago, a Minister outlined the amount spent and said that it was custom and practice to spend that. I want to know how I can find out under what authority that money is spent when all the Ministers seem to be incapable of identifying a budget head that would demonstrate that they are lawfully allowed to spend a certain amount on preparations for building a new nuclear submarine.

[Mr Speaker]

I am grateful to the hon. Gentleman for his point of order. My sense is that he will want to table further—I use that word advisedly, as I dare say he has already tabled them—parliamentary questions precisely to identify the point on which he wants a specific answer. I think that is probably about as much helpful advice as I can give today, but I see the Secretary of State for Defence in his place and he will have heard the concern expressed.

[Andrew Bridgen (North West Leicestershire) (Con)]

On a point of order, Mr Speaker. With regard to the comments of the hon. Member for Dunfermline and West Fife (Thomas Docherty), who is no longer in his place, I urge all right hon. and hon. Members to consult the Hansard record for Prime Minister’s Question Time two weeks ago, which shows that there has been a considerable shift in the position of Labour Members on no-fly zones.

[Mr Speaker]

No. That is not a point of order. I yield to none in admiration for the attendance record and level of commitment that the hon. Member has shown over the past 10 months, but he must not abuse the point of order procedure to score what some people might well think is a purely partisan point. That is very untoward. I am sure he will not do that again.

Scotland Bill

Monday 14th March 2011 Commons Chamber

[2nd Allocated Day]

Further considered in Committee

[Mr Nigel Evans in the Chair]

Clause 24

Taxation: introductory

16:45

[Stewart Hosie (Dundee East) (SNP)]

I beg to move amendment 37, page 16, line 17, at end insert—

‘(f) Chapter 8 provides for an Order in Council to specify, as an additional devolved tax, a duty charged on fuel’.

[The First Deputy Chairman of Ways and Means (Mr Nigel Evans)]

With this it will be convenient to discuss the following:

Amendment 58, page 16, line 17, at end insert—

‘(c) Chapter 5 provides for an Order in Council to specify, as an additional devolved tax, a tax charged on quarrying or mining,’.

Amendment 59, line 17, at end insert—

‘(d) Chapter 6 provides for an Order in Council to specify, as an additional devolved tax, a tax relating to air travel,’.

Amendment 60, line 17, at end insert—

‘(e) Chapter 7 provides for an Order in Council to specify, as an additional devolved tax, a tax charged on the profits of companies,’.

New clause 8—Duty on fuel

‘In Part 4A (as inserted by section 24), after Chapter 4 insert—

“Chapter 8

Duty on Fuel

80O Duty on fuel

The Secretary of State shall, within one month of the coming into force of section 80B of this Act, lay in accordance with Type A procedure as set out in Schedule 7 to this Act a draft Order in Council which specifies as an additional devolved tax a duty on fuel.”.’.

New clause 15—Scottish tax on quarrying or mining

‘In Part 4A of the 1998 Act (as inserted by section 24), after Chapter 4 (inserted by section 30) insert—

Chapter 5

Tax on quarrying or mining

80L Tax on quarrying or mining

The Secretary of State shall, within one month of the coming into force of section 80B of this Act, lay in accordance with Type A procedure as set out in Schedule 7 to this Act, a draft Order in Council which specifies as an additional devolved tax a tax charged on quarrying or mining.”.’.

New clause 16—Scottish tax on air travel

‘In Part 4A of the 1998 Act (as inserted by section 24), after Chapter 4 (inserted by section 30) insert—

Chapter 6

Tax on air travel

80M Tax on air travel

The Secretary of State shall, within one month of the coming into force of section 80B of this Act, lay in accordance with Type A procedure as set out in Schedule 7 to this Act, a draft Order in Council which specifies as an additional devolved tax a tax charged on air travel.”.’.

New clause 17—Scottish corporation tax

‘In Part 4A of the 1998 Act (as inserted by section 24), after Chapter 4 (inserted by section 30) insert—

Chapter 7

Tax on profits of companies

80N Tax on profits of companies

The Secretary of State shall, within one month of the coming into force of section 80B of this Act, lay in accordance with Type A procedure as set out in Schedule 7 to this Act, a draft Order in Council which specifies as an additional devolved tax a tax charged on the profits of companies.”.’.

[Stewart Hosie]

It is a pleasure to serve under your chairmanship on this second Committee day, Mr Evans. I look forward to what I hope will be a detailed and constructive debate. Given that a Treasury Minister is present, we may receive some intelligent, enlightening and instructive answers from the Government. I am intrigued to see the Exchequer Secretary to the Treasury, along with the Secretary of State and a junior Minister, the Under-Secretary of State for Scotland. Obviously the Government decided to bring in the big guns to do the difficult stuff. I am sure that that will help over the next two days.

There are four taxes that we wish to be devolved: corporation tax, fuel duty, the aggregates levy and air passenger duty. I shall touch on the first two briefly, and say a little more about the aggregates levy and air passenger duty later.

The Bill has been considered by the Committee in the Scottish Parliament. As Ministers know, there was much agreement on many matters, but there was disagreement on a number of others, including corporation tax. I think it useful for this Committee to understand the minority view of the Scottish Committee, which said:

“A major failing of the Scotland Bill is that it does not devolve control over corporation tax, one of the most important economic levers available to a Government pursuing economic growth. In many countries corporation tax has been the key component of a strategy to increase competitiveness and improve growth. Without this power, however, Scotland is missing out on the opportunity to give itself a competitive edge… This situation could soon be worsened by the UK Treasury's consideration of devolving corporation tax to Northern Ireland. The CBI Northern Ireland has stated that cutting corporation tax in Northern Ireland would have a ‘transformational’ impact on the Northern Irish economy—giving an immediate boost to the profits of businesses and generating 90,000 jobs. With control over corporation tax Scotland would be in a position”

to do much the same. The very fact that the United Kingdom Government were taking a similar approach to corporation tax would justify that position, the Committee said.

As Scottish and other Members will know, a significant body of business opinion backs the devolution of corporation tax—

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

Name him.

[Stewart Hosie]

I did not want to take up too much time by listing all the business people in annexe A of the Committee’s minority report, but I shall be happy to do so if the hon. Gentleman wishes.

It is not simply the business community that has backed the devolution of corporation tax. A man who is hugely respected across the political divide in Scotland is Campbell Christie, the former leader of the Scottish Trades Union Congress. He has said:

“Higher growth will create jobs and generate more tax revenues to protect frontline public services, as well as repaying the high level of debt. To achieve this, Scotland's government need greater economic powers. But the Calman legislation does not meet this need.”

[Fiona O’Donnell (East Lothian) (Lab)]

I cannot let the hon. Gentleman get away with saying that the business community in Scotland supports the devolution of corporation tax. The Scottish Parliament Bill Committee report clearly states that there was not widespread support from that community.

[Stewart Hosie]

I did say that there was significant support in the business community, and I stand by that. The one thing I will not do in the next two days is engage in the politics of the Committee report. I want to consider its recommendations, and indeed identify proposals to which there was opposition. There is certainly significant business support for the devolution of corporation tax, which will enable the right decisions to be made to engender economic growth.

[Mr Donohoe]

Will the hon. Gentleman give way?

[Stewart Hosie]

Not at the moment.

Campbell Christie also said:

“I firmly believe a Scottish government equipped to vary all taxes—including corporation tax… would be able to tackle the serious difficulties we face.

I do not want a tax regime to be imposed on Scotland that is utterly unfair and inadequate to meet the challenges we face. I hope Scotland’s politicians will join me in opposing these unfair proposals.”

I hope that Members throughout the House will note carefully what Campbell Christie said about the devolution of that tax.

[Fiona Bruce (Congleton) (Con)]

The hon. Gentleman says these proposals would be unfair, but one of the fairest things a Government can do when working with the business community is ensure that businesses have time to prepare for change. At present, when there is such a great priority on the economic strengthening of the nation, we need to work in a relationship of trust with the business community. Therefore, is it not unfair to suggest the introduction of this tax at this time?

[Stewart Hosie]

No, it is not, and if the hon. Lady looks at later amendments she will find that an entire series of them is related to the commencement powers, precisely to ensure that the right things are done at the right time, with the agreement of everybody involved. We will consider that, and I hope the hon. Lady is still present in the Chamber when we do so.

Two specific corporation tax issues relate directly to the Bill’s provisions. Existing provisions allow assigned revenue from a share of income tax—one large tax and a chunk from that, and lots of small measures. It would be much better if there was a balanced basket of taxes, so there was not an over-dependence on, and therefore a potential volatility from, having such a large amount of assigned revenue from a single tax. It would also be preferable if there was a personal tax and business taxes, so that they could be offset. It would also, of course, be preferable to remove the perverse disincentive under the Bill in respect of any future Scottish Government reducing income tax. Let us imagine that a Government decided that, for whatever reason, such a measure might be sensible to stimulate growth, but the Scottish Government took the hit in reduced revenue yield from income tax while the UK Government took the benefit of increased corporation tax. The effect of having only a large personal tax, and not a significant business tax, is that it unfairly and unnecessarily removes the number of economic or fiscal levers open to the Scottish Government. That is an important point.

[Mr Donohoe]

I had experience of the shipyards in the ’60s and ’70s, and we came upon something called transfer price fixing, whereby companies in Scotland—and elsewhere—would fiddle with the prices, such as those charged for gear boxes at Linwood. How would we overcome that in practice, because I can foresee exactly the same dangers arising under corporation tax?

[Stewart Hosie]

The hon. Gentleman makes a very interesting point, which relates to what the Government say. They believe in tax competition, as do I, but we must avoid unnecessary tax or regulatory arbitrage not just within the UK but between the UK and other countries. There is a balance to be struck between proper tax competition, which is legitimate and fair and proper to stimulate growth, and unnecessary changes simply to get a quick short-term fix in terms of the arbitrage, which would be unhelpful. That highlights the analogy with price fixing that the hon. Gentleman drew, and he is right to be conscious of that.

We rehearsed the arguments about fuel duty at some length in our debate on the Supply day motion a few weeks ago, so I do not intend to go into that in considerable detail, but I will go into it in some detail.

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

Is my hon. Friend aware that there is to be a photo call on fuel outside Westminster at 2.30 tomorrow afternoon involving the Leader of the Opposition and the shadow Chancellor? Does that not remind my hon. Friend of a couple of sly foxes complaining there are no more chickens left in the coop?

[Stewart Hosie]

That is the sort of analogy a crofter from Barra would want to draw. When in opposition, the Liberal part of this Tory-led coalition promised a rural fuel derogation and the Conservative part promised a fuel duty regulator, and instead of being foxes round a chicken coop I would rather they both kept their promises and delivered on their pre-election commitments.

[Mr MacNeil]

Will my hon. Friend give way?

[Stewart Hosie]

Not at the moment, because I want to make a couple more points.

As we have said in previous debates, this issue is important because in Stornoway, in my hon. Friend’s constituency, fuel routinely costs £6.50 a gallon; in the Chief Secretary’s constituency diesel routinely costs £6.30 a gallon; in the major cities fuel costs more than £1.33 a litre—more than £6 a gallon; and I am told that Orkney recently had the £7 gallon. Hon. Members will know from the testimonials from the road haulage industry, the Freight Transport Association, FairFuelUK, taxi drivers, the Federation of Small Businesses and many others that businesses and communities are struggling with the inflationary effects of high fuel costs.

[Mr MacNeil]

Tomorrow, the Leader of the Opposition and the shadow Chancellor will complain about the price of fuel, but is not the point that for years and years as the price of fuel rose they said not a cheep? They were utterly blind to the troubles we had in the Western Isles when they were in government, but all of a sudden they want to say something .

[Stewart Hosie]

It was not that they were simply blind to it; members of the Labour party have said—I believe that their leader recently said this—that Labour found it difficult to implement a fuel duty regulator when they were in power. It was not so much that Labour found it difficult as it actively opposed every attempt to do it.

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

Will the hon. Gentleman give way?

[Stewart Hosie]

Not at the moment.

Before I get too distracted, let me return to the Bill. The whole point about this amendment and our seeking the devolution of fuel duty powers is that we are not doing this for its own sake. Everyone understands the difficulty, as we have raised it many times, so this is about action. If the UK Government will not act, it is perfectly reasonable for the powers to be devolved so that a Scottish Government can act.

The two significant taxes dealt with in this first group are the aggregates levy and air passenger duty. In written evidence to the Scottish Affairs Committee, Professor Iain McLean said:

“I am not persuaded by the UK Government’s reasons for rejecting Calman’s other two tax devolution proposals, namely Aggregates Levy and Air Passenger Duty. As Scottish Ministers have correctly pointed out, the litigation which is given as a reason for rejecting the transfer of Aggregates Levy was already in progress when Calman reported. If Scotland is willing to take any revenue risk arising from that litigation, it should be allowed to.”

Likewise, the fact that the UK government intends to convert air passenger duty into a ‘per plane’ duty argues for, not against, devolving it. The principle of subsidiarity implies that the Scottish Government, not the UK Government, should decide how to tax flights originating at small Highland or island airports. Airports don’t move. They are a very suitable devolved tax base.”

On aggregates duty, Professor McLean said:

“The shape of landfill tax is obviously complementary to that of (any successor to) Aggregates Levy.”

Landfill tax is being devolved, so the approach being taken here is rather illogical. It is also a key recommendation of the Scottish Parliament’s Committee that aggregates tax is devolved. The final Calman commission report said:

“The Commission has recommended that a number of “green taxes” (Air Passenger Duty, Landfill Tax and the Aggregates Levy) be devolved. As well as helping to increase the financial accountability of the Scottish Parliament, control of these taxes will provide important policy levers in relation to environmental issues, allowing the Scottish Parliament and Government further options in determining policy.”

That makes perfect sense. Excluding two of the three taxes in that “green taxes” category not only makes a mockery of the Calman report, but, more importantly, decreases financial accountability and removes what Calman called “important policy levers”.

[Mr Donohoe]

I have campaigned on this issue for some time, as has the aviation group within the House. We have asked for this tax to be looked at because it is just ridiculous, given what is happening in Europe. If the tax were to have been devolved, the Government’s position was that it should be devolved, and there was to be a variant—one would presume that that is why the hon. Gentleman is asking for the tax—where would the money come from for any downward variation?

[Stewart Hosie]

I shall answer that when I come to air passenger duty, because it is a perfectly valid question. In general terms, if any Government chose to increase a tax they would see an increase in yield or behavioural change. Likewise, if they chose to decrease a tax they would either see a reduction in yield or behavioural change. In the case of corporation tax, all the evidence in country after country shows that when business taxes have come down, business tax yield has increased. Those judgments would need to be made depending on the tax, the decision and the part of the economic cycle.

17:00

Let me carry on with aggregates tax before I get back to air passenger duty. Calman went on to describe the aggregates levy as

“a tax on the commercial extraction in the UK of rock, sand and gravel. Anyone who is responsible for commercially exploiting aggregate in the UK is liable, and the levy is based on weight”—

somewhere under £2 a tonne, and it

“came into effect in 2002, and was introduced to address, by taxation, the environmental costs associated with quarrying operations (noise, dust, visual intrusion”—

and so on. He went on:

“It is also intended to reduce demand for aggregate and encourage the use of alternative materials where possible.”

Those were sensible policy objectives. Calman said:

“The levy is usually applied to quarry operators, but it can be shifted to customers or users of the aggregate—the key distinction being where it is commercially exploited. The Aggregates Levy also applies to aggregates drawn from the seabed in UK territorial waters and to imports.

At the time of its introduction, it was envisaged that the Aggregates Levy would not represent a gain to the UK Exchequer because it would be offset by a 0.1% reduction to employer NICs and payments to devolved Aggregates Levy Sustainability Funds.”

A number of concessions to the levy already apply in Northern Ireland, so it could sensibly be argued that it already operates differently within different parts of the UK, which makes it much more bizarre that it is not being devolved at this time. Like landfill tax, the aggregates levy clearly accesses what is known as an immobile tax base—quarries tend not to move—hence the commission believed that it would be suitable for devolution. The SNP agrees and that is a firm recommendation of the Scottish Parliament Committee that considered this matter.

Calman described air passenger duty in a similar manner. He said that it was

“an excise duty which is charged on the carriage, from a UK airport, of chargeable passengers on chargeable aircraft. It is paid by the aircraft operator…Presently, there are four rates of duty, depending on the destination of the flight and the class of travel”

starting at £10. He went on:

“The 2008 Pre-Budget Report announced reforms…from a two-distance band regime to a four-distance band regime, set at 2,000 mile intervals from London”

to the capitals of other countries. It

“is not payable on flights departing from airports in the Scottish Highlands and Islands”,

which of course means that it is already functioning differently in one part of the UK from the rest, just like the aggregates levy, but:

“Flights from other areas of the UK to airports in this region are liable.”

In 2006-07, that brought in about £94 million—quite a limited amount. Calman went on:

“Assuming the devolution, and thus the potential application of different rates in Scotland than elsewhere…did not conflict with EU law, we think the devolution of APD would not be associated with administrative or economic inefficiencies and is therefore potentially achievable.”

The SNP agrees entirely. The argument against that is that the Government have APD under review and would not devolve it at the present time, and the Scottish Parliament Committee broadly shares that view and has recommended that it is devolved after the Government have completed their review. On the Scottish National party Benches, we prefer the opinion of Professor McLean, who said that

“the fact that the UK government intends to convert air passenger duty into a ‘per plane’ duty argues for, not against, devolving it.”

Our amendments and the new clauses associated with them lay out the mechanism to complete that devolution. They are very simple amendments and follow the process set out in schedule 7 to the Scotland Act 1998—

[Fiona O'Donnell]

Will the hon. Gentleman give way?

[Stewart Hosie]

I am just about to finish.

I commend the amendment to the House.

[Iain Stewart (Milton Keynes South) (Con)]

It is a pleasure to serve under your chairmanship, Mr Evans. I shall address the Scottish National party Members’ amendments in a moment, but first let me make an observation about this part of the Bill, particularly clause 24. I strongly support the proposal to devolve substantial tax powers to the Scottish Parliament, making it responsible for raising approximately a third of its revenue. I shall not repeat the arguments I made on Second Reading, but the principle of the Scottish Parliament raising a good part of its revenue is vital. If that does not happen, the threat to the Union will be very real. To underline that point, let me quote from an e-mail that I received last night from a constituent, Mr Haig. It is worth repeating a couple of the points he expressed.

[Pete Wishart (Perth and North Perthshire) (SNP)]

He’s bored and is going to resign.

[Iain Stewart]

Not that Mr Hague—this one is spelt Haig. I think the Foreign Secretary is rather preoccupied with matters elsewhere in the world.

My Mr Haig said, of the First Minister’s comments about free tertiary education in his interview on the Andrew Marr programme yesterday:

“What is it the Scots go without that we the English enjoy? More and more people I speak to are seething with this unfairness, especially in the current financial climate. How is it the Scots can afford this, and the English cannot? They even have an extra layer of government, and are able to afford that as well. Mr Stewart, English nationalism is going to rise slowly but surely over this. Your government cannot ignore this, otherwise you are going to create a fracture in the union, and the SNP’s most ardent supporters for independence are going to be the English.”

I agree. I am a Unionist and I want the Union to survive. The hon. Members for Perth and North Perthshire (Pete Wishart), for Dundee East (Stewart Hosie) and for Banff and Buchan (Dr Whiteford) might support our doing nothing to increase support for their ultimate aim, but I do not.

[Mr Russell Brown]

I suggest that the hon. Gentleman responds to his constituent by making him fully aware of what the Scottish block grant is. If the Administration in Edinburgh decide to spend money in one fashion, there is no extra funding for it north of the border. In paying for one thing, we are sacrificing something else. Could that be a starting point for the hon. Gentleman?

[Iain Stewart]

I agree with much of what the hon. Gentleman says, but if the Scottish Parliament were responsible for raising more of its revenue, such arguments would diminish. I think it is right to give it the flexibility to raise additional revenue, if it so wishes, to fund extra programmes in Scotland from which my constituents south of the border may not benefit.

I agree with the incremental steps proposed in clause 24. We are for the first time starting to disaggregate the unitary tax system in the United Kingdom. That will have many consequences, some of which will be unforeseen, so we need to proceed with great care and attention to detail. I strongly welcome the proposal that we should not rush to set up a completely new system in one go. In particular, proposed new section 80B, which clause 24 introduces, contains a provision to allow the subsequent devolution of additional tax powers. That is the right way to go, rather than trying to devolve too much at this stage.

The hon. Member for Dundee East raised perfectly valid points about devolving other taxes, including air passenger duty, fuel duty and corporation tax, and we might well come around to doing that in the fullness of time. The Scottish Parliament’s response to the Bill noted that

“international experience does show some scope for differentiation of corporation tax,”

and we may get to that point. However, there are huge difficulties and intricacies that we must first consider about the operation of corporation tax. A later clause goes into some detail in defining a Scottish taxpayer for the purposes of the Bill and we would have to do something very similar for corporation tax. If a company were primarily located in Scotland but had its tax headquarters elsewhere, we would have to work out exactly which components of its income were liable for corporation tax.

[Stewart Hosie]

I have heard the hon. Gentleman make that argument before. He is being reasonable, and is making a reasoned case, but I disagree with him. However, does he accept the principle, in relation to the last point that he made, that tax liability would follow economic activity?

[Iain Stewart]

There will be huge consequences, some foreseen, but others unforeseen. We would need to undertake a huge amount of research to work out how to begin to disaggregate what has been a unitary UK tax system. I am not saying that it is impossible, or that it is something that we should not look at in future, but for the purposes of the Bill, I do not think that it is necessary, because clause 24 makes provision to look at devolving additional tax powers in future.

I am not going to say anything more at this point, because I want to deal in detail with other measures when we come on to the relevant clauses. Scottish National party Members have made a point about air passenger duty and landfill tax. I am perfectly content that measures are being negotiated at European level and elsewhere. Until they are resolved, it would be premature to include the devolution of those taxes in the Bill. I accept that the Calman view was that those matters should be devolved in the fullness of time, and I support that, but it is not necessary to include it at this point. I am therefore afraid that I cannot support the amendments if they are pressed to a vote.

[Ann McKechin (Glasgow North) (Lab)]

What a difference a week makes, as we continue our scrutiny of the Bill after our sitting last Monday. On Thursday, we witnessed a plenary debate in the Chamber at Holyrood on the recommendations in the report on the legislative consent motion. At the conclusion of the debate, there was a vote, and we witnessed a remarkable about-turn, as the Scottish National party supported the motion recommended in the majority report. After two years of sniping on the sidelines, it has joined the three other major parties in Scotland to support the Bill, and I genuinely welcome that.

Who is surprised at the pattern that has emerged yet again? This is a party that did not join the constitutional convention, but supported the devolution referendum. It came into power four years ago, promising that its top aim above all others was a referendum on independence, which was then dropped. The interesting allegations in Wikipedia about the First Minister’s comments on the party’s real aims, rather than all-out independence, add to the mix the overwhelming conclusion that it can talk about independence as much as it wants, but the SNP has never been on the true side of the people of Scotland, which is why it constantly has to play catch-up.

We have had an interesting debate about fiscal decentralisation.

[Stewart Hosie]

I am intrigued by the hon. Lady’s introductory remarks. They bear no relation to the amendments, but that should not surprise us.

There is indeed a very serious matter at stake. We have tabled an amendment to devolve the aggregates levy, which is a recommendation by the Select Committee on Scottish Affairs and by Calman, and will make the Bill better. If we can divide the Committees, will Labour join us?

[Ann McKechin]

We certainly support the principle of devolving the aggregates levy, but I wish to make sure that when we scrutinise the Bill we do so in the interests of the people of Scotland. There is genuine concern about court proceedings—interestingly, the hon. Gentleman failed to mention the comments by the British Aggregates Association in the report on the legislative consent motion, which said that it was sure that it was going to win the court case. Well, we will just have to see when that case comes to court. However, I would not want a Scottish Administration to be responsible for the risks that may result from a loss in that case, because that would not be in the interests of the Scottish taxpayer.

The report by the Holyrood Committee offers an exceptional exposition of the contentious remarks made over a number of years by the Scottish Government about why fiscal decentralisation would be to the benefit of the Scottish economy. We support the measures in the Bill, because we believe that they will make the Scottish Government and Scottish Parliament more accountable to the taxpayer. They already benefit from uniquely broad spending powers, and the Bill rightly makes that power more accountable to the electorate. However, as the Committee knows, the Scottish Government argued prior to the establishment of the Committee at Holyrood that full fiscal decentralisation would grow the Scottish economy by an extra 1% per year. I refer hon. Members to paragraph 37 of that report, which states that

“the First Minister’s claim—of an additional 1% growth per year—is an exaggerated version of what Professors Hughes Hallett and Scott have stated in their research.”

The Committee concluded that the evidential base for the statements made by Professors Hughes Hallett and Scott was, in its words, “remarkably weak” and that claims did not stand up to scrutiny. The Scottish Government did not provide any detail in the legislative consent motion.

17:15

It is interesting that the Scottish National party is proposing two further taxes, fuel duty and corporation tax, and spent, on my reckoning, just under 20 minutes presenting what is apparently a full case explaining why those should be devolved to the Scottish Parliament. That, again, follows a pattern. There are no costings, no specification, and no material explaining the practical implications for taxpayers, employers and Scotland’s financial sector, or the collection plans.

[Fiona O'Donnell]

Is my hon. Friend aware that when the Scottish Affairs Committee played good cop to the Holyrood Bill Committee’s bad cop, Professors Hughes Hallett and Scott went as far as to say that there was no real link between fiscal autonomy and economic growth, and that it is what is done with the powers that achieves growth?

[Ann McKechin]

My hon. Friend raises a pertinent point and one which even those who have argued for fiscal decentralisation admitted in Committee, including Ben Thomson from Reform Scotland, who had been a firm advocate of that policy. It was stated that all the evidence showed that it is the powers that are available and how they are used, and factors that are not purely fiscal, such as technological progress, investment in human capital and policies on education, that largely determine economic growth. Many of those powers are already with the Scottish Government.

[Stewart Hosie]

The hon. Lady asserted that no information had been provided. The Scottish Government provided an extraordinary amount of information, much of it at the request of the Scottish Affairs Committee, and all of which, I understand, is in the annex to the full report that it published, so that assertion was wrong.

[Ann McKechin]

The hon. Gentleman did not refer to any of that evidence in support of his amendments. He also did not refer—why would he; it would be too embarrassing—to the purpose of the national conversation, which the Scottish Government instructed, and the many position papers that civil servants were struggling to produce and make sense of, at considerable cost to the Scottish taxpayer at a time when the resources could have been much better used.

The hon. Gentleman provided us with no independent evidence or statistics showing how, if fuel duty is devolved to the Scottish Parliament, it will result in a benefit to the taxpayer. The matter is urgent and we require immediate action. That is why we have called on the Chancellor to reverse the Tory-led Government’s VAT rise immediately and to suspend the fuel duty rise due in April. That would provide immediate relief to taxpayers and to drivers right across Scotland. That is the best way we can help people with motoring costs now.

The Calman commission recommended that the power on aggregates be devolved. We support that principle. The Government have indicated their intention to devolve it, presumably on the assumption that the court case will be decided in the Government’s favour. I would welcome the Minister’s comments when he replies, to confirm that that is still the Government’s intention.

It would be helpful to the Committee to understand what progress has been made on the Government’s review of air passenger duty, when they think that review will be complete, when they expect to be able to devolve the tax and whether they still wish to maintain the scheduled date of 2015.

New clause 17 relates to corporation tax, which the Scottish Government have been talking about for a considerable time. The pertinent questions that we all must consider carefully are what exactly does the SNP wish to do with the proposed power, where does it see the revenue gain coming from, and on what evidence is that based. Do we follow the Irish example of having a super-low rate, or do we follow the view of the SNP in Edinburgh and have retail business levy proposals, which were very badly thought out and arbitrarily proposed without consultation? Are we a high-tax or low-tax nation? Do we believe in high-quality, good value public services, or do we want to have a lower public expenditure base?

Some people believe that Ireland is an exact example for Scotland, but I argue that it certainly is not. Sadly, we no longer have the arc of prosperity argument from the Scottish Government. Nevertheless, it is important to note that when Ireland introduced its policy it was in a very weak economic position and the loss of revenue was relatively small, but that would not be the case for Scotland, which has a well-developed economy. If corporation tax is devolved, EU state rules require that the devolved Administration must not be protected from the revenue consequences of their decision.

It is clear that cutting corporation tax rates will cut revenue, at a minimum for some years, as suggested in the Exchequer evidence to the Holyrood Committee:

“A 10% cut in corporation tax in Scotland might cost about £600 million per year for an indeterminate period.”

The hon. Member for Dundee East (Stewart Hosie) has not specified what figure his party proposes for corporation tax, what loss to the Exchequer will result and when his party believes it will recoup the loss. No one in Scotland will want us to vote on the issue until we have the pertinent answers.

The CBI and other business organisations have firmly stated that they are against differential rates within the UK. Many of the experts who gave evidence to the Committee in Holyrood noted that it would create economic distortions—the brass-plating of booking profits through Scotland by manipulating transfer pricing. I refer Members to paragraph 54 of the Holyrood Committee’s report, which states:

“The Committee does not believe that Scotland should seek to maximise its tax income by becoming a tax haven for companies operating elsewhere in the UK.”

I entirely agree with that approach.

Some evidence was given regarding the example of Switzerland, which has a highly federalised and separate tax system in its various cantons, but the Swiss example points out that that would tend to lead to lower public expenditure. Is this what the SNP proposes for Scotland? The people of Scotland need to know whether the answer is yes or no. Paragraph 494 of the Committee’s report states that Professor Anton Muscatelli noted that the Swiss example is one where there has been

“a shift from corporate taxation to personal income taxation.”

He also pointed out that that is a volatile tax.

Hon. Members will be aware of that volatility, which occurred after the 2007 fiscal crisis. The major payers of corporation tax in this country are our banks and financial institutions. They took a huge hit in 2007-08 and onwards. The cost for the Scottish public amounted to £10,000 for every man, women and child in Scotland. Where would those funds have come from if the Scottish Government had had to bear the entire cost? Is the SNP willing to allow Scottish public finances to take that level of risk? Is it saying that it wishes to see a cut in taxes on banks? Yes or no? We have had no answer to that either. Labour has argued that the banks are not paying an appropriate share towards deficit reduction in this country and has again called today for the bank levy to be increased in the Budget.

In paragraph 505 of the Holyrood report, Professor Iain McLean, whom the hon. Member for Dundee East quoted, points out that the Northern Ireland experience between 1920 and 1972, when corporation tax was devolved, was marked by widespread tax avoidance.

Many similar questions need to be asked, but at the end of the day the SNP has failed to say what it wants to do with the tax, what kind of tax regime it wants in Scotland and what it proposes in relation to bank taxes: is it for lower or higher taxes? Today, there has been the sound of deafening silence.

I have a number of questions to ask the Government about clause 24 itself. They have still to respond in detail to the Holyrood Committee’s report, and given the timing of next week’s Budget I am sure the Exchequer Secretary has many other things in his basket. Does he not agree that, given the considerable number of points that the report raises, we can anticipate at least some substantive amendments from the Government? If so, does he agree that, to ensure the maximum amount of democratic scrutiny, they should be tabled prior to Report, not simply left until the Bill arrives in the House of Lords?

Last week, the Government announced a consultation on the so-called Cadder clauses, which, as the Exchequer Secretary is aware, were not part of the original Calman commission. That consultation will continue until mid-May. Does he not agree again that it would be better to postpone Report until it is complete in order to allow us properly to scrutinise in the Commons this important legislative and constitutional reform?

[The Secretary of State for Scotland (Michael Moore)]

On the issue of section 57(2) of the 1998 Act and the new clause or amendment that we will table to it, the hon. Lady is aware and has rightly highlighted that we are undertaking a consultation. I am happy to say to her in public what I have said privately: she and members of other parties are very welcome to have discussions with officials to ensure that Members are aware of how that thinking is developed. Just to reassure her, anything that is introduced in another place will come back here for proper and thorough scrutiny in due course.

[Ann McKechin]

I am grateful to the Secretary of State for his remarks, but I would prefer to have the earliest possible scrutiny in the House of Commons, and I certainly hope that the House will be allowed at the very minimum a proper period in which to scrutinise properly any amendments or new clauses that are introduced in the House of Lords, because this is an important constitutional issue. It is technical, but it is important that this House has the time to debate and scrutinise it properly, and that the public and the electorate know that we have scrutinised it appropriately.

Do the Government agree with the Chartered Institute of Taxation that a mechanism might be required to ensure that any future Scottish provisions do not conflict, and to consider how future UK treaties and EU rules might affect the powers that we provide to Scotland in the Bill?

Proposed new section 80B of the 1998 Act appears to include the possibility of devolving aggregates levy and air passenger duty in future. Will the Government confirm that the Scottish Parliament has a formal standing in consenting to the Orders in Council referred to in that section? Air passenger duty might be considerably altered by the time the review is complete, and that could be of significance to the revenue that can be anticipated from Scotland. Air travel in Scotland has its own distinct features, particularly within Scotland itself and to the north and isles areas, so it is important that there is a full and proper discussion not only here in the Houses of Parliament, but in the Scottish Parliament, should there be any difference in the levy’s impact on the Exchequer.

On the calculation of the block grant, will the Government consider the Holyrood Committee’s proposals that the reduction in grant might be indexed to changes in the income tax base for the rest of the UK? Will they consider also the principle of a formal review of the grant reduction mechanism after 10 years, as the report recommends? If Ministers were able to give us an indication of the Government’s view, that would be helpful. What consideration have the Government given to the Holyrood Committee’s recommendation that the transition period for the income tax powers and the calculation of the block grant reduction be reduced or done away with in its entirety if, for example, the measures on the tax base are implemented? Finally, what consideration have the Government given to the recommendation that while a flat-rate structure should be adopted initially, this decision must be carefully evaluated as experience is gained of operating it? That simply follows from the experience of other devolved Administrations in dealing with income tax.

I would welcome the Minister’s comments. We will vote against any move by the SNP on fuel duty or corporation tax. Apart from that, we will support the Government’s clause.

17:30

[Mr Russell Brown]

I did not intend to speak on the amendments tabled by the hon. Member for Dundee East (Stewart Hosie), but I feel that some issues need to be addressed, and I want to put to him one or two questions about fuel duty that I hope he will answer when he responds to the debate.

I am sure that no one in the Chamber does not recognise how difficult this issue has become for motorists in any part of the UK—particularly, I recognise, for those in the northern and western isles. However, when I look at the whole concept of devolving this additional tax on fuel duty, I wonder, in all honesty, whether the proposal would have been before us if fuel prices at the pumps were not so expensive. The hon. Gentleman has not given the slightest indication how this additional income would be used. More importantly, does he have even a ballpark figure on how much would be raised in additional taxation going to the Scottish Parliament? In a previous debate, he and I discussed the fuel duty stabiliser, of which he has been a great advocate. As I pointed out to him, his advocacy has not always been consistent, as there was one year when the SNP dropped the proposal. If he had his way and managed to get the amendment through, and the fuel duty charge became a devolved issue, would he totally abandon the whole concept of a fuel duty stabiliser?

I am not in favour of a fuel duty stabiliser, as I have made clear to constituents who have corresponded with me over recent weeks. I need only point to the campaign run by FairFuelUK, which has not given the slightest indication of what it thinks is a reasonable price for fuel and a reasonable level of duty. The wider public might think that this is a tremendous idea, but I warn the Committee, as I have warned my constituents, to be very careful. With the current fluctuating price of fuel—crude oil—and the way that the marketplace is at the moment, if a fuel duty stabiliser were suddenly introduced, we would end up with fuel pegged at a price that is unsustainable. People filling up their cars are already baulking at the whole concept of what they have to pay, and it is completely wrong to peg pump prices at a level that is unsustainable.

I will also briefly mention the rural fuel derogation, about which the hon. Member for Na h-Eileanan an Iar (Mr MacNeil), who is not with us, might have some idea. I hope that the hon. Member for Dundee East will indicate the average mileage of someone living in the northern or the western isles. I recognise how painful it must be for people living in those localities to pay 10p or 15p per litre more than people on the mainland. However, the pain that such people suffer if they do 5,000 or 8,000 miles a year is comparable to that suffered by people in areas such as mine who have to do 15,000 or 20,000 miles a year, or more. Fuel prices are only one element of motoring costs. People in some places pay an astronomical price because of the miles that they have to cover. On an annual basis, people on the islands might not pay more; they might even pay less if they have a low mileage.

[Mr Alan Reid (Argyll and Bute) (LD)]

The hon. Gentleman should not denigrate the fuel duty derogation in the way that he has. On large islands such as Mull and Islay, people do a significant mileage. The use of fuel is not just about the number of miles one drives; if one drives on single track roads and has to stop and start all the time, one uses a lot more fuel. The important thing is to get the derogation established on the islands and to make it workable. It can then be extended to remote parts of the mainland.

[Mr Brown]

The hon. Gentleman, like so many people, has merely used the terminology of significant mileage. We need clarification. Will somebody in this Committee please put figures on this? To a person on the islands, significant mileage may mean 5,000 or 6,000 miles. I appreciate how difficult it is for people living in remote, rural localities. However, we are talking about finance—something that I am not an expert on, as I am sure hon. Members know. We need to be clear in our minds about what we are doing here.

[Mr Reid]

Perhaps I can give the hon. Gentleman an indication of the distances involved. The distance from Fionnphort on Mull to the largest town on the island, Tobermory, is 50 miles. Somebody driving from Fionnphort to the largest town on the island and back therefore travels 100 miles.

[Mr Brown]

I appreciate the hon. Gentleman’s clarification of the distances that people travel. I believe that that will be important in the case that the Government are trying to make for a rural fuel derogation. I am not demeaning anyone, but saying that we need to be clear when discussing finance what the situation will be.

Those are the brief points that I wanted to make, and I hope that we can get clarification before we vote on these issues this evening.

[Fiona O'Donnell]

You may not have been present the last time I spoke on the Scotland Bill, Mr Walker, but it was my birthday. Every time I speak about the Scotland Bill, it feels like my birthday.

In contrast to the amendments tabled by the hon. Member for Dundee East (Stewart Hosie), the Bill offers real progress for Scotland and a recognition of all that has been achieved at Holyrood. At the same time, it offers the stability of remaining as part of the Union, which protects Scotland against some risks. The hon. Gentleman seemed to be disappointed by what he called the politics in the report of the Scottish Parliament’s Scotland Bill Committee. Perhaps, however, we should look at the history of how we have come to this point.

We had the Scottish constitutional convention and the Calman commission, both of which the hon. Gentleman’s party declined to be part of. Those things stand in sharp contrast to the SNP’s own record, because the national conversation, which my hon. Friend the Member for Glasgow North (Ann McKechin) spoke about at some length, has delivered nothing for the people of Scotland or the Scottish Parliament. That contrasts with what is on offer before the Committee today. Of course there is detail in the Bill that we need the Government to iron out, but even the Bill Committee in the Scottish Parliament—I believe it is the first time that a Committee of that type has been established, to give the Bill the scrutiny that it deserves and merits—has acknowledged that there is time to work on some of the details.

We could fair see how all puffed up with pride the hon. Gentleman was about all the amendments that he had brought before us, but I have to say that I found his arguments unconvincing. The SNP had all the time that Calman was discussing a way forward to come up with some detailed proposals, and it had some weeks of the Scotland Bill Committee’s work in Holyrood, yet what do we see? A single piece of paper containing its proposals for lasting change and progress in Scotland. I am afraid that is the sum total of its contribution.

[Stewart Hosie]

This is very confusing. I am not puffed up with pride; I am simply doing my job. We have tabled amendments on capital borrowing, revenue borrowing, corporation tax, fuel duty, air passenger duty, aggregates duty and previously on air weapons, road safety, the coastguard and other matters. I believe Labour’s substantive amendment would re-reserve some food labelling powers. That is not a hugely impressive record.

[Fiona O'Donnell]

I will withdraw my remark, then, and acknowledge the humility that we have now heard from the hon. Gentleman. Up until 20 February, however, we had seen none of the details of the SNP proposals. I have sometimes accused Conservative Members of shotgun legislation, and I have to level that accusation against him as well.

[Sheila Gilmore (Edinburgh East) (Lab)]

Does my hon. Friend agree that one reason why we do not need to table copious amendments is that we took part in the deliberations of the Calman commission and in all the consultation related to it?

[Fiona O'Donnell]

I absolutely agree. The whole process has been about consultation, and at some point the SNP has to admit that perhaps the reason why it has been outside the process, and why it had to file a minority report, is that it is just plain wrong on this issue. I genuinely appeal to SNP Members to pause and consider whether Unionist parties would really advance legislation that would put Scotland and the Union at risk.

I am tempted to think that spring has come to the House, because what we have heard today is not the sound of chickens but the sound of constitutional cuckoos. That is what SNP Members are. They allow others to do the work and build the nest, then they come and try to throw our eggs out.

[Stewart Hosie]

We are hearing some interesting analogies. Far from throwing the eggs or the chicks out of the nest, we are bringing to the table today the aggregates levy amendment recommended by the Committee in the Scottish Parliament and by Calman. We hope to divide the Committee on it today. Will the hon. Lady join us in backing it?

[Fiona O'Donnell]

My hon. Friend the Member for Glasgow North has answered that question. If the hon. Gentleman was not listening, or if he was not able to follow it, I am afraid I cannot take responsibility for that.

I will press on and talk about the SNP’s corporation tax proposals.

[Pete Wishart]

Will the hon. Lady give way?

[Fiona O'Donnell]

No, I would like to make some progress and actually talk about the amendments. [Hon. Members: “Come on!”] Oh, alright then. Don’t say I’m not kind.

[Pete Wishart]

I am trying to understand Labour’s position on our amendments. They are what the Scottish Bill Committee and Calman agreed on, and we are providing an opportunity to put them to the vote today. Is she honestly saying that she will not take the opportunity to support her own case?

[Fiona O'Donnell]

This may not be something that the hon. Gentleman is used to hearing, but I am going to tell him, “Not yet”. As my hon. Friend the Member for Glasgow North said, until we have a ruling and clarification, there is a risk to the Scottish Government. That does not mean withholding those powers for ever, but it is about protecting Scotland and looking out for its interests.

17:45

On corporation tax, the hon. Member for Dundee East spoke about how he was in favour of tax competition. It appears that the only trend available to the Scottish National party is a downward one—a race to the bottom. We must therefore ask how they will make up the shortfall in revenue. My hon. Friend the Member for Glasgow North spoke of an £600 million annual loss to the Scottish economy for an indeterminate period. What will the SNP cut to make up for that? Will it cut apprenticeships, health care or education? That question has not been answered.

We are also rather short on consultation, which is unsurprising given the SNP’s absence from the consultative process throughout the history of devolution. I will be interested to hear the hon. Member for Dundee East—that is not an invitation to intervene—address the question of exactly whom the SNP consulted in drawing up its proposals and how that took place. Consultation has been the Labour party’s approach, but I suspect that it has not been the SNP approach.

The Committee today has a clear choice on whether to adopt a set of proposals that offer progress and development for the Scottish Parliament and Government. I very much hope that after 5 May, the Scottish Government will take advantage of all the levers at their disposal that encourage and foster economic growth in Scotland. At no point in the Bill’s progress or the Calman commission has the case been made to advance the cause of full fiscal autonomy for Scotland. I respect the SNP position, and I like them to be up front and honest about it. The SNP wants independence—that is their one policy aim, even if it seemed not to talk about it quite so much over the weekend. The SNP would expose Scotland to those risks, whereas the Bill and the Calman Commission offer the opportunity for Scotland to have a mature Parliament that takes responsibility at the same time as spending money, and that will answer many of the criticisms in the e-mail from Mr Haig to the hon. Member for Milton Keynes South (Iain Stewart).

If the amendment is pressed to a Division, I hope the Committee makes the right decision and recognises the achievements of the Bill, and that it rejects the SNP’s minority report and fantastical proposals.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship, Mr Walker, and to respond to the debate on the proposed amendments to clause 24.

[Pete Wishart]

Just before the Minister starts, can he explain why a Treasury Minister is replying to the debate when the Bill was presented by the Scotland Office? I know there are plans to do away with the useless Scotland Office, with which the SNP agrees, but does this situation just add flames to that particular fire?

[Mr Gauke]

Perhaps the hon. Gentleman has read the Command Paper, which was signed off by both the Secretary of State for Scotland and I. The debate relates to taxation, so it seems perfectly appropriate for a Treasury Minister to respond. Indeed, I warmly welcome the kind response I got from the hon. Gentleman’s colleague, the hon. Member for Dundee East (Stewart Hosie). It is very unusual for me to be described as a “big gun” but I am none the less grateful for those words. The Scotland Office and the Treasury have worked closely on the Bill, and in particular on the provisions that we are debating, and I am pleased to continue that co-ordination.

[Stewart Hosie]

rose—

[Mr Gauke]

I have never given way quite so often, but perhaps this is the way it works.

[Stewart Hosie]

The Minister suggests that he signed off the Command Paper with the Secretary of State for Scotland, but the names on it are those of the Prime Minister, the Deputy Prime Minister, the Secretary of State for Scotland and the Chief Secretary to the Treasury. I am sure the Minister’s name is in there somewhere, but it would be good if he could tell us where.

[Mr Gauke]

I only wish I could have signed it off—such is my enthusiasm for the Command Paper. I work closely with my right hon. Friend the Chief Secretary, however, and the point I made was that the Treasury signed off the Command Paper. We work happily as one Government, so I am pleased to be able to respond to the amendments—assuming I now have the chance to do so.

The Government’s proposals in the Bill facilitate the largest transfer of power from the United Kingdom to Scotland since the creation of the UK. By devolving stamp duty land tax and the power to set a Scottish rate of income tax, the Scottish Parliament will be able to raise approximately one third of its own budget, thereby significantly improving its financial accountability. Only last Thursday, the Scottish Parliament voted overwhelmingly to endorse the Bill—121 in favour, three against and one abstention. To devolve additional taxes now, as the hon. Member for Dundee East argues, without the consent of the Scottish Parliament would be thoroughly inappropriate. There has been a long consultative process that both the UK Government and the Scottish Government and Parliament have been through, so to include the devolution of additional taxes now, on a whim, would not be the right course of action.

As well as those general points, there are some specific reasons why these taxes should not be devolved now in the Bill. I shall deal with those in a little detail. First, on amendment 37 and new clause 8, the Calman commission did not recommend that fuel duty be devolved. It concluded that different fuel duty rates would make artificial opportunities for cross-border shopping, creating economic distortions. More significantly, however, it highlighted the EU energy products directive that sets a principle of one rate of fuel duty per member state. Devolving fuel duty to the Scottish Parliament would require the EU to grant the UK a derogation from this directive, and the Calman commission acknowledged that it would be unlikely to be granted. A contrast can be drawn with the rural fuel discount derogation that the Government are pursuing.

Amendment 58 and new clause 15 relate to quarrying and mining. Although the Calman commission recommended devolving the aggregates levy, a tax on quarrying and mining is much wider and has not been endorsed by the Scottish Parliament. Even if the scope of the amendment was narrowed to devolve only aggregates extracted from the land, as Calman recommended, I would not accept it at this point. The aggregates levy is currently under legal challenge in the EU courts, and it would be reckless to devolve it while the challenge remains. I will not devolve a tax to the Scottish Parliament where there is any risk that it could subsequently be deemed to be illegal. That would be a substantial risk for the Scottish Parliament, which was the point made by the hon. Member for Glasgow North (Ann McKechin).

[Mr Ian Davidson (Glasgow South West) (Lab/Co-op)]

Will the Minister clarify how it is reckless? What is the element of risk involved were it to be transferred now to the Scottish Parliament?

[Mr Gauke]

The risk is this: should it be found subsequently that the aggregates levy, as currently constituted, is not legal, the loss of that revenue would be immediate and significant for the Scottish Government. The hon. Member for Dundee East referred to the special rates of aggregates levy in Northern Ireland, and asked why they could not therefore be applied in Scotland. I make the point, however, that the Northern Ireland credit scheme was suspended on 1 December owing to the legal challenges at the European courts.

The confirmation sought by the hon. Member for Glasgow North is set out in the Command Paper accompanying the Bill: once the aggregates levy has overcome the legal challenge, we will devolve it to Scotland. Clause 24 enables that to happen.

[Mr Davidson]

I am genuinely unclear about the point that the hon. Gentleman is making. I fail to see how the Scottish Government lose if the action results in the aggregates levy being ruled illegal. They do not have an aggregates levy at the moment. If it is transferred to them and then abolished, they will not have it either. Not losing something that they do not have already is not a deficiency. Would any additional risk result from the transfer of the aggregates levy?

[Mr Gauke]

The point is that there would be a reduction in the block grant, because the revenues from the aggregates levy would be going to the Scottish Government. If it was subsequently found that the aggregates levy in its current form was not legal, either we would have to readjust the block grant or the Scottish Government would have to bear the shortfall.

I shall move on to amendment 57 and new clause 16. The Calman commission recommended the devolution of the UK’s air passenger duty, not a general power to tax air travel, which is what the amendment seeks. The UK Government are exploring changes to their aviation tax system, as stated in last year’s June Budget, and will look at devolution of this tax base in that future work. However, it is not appropriate to devolve aviation tax until these changes have been explored, with any major changes subject to consultation, and a decision on the future of UK aviation tax made. To do otherwise would mean that the Scottish Parliament would have to plan the future of their new tax without the context of the UK version. I would also like to answer the point about the process of a new tax. Clause 24(6) provides that any new tax would need to be approved by the Scottish Parliament, under section 80B of the Scotland Act 1998. That would clearly apply in these circumstances.

I turn to amendment 60 and new clause 17. The Calman commission recommended that corporation tax not be devolved. The Scottish Parliament has endorsed this, although it wants to stay engaged in any future discussions on corporation tax devolution. Both the Calman commission and the Scottish Parliament recognised very good reasons why not to devolve the tax. First, the Calman commission concluded that if comparable levels of public services were to be maintained, the scope for substantive reductions in the rate of corporation tax in Scotland was limited, unless the Scottish Government are able to increase revenues from other sources. As the hon. Member for Glasgow North said, under European law there will have to be a reduction in the block grant commensurate with the value of the reduction in the corporation tax rate.

Secondly, the commission also believed that the potential administrative impacts of such a move were significant. The creation of compliance costs to businesses operating on either side of the border, as well as the increased collection costs to the Government, would be undesirable in the present economic climate.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The Exchequer Secretary might be aware that the Conservative economics commission in Wales has advocated the setting of corporation tax at a regional level. What does he say to that?

[Mr Gauke]

We will consider that. At the moment, however, we are concerned with Scotland and Wales in particular. There is a slightly different issue with Northern Ireland, where the Government have not yet made a decision on the devolution of corporation tax. Clearly, however, the circumstances in Northern Ireland are different: it does not have a land border with the rest of the UK, but does have one with a country that has a substantially lower rate of corporation tax.

There are a number of detailed questions about how some of these tax matters will be addressed. Various points arose from last week’s Scottish Parliament report, and we will respond to those in due course. However, I am keen that the joint exchequer committee—that is the title suggested by the Scottish Parliament, and it is one we are happy to take onboard—which will consider these matters in some detail, meets as soon as possible after the Scottish elections and the formation of a Scottish Government. We can then discuss some of these matters and provide further details in the future.

[John Stevenson (Carlisle) (Con)]

Can the Minister assure me, as a Member representing a seat on the English side of the border, that such reviews will take into consideration the effects that any tax powers may have on the English side of the border, as well as the Scottish side?

16:34

[Mr Gauke]

It would be fair to point out that the Calman commission took into account some of those issues, because—to take the examples of corporation tax or fuel duty—there could be significant issues with full devolution, and we will of course take into account the interests of all parts of the country.

[Pete Wishart]

Will the Minister give way?

[Mr Gauke]

I am hoping to wind up soon, but I shall give way to the hon. Gentleman.

[Pete Wishart]

Perhaps the Minister could answer the question—a question that the hon. Member for Glasgow North (Ann McKechin) also raised—about the process in which we are now involved. When are we likely to see amendments that reflect the will of the Scottish Parliament’s Committee? Will they be introduced in the House of Lords? Like the hon. Lady, I would find that unacceptable: such amendments have to be debated in this place. When will we be able to debate them in this House?

[Mr Gauke]

My right hon. Friend the Secretary of State for Scotland addressed many of those issues earlier, but let me make this point about the devolution of tax. It is important to have the consent of the Scottish Parliament, which is why we are proceeding as we are, which is not the approach of the Scottish National party. Neither this Government nor, I believe, the vast majority of hon. Members would seriously consider making amendments that affected the powers of the Scottish Parliament without its consent. However, as has been said, devolution is a process, not an event. This is an enabling Bill. The Scottish Parliament can ask for additional tax powers over the course of time and have them duly considered. Clause 24 gives the power to add new devolved taxes. The Command Paper accompanying this Bill sets out the process for taking forward the devolution of the aggregates levy and air passenger duty, but any future devolution must happen with the wholehearted consent of the Scottish Parliament, not just following the proposals of a minority of Members of this House. Given that, I ask the hon. Member for Dundee East to withdraw his amendment.

[Stewart Hosie]

Let me respond briefly to some of the key points raised. The hon. Member for Dumfries and Galloway (Mr Brown) talked about a fuel duty regulator, as he has done on a number of occasions. He knows very well the difficulties faced by hauliers and others in the south-west of Scotland. He asked whether I would give up on the proposal in this place if it were delivered in Scotland. I said in my speech that if the UK Government would not deliver it, the powers should be devolved, so that the Scottish Government could act. I simply want fair play on fuel. It is important that the power should be devolved, so that the Scottish Government can act if the UK Government will not.

The hon. Member for East Lothian (Fiona O'Donnell) made an interesting speech, as she always does. She valiantly tried to defend the lack of Labour attempts to strengthen the Bill. She spoke in favour of Calman, but rejected one of the key Calman recommendations, which was the aggregates levy proposal. The hon. Member for Glasgow North (Ann McKechin) also made an interesting speech. She raised the notion of—I think—a £600 million loss every year if there was a 10p cut in corporation tax. No one has ever suggested an immediate 10p cut in corporation tax. That was a straw man, set up to be knocked down, and bears no relation to the policy of any party in this House.

[Ann McKechin]

Perhaps the hon. Gentleman could clarify what rate of corporation tax he would propose if the power was devolved.

[Stewart Hosie]

I would like it cut over a number of years, taking the benefit of the announcement effect and taking advantage of the experience of other countries, where, with modest changes on a downward spiral in corporation tax, the business tax yield has increased. That is very sensible and is, I think, what the current Government have in mind.

Let me turn briefly to what the Minister said. He said that the proposal would provide around one third of Scotland’s budget. That is similar to the figure of 35% proposed by the Calman commission, but that included all the revenue proposed by Calman, much of which is not in the Scotland Bill. That figure was also calculated on a baseline that excluded capital expenditure from the Scottish budget. The Minister will find that the actual percentage share is considerably lower. He said that the Government would never seek to devolve taxes on a whim. Let me assure him that we would certainly not want to do that either. We would want to devolve taxes only to provide balance and a basket of taxes to mitigate any volatility, which may well arise when the bulk of our assigned revenue comes from a single, personal tax.

I am not convinced by many of the arguments I have heard. There is a very strong case indeed for trying to push forward with the Calman proposals, particularly on the aggregates levy, so I intend to divide the Committee on amendment 58, but for now I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 58, page 16, line 17, at end insert—

‘(c) Chapter 5 provides for an Order in Council to specify, as an additional devolved tax, a tax charged on quarrying or mining,’.—(Stewart Hosie.)

Question put, That the amendment be made.

18:06

Division 222

Ayes: 8

---

Scottish National Party: 5
Plaid Cymru: 1
Green Party: 1
Labour: 1

Noes: 292

---

Conservative: 249
Liberal Democrat: 41
Democratic Unionist Party: 1

Clause 24 ordered to stand part of the Bill.

Clause 25

Amendments relating to the Commissioners for Revenue and Customs

Question proposed, That the clause stand part of the Bill.

[Ann McKechin]

I should like to ask the Minister a couple of questions about this clause, which is technical in nature and will enable HMRC to disclose information to the Scottish Ministers. Given the terms of the Holyrood Committee’s report on the appointment of an additional accounting officer responsible for Scottish income tax, and the duties and accountabilities of HMRC, should that proposal be put on a statutory footing? That question was raised by the Committee, and I should be grateful for the Minister’s response.

Will the Government also consider the Committee’s recommendations that the work of Her Majesty’s Revenue and Customs and the Office for Budget Responsibility be subjected to audit in respect of aspects of devolved taxes? If it is subject to audit and the Government have thought about it, I should be grateful to find out whether, in order to facilitate proper accountability to the UK Parliament and the Scottish Parliament, it should be carried out by the National Audit Office or the Auditor General for Scotland, or both. It is important to clarify these points at an early stage. In debating the previous group of amendments, the Minister spoke about the new Treasury committee between the UK Government and the Scottish Government, but I am sure that Select Committees in this House and those in the Scottish Parliament will want to have an opportunity to look into this work and, where necessary and when the clauses are implemented, to review the work of HMRC. At this stage, I would be grateful for any further clarification from the Minister.

[Mr Gauke]

I thank the hon. Member for Glasgow North (Ann McKechin) for her questions. We do not believe it is necessary to put the additional accounting officer on a statutory footing, but let me repeat our assurances, which I hope will satisfy the hon. Lady. She asked detailed questions arising from the Holyrood Committee report published last week and she will not be surprised to hear that I believe we can look at this matter within the bilateral Exchequer committee. I understand her desire to have greater clarity as soon as possible, but it is important to get the matter right. The committee will have an opportunity to meet shortly after the formation of the Scottish Government, and I hope we will be able to make some progress on some of those detailed points.

Clause 25 is a technical provision. It enables HMRC to share with the Scottish Government information about the collection and management of devolved taxes, while ensuring the confidentiality of that information. I thus believe that the clause should stand part of the Bill.

Question put and agreed to.

Clause 25 ordered to stand part of the Bill.

Clause 26

Scottish rate of income tax

[Ann McKechin]

I beg to move amendment 68, page 18, line 11, after ‘may’, insert

‘after consultation with such persons as Scottish Ministers consider appropriate’.

[The Temporary Chair (Mr Charles Walker)]

With this it will be convenient to discuss the following:

Amendment 69, page 20, line 5, after ‘may’, insert

‘after consultation with (a) Scottish Ministers, (b) the Scottish Parliament and (c) such persons as it considers appropriate’.

Amendment 70, page 20, line 21, leave out subsection (4).

Government amendments 61 and 62

Amendment 43, page 20, line 35, after ‘Treasury’, insert

‘, with the consent of the Scottish Parliament,’.

Amendment 44, line 38, at end insert—

‘(6A) For the purposes of subsections (4) and (5)—

(a) reference to the consent of the Scottish Parliament means consent by resolution, and

(b) standing orders must provide that only a member of the Scottish Government may move a motion for such a resolution.’.

Government amendment 63

Amendment 47, clause 29, page 23, line 12, after ‘Treasury’, insert

‘, with the consent of the Scottish Parliament,’.

Amendment 48, line 28, at end add—

‘(7) For the purposes of subsection (4)—

(a) reference to the consent of the Scottish Parliament means consent by resolution, and

(b) standing orders must provide that only a member of the Scottish Government may move a motion for such a resolution.’.

Government amendment 64

Amendment 49, clause 31, page 24, line 8, after ‘Treasury’, insert

‘, with the consent of the Scottish Parliament,’.

Amendment 50, line 8, at end add—

‘(5) For the purposes of subsection (4)—

(a) reference to the consent of the Scottish Parliament means consent by resolution, and

(b) standing orders must provide that only a member of the Scottish Government may move a motion for such a resolution.’.

Government amendments 65 and 66

Government new clause 18—Orders

[Ann McKechin]

I am speaking to amendments 68, 69 and 70 and I wish to put it on record that the wording of those amendments was suggested by the Law Society of Scotland. I shall speak to the amendments first and then to the clause stand part—with your agreement, Mr Walker. I have a substantial number of questions to put to the Government about the implementation of this important clause.

On amendment 68, new section 80C empowers the Scottish Parliament to set by resolution the Scottish rate of income tax. This is an important power that is required to be exercised in accordance with the principles set out by the consultative steering group report published by the Scottish Office in 1999. These principles include accountability, openness and accessibility with a view to making possible “a participative approach” to “policy and legislation”. Accordingly, Scottish Ministers should, we believe, be required to consult those considered to be appropriate when proposing the resolution for the Scottish rate—much in line with existing practice of the Treasury here.

On amendment 69, new section 80G enables the Treasury to disapply or modify section 6 of the Income Tax Act 2007. This could involve issues such as gift aid relief or pensions relief. The order would be introduced in the UK Parliament and debated and passed or rejected in the UK Parliament. However, it could substantially affect the Scottish rate and Scottish taxpayers, as well as Scottish charities and pension funds, so we believe that Scottish Ministers and the Scottish Parliament should be specifically consulted prior to any amendment of these reliefs.

Finally, amendment 70 takes out subsection (4). We have concerns about the provision. Section 80G(4) provides that an order made under that section

“may, to the extent that HM Treasury consider it to be appropriate, take effect retrospectively”.

We believe that HM Treasury should, at a minimum, consult Scottish Ministers and the Scottish Parliament if retrospectivity is required. The Minister will not be surprised to hear me say that I think all Governments should avoid retrospective legislation whenever possible—unless there is a proven and specified need. We think that the case for retrospective application in this instance has not yet been made out.

The amendment is designed to probe this issue. The Scotland Office has indicated that the power would be used to make tax reliefs applicable retrospectively, but I suggest that this could be done either by regulation or statutory instrument. The clause enables a charging order to be made by the Treasury, which is a matter of concern to us. Any retrospective action by the Treasury could—I stress could—have a detrimental impact on individual taxpayers and on the Scottish parliamentary budget. I hope that when the Minister responds he will provide some assurance about the circumstances in which and when the Government intend to use this power. I hope he will confirm how limited the power will be when it comes to its practical exercise.

Paragraph 673 of the report by the Holyrood Committee asked a number of questions about residence. The question of residence is one about which most of the tax experts we consulted expressed some concern. I understand that there is no statutory definition of a UK resident taxpayer. This legislation, however, attempts to define by statute a Scottish resident taxpayer. Given that that is, in a purely technical sense, a subset of a UK resident taxpayer, I think the Minister would accept that it is unusual to have a fixed statutory definition within a floating definition. I would like to question him a bit further about how this will work in practice and what the levels of risk are in respect of the current application of the law.

Paragraph 673 of the Holyrood Committee report asks what “place of residence” means, as defined in clause 26, as it appears to be different from how residence is understood in other areas of tax law such as capital gains tax. Does place of residence imply ownership when juxtaposed against “main place of residence” in new section 80E(a), (b) and (c)? Place of residence and main place of residence are not defined in that new section, which I fear could present problems of interpretation. I would be grateful if the Minister clarified his understanding of the interpretation in this case.

How the tax is to be applied in practice is an important issue. The vast majority of Scottish taxpayers live the whole period of their lives in Scotland or live there for very substantial periods, and it is relatively easy to define who those people are. What about people working on board ships or on oil rigs, for example? What about members of our armed forces and what about those who are neither UK resident nor employed by non-UK employers? As I said, the Scottish taxpayer is defined by reference to an individual who is resident in the UK for income tax purposes. The current definition of UK residency lies in 86 pages of guidance that are the subject of frequent revision by HMRC. How, then, can the Government be confident that this definition is going to work? Do the Government agree with the Chartered Institute of Taxation that the introduction of a possible statutory residence test for the UK is now essential? Experts in, for instance, the Institute of Chartered Accountants of Scotland, the Chartered Institute of Taxation, the Federation of Small Businesses and CBI Scotland have expressed concern about the lack of a concrete definition. What are the Government doing to address those concerns expressed by professional experts? I understand that they are considering the issue. Will the Minister tell us whether they are likely to attempt to provide a better definition of a UK resident taxpayer in the Finance Bill that will follow next week’s Budget statement?

18:30

Will the Government clarify the position of personal representatives of a deceased person? Will they count as individuals for the purpose of this definition? If so, will any income arising during the administration of an estate be treated as income subject to the Scottish rate?

What are the Government doing to address concerns about the “close connections” test? For example, an English oil worker who lives in England but commutes to a Scottish oil rig—which, of course, is a regular occurrence—will not have a close connection, but a Scottish resident who works in England and returns to Scotland for weekends and holidays could be caught. How will the Government deal with mobile workers who may find it impossible to know where they are until a day count is carried out at the end of the tax year?

It has been suggested that there is a high risk of perception of unfairness because the definition of “Scottish residence” is so loose that wealthy individuals can arrange their affairs in such a way as to avoid a higher rate of tax. How do the Government plan to avoid such a scenario? What mechanisms do they propose to deal with disputes about the application of the rules? Will there be a special tribunal system and a right of appeal?

Do the Government not agree that if a non-UK resident is working in Scotland and liable to pay tax, it should be paid at the Scottish rate? The Bill currently provides for company directors, sports people and entertainers undertaking duties wholly in Scotland to pay UK income tax on income earned entirely in Scotland, but not to pay Scottish income tax. Employees will inevitably approach their employers rather than the tax office for information on their tax status. What will the Government do to support employers? I appreciate that the implementation of the Bill is a number of years away, but I think it important at this stage to give businesses and employers as much reassurance as possible about how the Government will seek to minimise the burden and bureaucracy that they may have to face as a result of the Bill.

When the Federation of Small Businesses surveyed its members, it found that 18% of them did not use PAYE software to administer their payrolls by means of computer systems, but undertook the task manually. Is it not unhelpful of the Government to suggest that many small businesses should be forced to take on the burden of identifying and administering the new tax rates? What specific measures will the Government introduce to help small businesses with 10 or fewer employees to cope with the changes?

Although there has been some publicity in Scotland about the Bill, south of the border there will be little knowledge among businesses that may employ a few staff north of it. What kind of public awareness campaign will the Government conduct to make companies aware of the proposed changes and their impact on payrolls?

I should be grateful if the Minister told us about any of the discussions he has held with the high-level expert group about the definition of Scottish residence and the issues that have arisen as a result of those discussions, which I understand have been proceeding for some months.

The Chartered Institute of Taxation has suggested that HMRC will need to

“staff up properly in anticipation of a considerable extra flow of questions when the Scottish income tax goes live.”

What are the Government doing to achieve that, given that in recent months HMRC has been closing offices across Scotland and the rest of the UK and reducing its capabilities?

Under the Bill in its present form, no account is taken of a split year, which means that once someone is classified as a Scottish taxpayer he or she will remain one for the entire year. The opposite will apply to those living in another part of the United Kingdom. For example, if a company’s one Scottish employee moves south, the company will have to continue to have a Scottish taxpayer on the payroll even when that person is no longer a Scottish employee. What is the Government doing to address an anomaly that some may consider unfair?

Do the Government not agree that new section 80G (1) is drafted too widely? The Chartered Institute of Taxation has described it as a Henry VIII provision. Do the Government not think it inappropriate to use secondary legislation to make major structural changes in primary legislation without proper oversight from the UK Parliament, and indeed the Scottish Parliament, on whose budget such measures could have a substantial impact?

If changes such as pension deduction rules are required, should they not be effected through primary legislation, or should not the Scottish Parliament and Government at least be given the right to be formally consulted? As I said earlier, we are concerned about the potential retrospective application of orders. Do the Government not agree that individual taxpayers deserve a degree of certainty in regard to their tax affairs as the end of a tax year approaches?

[John Stevenson]

The hon. Lady has raised many issues connected with income tax. I may be demonstrating my ignorance of the Scotland Act 1998, but under that legislation the Scottish Parliament could have increased or decreased the basic rate by 3p. Why were these issues not addressed then?

[Ann McKechin]

I was not a Member of Parliament at that time, unlike some of my colleagues who were in the House when the legislation was discussed in detail. I think it fair to say, however, that a great deal was left to the potential for secondary legislation. As the hon. Gentleman knows, those provisions have never yet been used. That is one of the reasons that the Calman commission specifically addressed the issue of fiscal accountability.

The hon. Gentleman may also be aware of recent debates in the Scottish Parliament following the decision of the Finance Secretary—without informing the Parliament—to advise HMRC that it would not be required to implement the rules for a few years. I do not wish to discuss that controversy, but I will say that the establishment of the Calman commission was partly due to the fact that the rules had never been implemented. Much of the detailed work that we are now considering had been put on the shelf without being properly examined. I take the hon. Gentleman’s point, but I think it necessary for me to ask the Minister a number of detailed questions in order to ensure that the Government’s intentions are on record.

[Rory Stewart (Penrith and The Border) (Con)]

Given that income tax issues such as this are addressed throughout the world where jurisdictions—for example, American states—abut each other, does the hon. Lady consider them to be reasons for fundamentally objecting to the Bill, or simply matters of minor detail that could be resolved by means of secondary legislation?

[Ann McKechin]

As I have made clear, on Second Reading and throughout this debate, Labour fully supports the principles behind the Bill and the additional fiscal powers given to the Scottish Parliament. Before the election, the Labour Government supported the Calman commission, as we made clear in a White Paper published in the summer of 2009. I think that all these issues can be dealt with, but, as I am sure accountants and lawyers will confirm, the devil is in the detail at times. It is important for the House of Commons and, no doubt, the House of Lords to give the Bill proper scrutiny, because ultimately individual taxpayers, businesses and employers will have to live with the consequences of its implementation.

[Mr Frank Roy (Motherwell and Wishaw) (Lab)]

Is it not worth reminding the Committee that, no matter what was said in 1997, the Opposition voted against it?

[Ann McKechin]

Indeed, and the fact that we now have converts to the cause shows what a difference the passage of time makes. As I said earlier, I am pleased that even the SNP has agreed to the LCM motion.

Our present approach is consistent with the approach that the Labour party has always taken to constitutional reform, which is to seek political consensus before introducing legislation in the House of Commons. The reason we have such a degree of consensus this evening is that we have spent a good deal of time examining details of the legislation. I congratulate the Holyrood Committee, which has done an excellent and thorough job in examining many of the issues in great detail. We all benefit from its work and from last week’s debate in the Scottish Parliament, which showed that the Scottish Parliament and its Committees are more than capable of doing a thorough job in scrutinising legislation.

I should be interested to know whether the Government agree that the retrospective application of an order could adversely affect the budget of the Scottish Parliament. For example, if the Budget is set in March and the Treasury lays an order in October to apply a relief clause retrospectively, that could have grave implications for the Scottish Government’s budget. That is another reason why I seek some reassurance about the Government’s intentions for the use of this clause.

How do the Government propose to deal with avoidance of the Scottish tax rate? Unlike other jurisdictions that have devolved taxes, and where there are different forms of collection and reporting, many people self-assess or are in pay-as-you-earn schemes, and they are not currently specifically called on to declare their residence to the tax authorities in the way required by the Bill. The Bill’s provisions only apply to income; they do not apply to dividends or to interest on savings, and we would want appropriate measures to be taken to ensure that people do not end up transferring income into another route, to try to avoid the income tax provisions made by the Scottish Parliament.

What provisions have the Government put in place for the self-employed? Will, as anticipated, the self-assessment tax return have to be altered, with additional questions on residency for example, particularly for those who work in a different part of the UK? I realise there are specific measures dealing with Members of Parliament and we are automatically included, but it has been pointed out that Scottish judges serving at the Supreme Court are not covered by the Bill’s provisions. Similarly, other senior Government officials travel from different parts of the country for their work. It is important that they are aware of what may be expected of them in terms of self-assessment claims.

[David Mowat (Warrington South) (Con)]

Many of the hon. Lady’s comments imply that she is unhappy with residency being the method for working out where people pay tax, but it seems to me that there is no alternative. Is her position that she would like everybody to fill out a tax return?

[Ann McKechin]

No, I can assure the hon. Gentleman that I do not want to burden the taxpayer unnecessarily with additional questions and pieces of paper and that I think the residency basis is the simplest way to deal with this issue. The problem is that we have a floating definition of a UK resident taxpayer, and from that we are trying to define in very exact terms a Scottish resident taxpayer. That is the point at which there could be challenges, and sometimes mischief in that people might try to change their declaration of where they believe they are resident.

This situation is unlikely to arise for the vast majority of taxpayers in Scotland; most of them will be faced with a very simple exercise. Nevertheless, as I have pointed out, in other jurisdictions with devolved income tax there are ways in which people have to declare where their residence is that we currently do not have in the UK. I want the Minister to say whether the Government are aware of any potential problems, and what measures they intend to put in place to avoid them, so that the maximum level of tax that is due is collected and returned to the Scottish Government, and so that administration is kept to a minimum. All hon. Members will be concerned about the cost to the Exchequer, and also about the costs to individual businesses. That is why I am asking these questions, but I agree that residency is the easiest way to define who should be liable to tax.

I also appreciate that a decision has been taken not to include interest on dividends and on savings. People will comment that that perhaps creates a degree of unfairness because some individuals get the majority of their income from those sources, but I acknowledge that there are complex and expensive practical difficulties in applying a residency test for those types of revenue, and that ultimately the benefit may not be great. We therefore understand why the Government have phrased the clauses in this way, but the devil is in the detail of defining exactly what they will mean in practice.

[Stewart Hosie]

The hon. Lady will understand that there is a very close relationship, particularly at the lower levels of income, between dividends and savings income, income tax and, as importantly, income tax allowances and thresholds. We have not tabled amendments on this topic, and it is extremely complicated, but if it were proved that there is an inherent logic in bringing together income tax, the tax on savings and dividend income, and how that relates to thresholds, allowances and the Scottish rate, might the hon. Lady and her colleagues be prepared to listen to that argument in future?

18:45

[Ann McKechin]

The Holyrood Committee did not consider that in detail, and the Calman commission did not make any specific recommendations that would lead us to legislate tonight. We have to reach a compromise in respect of striking a balance between fairness to Scottish taxpayers and having a system that is as simple and easy to understand as possible, and that reduces the administration costs to the Scottish Government as far as possible.

On thresholds, given that the Welfare Reform Bill has just been introduced with proposals on universal credit at the same time as this Bill is passing through the House, I ask the Government to say what consideration has been given to the impact on welfare benefits. Those on low incomes often have the most complicated tax affairs. Most benefits are calculated on after-tax income. If the Scottish rate income tax is higher than the basic rate, Scottish taxpayers on benefits will be entitled to claim more benefit. Will the Government ensure that the extra benefit is paid automatically, or will they issue public information on how full entitlement can be claimed? How will the new proposals on universal credit be implemented in respect of these tax changes? The Government have stated that their general rule on the tax base is one of no detriment, but I ask the Minister to reflect and give any assurance he can about whether there might be a possible conflict.

Conversely, if the Scottish tax rate is lower than that of the rest of the UK, Scottish taxpayers on benefits will be entitled to fewer benefits in some cases. What mechanism will the Government put in place to ensure that adjustments are made to their payments? We would be concerned if those on the very lowest incomes were adversely affected in their entitlement to the welfare benefits system. That is largely based on the national insurance system of course, which is separate from the tax system, but, as the Minister will be aware, the interaction between benefits and taxes is complex, and I am sure none of us would want to do this in a way that adversely impacts on pensioners, people on lower incomes, single parents, the disabled and others who may already have many concerns about what is being proposed in the Welfare Reform Bill. I hope the Minister can reassure us that he will not be adding to that burden.

Are the costs of implementation still as estimated in the Command Paper? How do the Government intend to control those costs? There is a long period of implementation, and hon. Members may be concerned about that, as some implementation schemes have taken longer, and been much more expensive, than originally estimated. Will the Minister tonight undertake to produce an annual report to the House of Commons until the full-scale implementation of the scheme, so that we may better scrutinise it, and ensure that value for money to the taxpayer is maintained and that the burden—which, of course, is ultimately to be met by the Scottish Government—is kept to a minimum?

[Iain Stewart]

I support the clause, but I wish to raise a couple of specific examples just to test that the definition of a Scottish taxpayer as set out in the Bill is robust and covers all eventualities. I appreciate that the examples I am about to give are technical, and if the Minister is unable to give me a definitive response tonight, I hope he will be able to do so on Report.

My first example is based on the situation my father was in for a number of years. It relates to proposed new section 80E(3)(c) on the definition of Scottish residence, as opposed to residence of another part of the UK. My father’s home was, and is, in Hamilton, just outside Glasgow. By any reasonable test, that is his main residence: it has been the family home for generations; my mother lives there; and it is what my father would call home. However, for a number of years he worked for the Civil Aviation Authority and although he was mainly based at Prestwick, the nature of his job required him to spend a considerable amount of time at its headquarters in London. He rented a flat in central London, where he was registered on the electoral roll for council tax, for utility payments and for all the other aspects of living in a dwelling. For a number of tax years he spent a majority of nights in London, as opposed to spending them at the family home in Scotland. Therefore, if I have read proposed new section 80E(3)(c) correctly, he would not be deemed to be a Scottish taxpayer. I would be grateful if the Minister would confirm whether that is the case. If so, is this not an anomalous situation and will the Government re-examine what the definition of “a Scottish taxpayer” should be?

Secondly, I wish to discuss the “Caledonian sleeper” question, which relates to proposed new section 80F(1)(a) and the number of days spent in Scotland

“at the end of the day.”

I do not have a detailed knowledge of the railway timetable, but let us suppose that the sleeper train left Glasgow at 10.30 pm or 10.45 pm and so was clearly in Scotland at the end of the day. If it traversed the border before midnight and so was actually in England on the stroke of midnight, would that day be counted as Scottish or English for the purposes of this calculation? I hope hon. Members will forgive me for raising this very detailed point, which will affect only a small number of people, as it is the job of this Committee to tease out these practical matters. I do not expect the Minister to give me a definitive reply right now, but I would be grateful if he undertakes to examine the matter and give an answer at a later stage in our proceedings.

[Sheila Gilmore]

It is important that we move forward on these tax powers for the Scottish Parliament. The big difference between these proposals and the ones in the Scotland Act 1998 are that these apply to all the different rates of tax. The structure being used and the fact that there will be a corresponding reduction in the block grant will deliver to the Scottish Parliament a real ability to make decisions, be accountable and test how well these things work. We wanted that in Scotland and we need it, but that is not to say that the arrangements will not have any complications and that there is no need to be clear about the answers to some of these questions. Some could be covered by regulations that are to follow, but there is always an anxiety involved in depending too much on detailed regulations, as opposed to primary legislation.

I wish to discuss two particular areas, one of which is tax avoidance and the provisions that the Government suggest we put in place to deal with it. The last thing that we would want is for those who have the ability to arrange their tax affairs in different ways to be able to avoid paying this tax, as that would harm the Scottish economy and undermine the whole principle behind what we are trying to achieve. We need to know what provisions will be put in place to deal with tax avoidance in the future. My hon. Friend the Member for Glasgow North (Ann McKechin) mentioned the self-employed, and they are also important. It is easier for them to arrange their tax affairs in a beneficial way, whereas those of us on PAYE may not be able to do that. It is important for self-employed people to know exactly how this system will work for them, particularly if they generate earnings in different parts of the United Kingdom, as it is quite possible for such people to generate.

I also have concerns about the future interrelationship between the benefits system and the tax system. This is important because the way in which benefits are calculated for some people depends on their income after tax, which means that a variation in tax will affect benefits. The Government may be clear that systems will be in place to deal with that very quickly, but the last thing that people on benefits need is any uncertainty about their income. They need to know how any increases in their income, and therefore in their tax liability, or any decreases in their income will affect them, because at that level of income people suffer particularly badly when changes are made. If the Welfare Reform Bill proceeds in full, we will be moving towards a new benefits system at just about the same time as some of these new powers come into force, so it is important to get this right. I urge the Government to provide answers to these questions, if not now, in time for Report, so that we can be clear about how this interrelationship will work.

[Fiona Bruce]

May I begin by telling hon. Members how pleased I am that, after a thorough independent evaluation of the devolution settlement in Scotland, this Government have been quick to legislate on this issue, fulfilling a manifesto commitment of more than one party in this House? After more than a decade, the time is right to assess the implications and consequences of the devolution settlement.

I shall now speak generally in support of the provisions of clause 26. The Calman commission review predates the economic crisis, but the need to recover the UK’s economic strength makes this issue ever more important. It is clear that economic growth will be driven by enterprise in local communities. Creating a Scottish rate of income tax will give the Scottish Government more responsibility over not only how they spend revenue, but how they raise it. That is a crucial discipline, which we hope will increase the likelihood that fiscal decisions will reflect the needs and priorities of Scotland, the Scottish economy and, most importantly, the people of Scotland. This is an opportunity for genuine fiscal accountability.

The proposals outlined in the Bill are not entirely new, but they do mark the next stage of the devolution settlement for Scotland. The existing Scottish variable rate gives the Scottish Government the power to raise or reduce the basic level of income tax. As Donald Dewar, the original First Minister, said, the Scottish variable rate

“asks the Scottish Parliament to face real financial choices and makes it, in a sense, more directly accountable to the people it represents.”—[Official Report, 31 July 1997; Vol. 299, c. 465.]

However, as we have discussed tonight, the Scottish variable rate has previously been only somewhat theoretical, in that it has never been employed as a tool to influence the economic fortunes of Scotland. That raises the question of whether the new rate will be any different, but I believe that it will be. I believe that the Scottish Government can and will enjoy more financial responsibility through the radical proposals in the Bill. More importantly, the proposals have the propensity to have long-lasting positive effects in Scotland.

To understand that, we have only to ask ourselves how our constituents—no matter which part of the UK we represent—would respond if more funding were raised and distributed locally, rather than by central Government. If that were the case, I am sure that my constituents would take an even greater interest in what their money was spent on and would be able to assess more easily whether politicians were responding to local priorities. Although the provisions relating to Scotland are based at the national level, not the local one, the same phenomenon should apply. This move should strengthen democratic accountability and bolster political engagement in Scottish communities.

I am sure that I am not the only hon. Member recently to have received letters from constituents unhappy about the level of block grant funding given to the devolved nations and, in particular, concerned that there is a difference in funding for certain policy areas, such as university fees and prescription charges. What needs to be communicated more effectively is how the Scottish Government can prioritise their funding. In England, all funding is distributed by the UK Government but in Scotland, the UK Government pay for national—that is, UK-wide—public services, such as defence and industry, and the block grant funding is distributed by the Scottish Government and pays for devolved powers: education, various aspects of health policy and so on. As a result, although decisions on funding in England must involve national, regional and local priorities, the Scottish Government can spend their block grant funding on regional and local issues only.

19:00

The income tax provisions in the Bill will mean that the procedure of setting the Scottish Government’s budget is more responsive to the wishes of the Scottish electorate. That will increase the financial accountability of the Scottish Parliament and relieve the Scottish Government’s reliance on the block grant—a healthy development and one that many of my constituents will welcome.

[Sheila Gilmore]

Will the hon. Lady concede, nevertheless, that choices are made about how to spend that block grant and that if a Scottish Government make a choice about how to deal with university funding, they do so to the potential detriment of other funding? The decisions that have been taken in this place about tuition fees and the reduction of the teaching grant for universities have had a considerable impact on Scotland, so we are not somehow free from those decisions.

[Fiona Bruce]

The hon. Lady makes a valid point and that is why I prefaced my remarks with the phrase, “What needs to be communicated more effectively is how the Scottish Government can prioritise their funding.” By that, I meant that checks and balances are involved and that that needs to be communicated nationwide. A greater understanding of that needs to be gained.

[David Mowat]

My hon. Friend’s answer to that intervention was very generous. It is right that the Scottish Parliament should make decisions about priorities in Scotland—about free tuition, prescriptions and whatever else—but the question that remains and needs to be answered is whether the baseline of the block grant, as it is set up, is fair on Scotland, England and Wales.

[Fiona Bruce]

My hon. Friend makes a valid point.

Let me turn now to the proposals in the Bill. It is only right that I should explain why complete financial independence would not, in my view, be beneficial for the Scottish or wider UK economy. Members of the Scottish National party might say that the Bill’s financial provisions do not go far enough but devolving full economic responsibility while retaining various regulatory and other competences would create a two-tier system that would serve to weaken our economy. Devotees of the two-tier system argue, I believe, on the basis of a fiction, if not a fantasy, that such a fragmented system could exist without disastrous consequences. The Calman commission and the Scottish Parliament’s report on the Bill both rule out financial independence on the grounds that it would create havoc for taxpayers and break up the Union.

In its final report, the Calman commission gave its reasons why income tax should not be fully devolved, including that it would not, in the commission’s view,

“be consistent with the social Union”.

We can add a further reason. There are certain areas of government that a responsible country will retain at a national level, such as defence and national security. They should remain UK-wide in the interests of the shared public good, and fragmenting them would be both inefficient and dangerous for national security. The same basic principles apply to immigration and trade. Unco-ordinated approaches in those areas could lead to potentially disastrous consequences so it is important that we act responsibly and in the whole country’s interest.

Such protections can be afforded only under a single economic framework and any moves to meddle in that area unnecessarily will create more damage than good. It is therefore refreshing that the Scottish Parliament recognises the merits of the Bill’s provisions and, rather than running before attempting to crawl, its report on the Bill does not go so far as to recommend full financial responsibility.

The Bill is about improving the devolution settlement and promoting economic growth. The income tax proposals in the Bill retain the reservation of overall fiscal management within the UK Government, which will ensure that the needs of Scotland are supported alongside a UK-wide strategy of promoting growth and economic stability. I welcome the Scottish Parliament’s Committee’s report on the Bill, which states in paragraphs 36 and 39, with reference to fiscal decentralisation:

“The evidential base was, in our view, remarkably weak, and the claims made did not stand up to challenge or scrutiny…the overwhelming balance of expert economic opinion in Scotland and internationally was that the existing evidence base supports neither any clear link between fiscal decentralisation and an economy’s long-run rate of growth, nor…a precise numerical link between fiscal decentralisation and an increase in GDP.”

It goes on:

“The Scotland Bill is about good government. It is intended to improve how Scotland is governed and align decisions on spending and taxation more closely so that the Scottish Parliament will be more accountable and, in the long run, take better decisions. Better decisions will, in the longer term, mean improvements to many aspects of Scottish public life.”

In true political fashion, I have a favourite section of the Scottish Parliament’s Committee’s report, which was mentioned earlier. In paragraphs 43 and 44, the report states:

“Full Financial Responsibility was the Scottish Government’s alternative to the plans in the Scotland Bill. The Committee did not examine this in detail, as there was no detail to examine. We received no costings for these plans, no material explaining the practical implications for taxpayers, employers, Scotland’s financial sector or collection plans. However, we were able to come to several obvious conclusions. Firstly, as was made clear in evidence to us, fiscal systems serve constitutional ends. Full Financial Responsibility is no exception. The constitutional aim it serves, however, is not the preservation of the UK. Secondly, it is plain that under fiscal responsibility, Scotland would run a substantial deficit…Finally, it is clear that no thought has been given to the effect of these plans on the economy of the UK, to which Scotland will inevitably remain linked…The Committee is clear that the evidence shows that full financial responsibility or autonomy is not a serious alternative to the fully worked out plans in the Scotland Bill.”

[Lindsay Roy (Glenrothes) (Lab)]

Is it the hon. Lady’s contention that full financial accountability is a euphemism for independence?

[Fiona Bruce]

It is my contention that full financial responsibility would not benefit either Scotland or the UK more widely.

In conclusion, it has been made clear by the Scottish Parliament and acknowledged by the Calman commission report that reform of the devolution settlement in Scotland is essential. It is fair to assume that the Bill would exist regardless of which party was in government, and I hope it receives the support it deserves. Any futile disagreements with its premises discredit the fine work undertaken by the Calman commission and serve only to play partisan politics. It is difficult to argue against the income tax proposals laid out in the Bill as they further cement the coalition Government’s commitment to the localism agenda. That agenda is about devolving power to meet more local needs, but that does not mean that all powers can or should be devolved. Powers should be devolved to the most local level possible if feasible and responsible. I hope that if the Bill is successfully passed and implemented, Scotland will be able more effectively to deliver Scottish solutions for Scottish needs and the Scottish people. I support clause 26.

[Stewart Hosie]

I rise to support amendment 42, tabled in my name and those of my hon. Friends, and amendments 43, 44, 47, 48, 49 and 50. All those amendments are concerned with the commencement only of a number of clauses. I congratulate the hon. Member for Glasgow North (Ann McKechin), who is not in her place, on her technical questions. I have a very similar list so I shall not reread the questions but I would like to reinforce two of the points that were made.

The first concerns Labour’s probing amendment 70, on retrospectivity in the tax code. I am seeking a guarantee, as far as the Minister can give one, that such use of any retrospective tax powers would only be in relation to stopping tax avoidance or tax evasion. That is extremely important. The second is about people on board ships and other installations. Is the Minister convinced that the description in new section 80E(4), introduced by clause 26, that a place

“includes a place on board a vessel or other means of transport”

is sufficient?

Before I address my amendments, let me make an observation about the lovely speech of the hon. Member for Congleton (Fiona Bruce). She spoke about accountability under the proposals and not wanting things to be fragmented. I wonder how having control of 50% of the base rate, a quarter of the 40% rate and only a fifth of the top rate, and having no control over allowances and thresholds, is unfragmented. I understand that she wants things to work, but I fear that she might not understand that that might be deflationary. She said that there would be a link between tax and spending, which there might well be, but the provisions in total will assign the Scottish Parliament control of only 15% or so of the tax raised in and on behalf of Scotland. She also said that the Bill was a fully worked out plan. It is so fully worked out that there are amendments that we do not yet have, which we will debate on Report, and I suspect that amendments will be tabled in the other place. Of course, the Bill is also likely to be subject to a second legislative consent memorandum after the Scottish election, so it is not quite the fully worked out plan that she described.

Today, however, I am more concerned about commencement and I am glad that all the commencement amendments are being debated in a single group. They relate to tax provisions on the Scottish rate of income tax, stamp duty land tax and landfill tax, which come into force two months after the Bill receives Royal Assent. However, those provisions will not have any practical effect at that point because the Bill includes an additional step requiring the Treasury to appoint a tax year as the first year in which the income tax provisions are to operate. For SDLT and landfill tax, the Treasury will appoint a specific start date, but the principle is the same. Until the Treasury does that, those tax provisions will sit on the statute book without changing the current arrangements whereby the UK Parliament controls all aspects of income tax, SDLT and landfill tax. Similarly, although the measures to repeal the current Scottish variable rate provisions will commence two months after Royal Assent, they will have no practical effect until the Treasury appoints a tax year as the last tax year in which SVR will operate.

This two-stage approach to commencement is highly unusual but not unique. The practical effect is that the tax proposals will operate only when the Treasury decides they should. The powers conferred on the Treasury to appoint start dates are not subject to any parliamentary procedure and will not even be publicised by means of statutory instrument. The processes for bringing the tax provisions into effect do not require the consent of the Scottish Parliament, Scottish Ministers or even the Westminster Parliament. That would be a fundamental flaw in terms of scrutiny, particularly where the commencement of flawed provisions would result in something damaging the economy.

The SNP believes that there has to be a role for the Scottish Parliament. The Scottish Government have outlined the serious gaps remaining in the proposals, not least the fact that crucial details remain unknown. It is essential that the Bill should include a specific mechanism giving the Scottish Parliament the opportunity to consider the proposals after Royal Assent but before they are brought into effect. Our amendments seek to change the commencement provisions to ensure that the tax provisions cannot be brought into effect without the specific consent of the Scottish Parliament.

As the Bill alters the devolution settlement, the Scottish Government do not consider it appropriate for the key provisions on taxation to be brought into effect by means of an administrative decision by the Treasury. There are plenty of precedents for Scottish consent to be required before UK legislation comes into force. Section 127(4) of the Anti-terrorism, Crime and Security Act 2001 requires a joint order to be made by the Secretary of State and Scottish Ministers before certain measures can be brought into force. Section 148 of the Adoption and Children Act 2002 contains a range of commencement procedures involving Scottish Ministers and the Welsh Assembly. Certain provisions in the Policing and Crime Act 2009 relating to football banning orders require the consent of Scottish Ministers before being brought into force. Finally, the Public Bodies Bill, which is currently being considered in the other place, includes a requirement to obtain the consent of Scottish Ministers before an order abolishing or reforming a public body is made where that order includes provisions on a devolved matter.

19:15

If the commencement arrangements are left unchanged, many of the most important questions about the Bill will be left unanswered. They could then be answered only by HM Treasury when it decided to do so. In the view of the Scottish Government, the SNP and, I hope, Members on both sides of the House, the Scottish Parliament should not consent to what is effectively a blank cheque for the Treasury. Our amendments simply seek that the consent of the Scottish Parliament should be required before the commencement of the provisions. The amendments were not designed to be contentious, but they are vital and would give huge protection not just to the Scottish Government but to the Scottish Parliament by ensuring that the provisions that impact directly on fiscal tax and borrowing provision in Scotland must be agreed to by the whole Parliament and not just Scottish Ministers or UK Ministers before they are applied. I commend the amendments to the Committee.

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

I want to raise a technical point that was stimulated in my mind by the comments of the hon. Member for Milton Keynes South (Iain Stewart). It is a fairly minor point, but the aim of the Committee is to bring out such points. The hon. Gentleman referred to the Caledonian sleeper situation in which someone got on a train late at night in Glasgow, Edinburgh or somewhere else in Scotland and found that they were in England after midnight. There could also be a situation in which someone got on a train before midnight in Glasgow or Edinburgh, expecting to be in England after midnight, but found, on looking out of the window, that they were in fact in a siding in Carstairs due to the vagaries of the weather—a situation that has perhaps faced some of us in the past.

Leaving that fairly limited example aside, it occurs to me that the issue the hon. Gentleman raises could have wider implications. Take the situation of someone who lives in Dumfriesshire or the borders, perhaps in the constituency of the Under-Secretary of State for Scotland, the right hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell). That person may live in Scotland but be a night-shift worker in England—perhaps a delivery worker for a retailer or a regular night-shift worker in a factory. Such a person could be defined as being in England, rather than in Scotland, under one definition even though he clearly lived in Scotland—or vice versa. It probably would not be appropriate to amend the Bill specifically to cover this issue, but it should certainly be given some thought. Perhaps the Minister could consider it with a view to giving guidance to clarify how such a situation should be addressed. A large number of people would not be affected in that way, but more than a handful might, so it would be useful to get clarification on such points from the Minister now or later.

[Ian Murray (Edinburgh South) (Lab)]

This evening’s debate has centred around the complexities of this hugely complex legislation. I had not intended to speak, but I, too, was prompted by the contribution of the hon. Member for Milton Keynes South (Iain Stewart), which led me to think about my experience of running a small business with 12 to 14 staff, doing payroll on a weekly basis and the huge complexities of keeping up with changes in legislation and making sure that my staff were aware of such legislation. Hon. Members would not believe the number of staff I have employed over many years who did not understand what a tax code was, how they were taxed on their income and how national insurance was involved.

[Jim McGovern (Dundee West) (Lab)]

Some of the previous speakers, such as my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) and the hon. Member for Congleton (Fiona Bruce), should remember that these proceedings are televised and that the public hope to understand what we are talking about. My hon. Friend the Member for Edinburgh South (Ian Murray) has kept his contribution fairly simple so far, but I failed to understand some of the earlier contributions.

[Ian Murray]

I am grateful for my hon. Friend’s intervention, which highlights the fact that the Government’s agenda for growth is about growth in the small and medium-sized enterprise sector, and making sure that small businesses in particular can contribute a significant amount to the private sector to take up the slack caused by the job cuts in the shrinking public sector. However, the complexity of the legislation we are examining is detrimental to the many small business owners who will be concerned about the complex process they will have to go through to make sure that they employ people in accordance with the right piece of income tax legislation. Many issues have been raised about travel—I do not call the train the Caledonian sleeper; I call it the Caledonian keep-you-awake, as I have yet to sleep on it—and I hope that the legislation does not include provisions on where someone falls asleep, otherwise my own tax affairs could be rather complex.

We must consider the issue of close connection. People may work in a different part of the UK, but it is not necessarily the place that they call home. Any Scottish MP who has regularly done the trip from Scotland to London will recognise many faces on their train or flight as people who work in London Monday to Thursday. They leave Scotland on Sunday night, and return on Thursday evening or Friday morning to their family. They would not regard themselves as English income taxpayers. They would very much regard themselves as being resident in Scotland. It is where they call home, but, as we have heard from the hon. Member for Milton Keynes South, it would not necessarily be classified as their place of residence for the payment of income tax.

[Jim McGovern]

My hon. Friend will have used the Caledonian sleeper. Does he agree that “Murder on the Orient Express” has nothing to do with that train?

[Ian Murray]

I was about to say that I was delighted to receive an intervention from my hon. Friend, but perhaps I should say that I have noted his comments, and will move on.

I should like to mention Her Majesty’s Revenue and Customs. At my surgery—no doubt this is the case at the surgeries and advice sessions of many right hon. and hon. Members—I have been beset by the complicated problems that my constituents have experienced as a result of their not understanding the HMRC process. Indeed, taxation errors have been made by both HMRC and employers. HMRC is undoubtedly under pressure, with more job losses over the next few years. In fact, I think its work force will have halved by 2015. I hope that the Government will take into account the complexities of the legislation to make sure that HMRC has the resources to be able to deal with it properly. The Federation of Small Businesses has been mentioned by my hon. Friend the Member for Glasgow North (Ann McKechin) in connection with the number of small businesses that use the pay-as-you-earn system. There are problems with self-assessment, which can become complex for someone who satisfies some of the tests of the legislation, but conducts personal business in different parts of the UK.

My hon. Friend the Member for Edinburgh East (Sheila Gilmore) raised the issue of tax avoidance. If there are different income tax rates in Scotland and England, I hope that HMRC will have the resources to deal with that so that people do not deliberately try to satisfy the tests of the legislation to benefit from a different income tax rate on the other side of the border. Many of the constituents of the right hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) will be affected by those cross-border issues, as we have heard.

HMRC definitely needs the resources required to be able to deal with that properly, and to put provisions in place to make sure that people understand the system. All too often, as the Member representing Edinburgh South, I have dealt with self-employed constituents who have filled in self-assessment forms and then experienced a hard-nosed approach from HMRC in some pretty dreadful letters. Some letters say that it will send agents round to seek to pin down possessions and sell them to cover the debt when, in fact, HMRC has made an error in its tax coding and the problem has to be sorted out at a different level.

All those issues come together. The measure is welcome, as it gives the Scottish Government and Parliament real accountability for the proportion of tax that they can raise locally in Scotland for the people of Scotland. However, we must be aware that there will be many small businesses, employers and employees who will be concerned about how the measure will operate. If the system is to be accountable and is to operate practically for the benefit of the people of Scotland and for the Scottish Parliament, we must make sure that it is not undermined by a complex set of rules that are easily circumvented as a result of tax avoidance or because genuinely self-employed or small businesses cannot understand it sufficiently. We must put support in place to ensure that they follow the rules properly and so that the measure operates in the most effective manner.

[Mr Gauke]

We have had a lengthy and thorough debate. First, I intend to address the amendments and then set out in a little more detail the various tests on what constitutes a Scottish taxpayer. Finally, I hope to pick up the points that have been made in the debate and try to answer as many technical questions as possible. Whether I will be able to find the solution to the question of whether Mr Stewart senior is a Scottish taxpayer remains to be seen, but I will do my best.

Amendment 68 would require the Scottish Parliament to consult such persons as Scottish Ministers consider appropriate before setting the Scottish rate. I believe that that is inappropriate, as it interferes with the accountability of the Scottish Parliament to the people of Scotland. It should not be for the UK Parliament to tell the Scottish Parliament or Scottish Ministers how they should go about setting the rate of tax. It is for them to decide and ultimately to be accountable for that decision to the Scottish people through the ballot box. There is nothing to stop the Scottish Parliament in its Standing Orders including a requirement to consult or take evidence on setting the rate if it wishes to do so. Rule 6.6 of the Standing Orders of the Scottish Parliament sets the remit of its Finance Committee, which is required to consider and report on, among other things,

“proposals for the making of a tax-varying resolution”.

It will be for the Scottish Parliament to decide whether a similar provision should be made in relation to any proposal to set the Scottish rate of income tax. That is a matter for the Scottish Parliament—it is not something that we should prescribe in Westminster.

Amendment 69 requires the Treasury formally to consult Scottish Ministers, the Scottish Parliament and other persons before it uses its powers to disapply or modify the application of the Scottish rate of income tax. It may help if I describe the purpose of this power. We plan to use it to set some of the detailed rules on the operation of the Scottish rate of income tax, because any changes have to operate within the UK income tax framework, which is a reserved matter. The Scottish Parliament has given its consent to the Bill through the legislative consent motion, which includes that power and the way in which it will operate. It was not raised as a concern by the Scottish Bill Committee in its extensive scrutiny of the measure.

Having said that, I can confirm that HMRC will work closely with all parties concerned, and it has set up three technical groups that include representatives of business and of individual taxpayers. The Scottish Government participates in all those groups, which cover in particular how reliefs for charitable contributions and pensions will be treated. The Government will publish draft legislation in advance, giving all parties an opportunity to comment. That is very much in line with our approach outlined in “Tax policy making: a new approach”, which was published at the time of the June Budget. Tax policy making has been criticised as piecemeal and reactive. I want a new approach, with consultation on policy design and scrutiny of draft legislative proposals as its cornerstone.

I accept the motivation behind the amendment, but I hope that the hon. Member for Glasgow North (Ann McKechin) agrees that this is something we are very much doing already, so the amendment is unnecessary. Proposed new section 80G of the Scotland Act 1998 provides the Treasury with supplementary powers to allow modifications to be made at a later date. It allows, for example, certain types of income or relief to be included or excluded from the Scottish rate to provide the flexibility to be able to respond to stakeholder input and the changing environment.

Subsection (4) of new section 80G gives the Treasury a limited power to make any changes retrospective to the beginning of the tax year. The timing of the Budget cycle is such that many Finance Bills contain proposals that come into effect before Royal Assent. I hesitate to bring back painful memories for the official Opposition, but hon. Members might recall that the previous Government introduced a clause on Report of the Finance Bill 2008, increasing the personal allowance by £600 in 2008-09 in response to pressure over the abolition of the 10p rate of income tax. As is common, Royal Assent did not occur until the summer of that year—until 21 July 2008 to be precise—but that clause took effect from the start of the tax year. A more technical example is section 60 of the Finance Act 2006, which I imagine you recall well, Ms Primarolo. That redefined the income tax exemption for employer-provided mobile telephones, and removed the ability of the family or household of the employee to use such a phone tax free. The clause took effect for the tax year 2006-07, but did not receive Royal Assent until 19 July 2006.

19:30

It is important therefore that, where necessary, any order made under the powers given by section 80G can take effect from the start of the tax year. The Scottish rate is to apply for a tax year, and preventing amendments under section 80G from applying for the whole of the tax year could create difficulties for individuals and businesses alike. It is also identical to the power already in section 79 of the 1998 Act introduced for the Scottish variable rate.

[Jim McGovern]

On the subject of retrospective taxation, the previous Government committed to tax breaks for the computer games industry. Will the coalition Government commit to introducing tax breaks for the computer games industry retrospectively to April 2010?

[Mr Gauke]

With the greatest respect to the hon. Gentleman, I am not sure that that is entirely in order. I am sure the Chair would not want me to be diverted into that matter.

I assure hon. Members that the Treasury is not seeking a general power to impose retrospective legislation. I am not in a position to predict what consequential changes might be needed to other legislation because of future finance or other Acts in relation to the Scottish rate of income tax. The period of potential retrospection is rightly restricted to the start of the tax year in which the order is made, so that if we need to make a consequential change it can take effect at the same time as the provision to which it is consequential. To do otherwise would create complexities.

[Stewart Hosie]

The Minister will recall that on a small number of occasions an anti-avoidance measure went further back than the start of a financial year. In those circumstances, would he have to come back and seek a different power so that an avoidance measure in England went further back than the start of the financial year in Scotland? I would not like to see such an irregularity.

[Mr Gauke]

The hon. Gentleman is right. There are circumstances in which anti-avoidance measures have been retrospective and go back further. As I say, the power would take us only to the beginning of the relevant tax year in which the order is made. Other sorts of anti-avoidance measure would not fall under this power because of the constraint within it. The Bill is not designed to meet that purpose. I hope that provides the hon. Gentleman with some clarity. I hope also that my comments on amendments 68 to 70 are helpful and that he now feels able to withdraw the amendments.

Amendments 42 to 44 and 47 to 50 seek to make the process by which the Treasury appoints tax years to bring into effect the provisions relating to the new Scottish rate of income tax and the effective date that UK stamp duty land tax and landfill tax are disapplied subject to the consent of the Scottish Parliament. This is to be indicated by way of resolution. I consider this to be unnecessary. We have stated our intention to commence the Scottish rate of income tax from April 2016, and to devolve the landfill tax and stamp duty land tax by April 2015.

The Scotland Bill Committee in the Scottish Parliament welcomed these proposals, as it stated in its report. The Scottish Parliament has now given its approval to the measures included in the Bill through the legislative consent motion. The Bill provides for the new Scottish rate of income tax to be brought into effect in such tax year as is appointed by the Treasury as a precautionary measure. Appointed day orders will be issued in advance of disapplying the stamp duty land tax and landfill tax. We have also tabled Government amendments, which I will come to later, to ensure that this process is completed by order made by statutory instrument so that these are printed and published for transparency.

[Lindsay Roy]

Given the points made by my hon. Friend the Member for Edinburgh South (Ian Murray) and various other points about the need for operational effectiveness, is it likely that the introduction of the Scottish income tax rate will create additional HMRC jobs and, if so, are they likely to be based in Scotland?

[Mr Gauke]

If the hon. Gentleman will forgive me, I want to deal with the amendments first, as I stated in my opening remarks. I will then deal with some of the questions that have been raised as a consequence, and touch on some of the administrative consequences of the changes.

We made it clear in the Command Paper that accompanied the Bill that if the Scottish Parliament is not ready to introduce the smaller taxes in April 2015, we would consider delaying the switch-off of the UK-wide versions of the taxes in Scotland. That said, we must be clear that clauses 29 and 31 enable the disapplication of the existing tax in Scotland. Should the Scottish Government and Parliament decide that they do not wish to put in place a Scottish version to cover the existing tax base, we will not leave the current stamp duty land tax or landfill tax in place. It will be for the Scottish Government to decide what, if any, arrangements they wish to put in place in this area once it is devolved to the Scottish Parliament.

[Stewart Hosie]

That is clear. The problem arises if the timing is wrong. Why would the Minister disapply the existing legislation and leave a gap for the Scottish Government to fill at some point in the future? Why should disapplication not happen until the Scottish Parliament gives its explicit consent? Making that happen properly would match the respect agenda and avoid any difficulties.

[Mr Gauke]

The Scottish Parliament has made it clear that it supports the proposals. We are setting them out some years in advance. My understanding is that there is a consensus on the proposals, and it is for the Scottish Government to ensure that there is no gap after 2015. We have made it clear that we will work closely with the Scottish Government as we move towards full implementation of the measures set out in the Bill. This engagement will ensure that the Scottish Government can keep the Scottish Parliament apprised of implementation work in good time. I consider the additional requirements to be unnecessary, and I therefore urge the hon. Member for Dundee East to withdraw the amendments.

I shall deal briefly with Government amendments 61 to 66, and new clause 18. These are minor and technical and ensure that we have a proper parliamentary process attached to the provisions that bring into effect the provisions of the Bill. Government amendments 61 to 64 amend the existing provisions in the Bill to bring into effect the provisions in clauses 26, 29 and 31. The amendments make it explicit that the days or tax years appointed by the Treasury under these clauses will be appointed in orders made by the Treasury. New clause 18 ensures that these Treasury orders are classed as statutory instruments and are therefore printed and published.

Government amendments 65 and 66 both amend the existing provisions in clause 38 relating to commencement. These should be read in conjunction with new clause 18, which ensures that the order-making powers provided for by the Bill are all statutory instruments and therefore subject to the applicable parliamentary process. The amendments do not have any substantial effect on the provisions in the Bill, and are simply drafting amendments. I commend them to the Committee.

A number of hon. Members asked about the definition of a Scottish taxpayer. Let me say at the outset that the Bill sets out a definition of Scottish taxpayers, as opposed to Scottish residents, and can therefore apply, notwithstanding the absence of a statutory residence test. It might be of help if I set out how that will work. The definition of a Scottish taxpayer will determine which individuals are liable to pay income tax at the rate set by the Scottish Parliament. It is based on the definition included in the Scotland Act 1998 for introducing legislation on the Scottish variable rate, a point made by my hon. Friend the Member for Carlisle (John Stevenson). However, we have taken the opportunity to review the definition to make it easier to administer and simpler to apply, and to remove some of the potential unfairness that could arise from the application of the definition provided for the purposes of the Scottish variable rate.

Following the recommendation of the Scottish Parliament Committee that examined the Bill, which was endorsed by the Scottish Parliament on 10 March, we also intend to table a new clause on Report to apply the new definition of a Scottish taxpayer for the purposes of the Scottish variable rate. The new definition is structured as a series of conditions that will enable an individual to see whether they are a Scottish taxpayer. Where they meet any one of these conditions, they can simply disregard the remainder. As I will explain in a moment, this means that relatively few people will need to consider every condition. In other words, the definition will produce an answer in only a few steps, avoiding the need for the majority of people to record and count the number of days spent in Scotland.

A Scottish taxpayer will be someone who meets two tests in a tax year. The first test is that the individual in question is UK resident for tax purposes. It is important to emphasise that the definition does not disturb those rules or increase their complexity, but merely sits on top of them. We are not replacing the underlying rules of UK tax residence with an entirely new concept of Scottish tax residence. The second test is whether the individual meets any one of three conditions—A, B or C.

Condition A is that the individual has a “close connection” with Scotland, which is defined in proposed new section 80E. For the majority of people, it will be a straightforward question of whether they have a close connection with Scotland. If they have one place of residence in the UK and it is in Scotland, they will have a close connection with Scotland and will therefore be a Scottish taxpayer, provided that they live there for at least part of the year. This last condition—that the individual lives in the place of residence—is a crucial part of the definition and ensures that it is simple to operate. Someone may stay in a place of residence which is not their home, perhaps while on holiday or as part of their work, but such nights away are disregarded because those are not places where the person lives, but merely places where they stay.

Let us consider the example of sales reps who have one home in England in which they live with their family at weekends, but who spend their working week in Scotland. While they are away, they stay in a variety of hotels. Because the family home in England is the only place in which they live, they will not have a close connection with Scotland and will therefore not be a Scottish taxpayer, even though they physically spend more nights in Scotland than they do in England. That is all they need to do; there is no requirement for them to keep a detailed record of the number of nights they spend in each part of the UK. This is one way in which we have sought to improve on the definition of a Scottish taxpayer set out in the 1998 Act, which would have required people in such a position to keep records of the days they spend in each part of the UK.

[Mrs Anne McGuire (Stirling) (Lab)]

I want to offer the Minister a note of caution, as the understanding of where a person lives and where they stay is slightly different in Scotland. I hope he will come up with something that is legally a little more robust than the simple distinction between staying and living. The nods from Scottish Members, who understand the vernacular, verify the advice that I am trying to give him.

19:45

[Mr Gauke]

I am always grateful for advice on Scottish vernacular, and to the right hon. Lady for her comments. If I may complete my explanation, I hope that things will prove to be reasonably clear.

If someone has two or more places of residence in the UK, the question of 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 they spend somewhere else in the UK, again provided that the place of residence is where they live. This will apply to those who split their time between a house in Scotland and a house somewhere else in the UK, both of which can be described as their main place of residence. It will also apply to those individuals who sell their homes sometime during the tax year and move from Scotland to somewhere else in the UK, or vice versa. Within that year, they will have more than one place of residence in the UK, and which of those will be their main place of residence will effectively depend on what stage in the year they move house. In the case of someone who starts the year with their home in Scotland but moves to England after eight months, their Scottish home will be their main place of residence for longer than their new home in England. Such individuals will therefore be a Scottish taxpayer for the full tax year.

Condition A has been designed to enable the vast majority of people to decide whether they are a Scottish taxpayer without the need to consider the other two conditions. After all, most people will have no difficulty deciding where their main place of residence is located.

[Iain Stewart]

Will the Minister give way?

[Mr Gauke]

I will, but with some trepidation.

[Iain Stewart]

I have been listening carefully to what the Minister is saying but am still a little puzzled. I understand the example of a sales rep who might use hotels or temporary accommodation, but if the other residence is another house or flat that the resident has registered for council tax or for the purpose of being on the electoral register, for example, does that come under that definition? My father, for example, could self-declare his home in Scotland as his principal residence, even though he might spend a minority of the time in a year there.

[Mr Gauke]

The ordinary meaning of the main place of residence is set out in case law. It is not necessarily determined by the number of days one spends at a location. To use the example of my hon. Friend’s father, if a commuter has his family home in Hamilton and stays there every weekend, although he might spend more time at work in London, Hamilton would be his main residence. HMRC guidance will provide a number of worked examples of that. I am reluctant to give too much information that could constitute specific advice, as I obviously cannot comment on individual cases, but I hope that that is helpful.

[Jim McGovern]

I presume, and hope, that the Minister has discussed what he is talking about with the Independent Parliamentary Standards Authority.

[Mr Gauke]

I will come to condition C in a moment, which I hope will provide the hon. Gentleman with the answer that he and others are looking for.

Having dealt with condition A, it would be remiss of me not to address condition B. It is possible for some people with two or more places of residence in the UK to be unable decide which is their main place of residence. I do not think that that applies to Mr Stewart senior, but it might apply in some cases. It is for such people that condition B has been designed. Someone who cannot determine under condition A which part of the UK they have a close connection with will need to count the number of days they spend in Scotland, compared with the number of days they spend elsewhere in the UK—in other words, a straightforward day count test. If they spend more days in Scotland than they do elsewhere in the UK, they will be a Scottish taxpayer. If they spend more days elsewhere in the UK than they do in Scotland, they will not be a Scottish taxpayer. We recognise that it might be onerous in some cases to have to keep a day count record, but the number of people within that category should be relatively few.

To deal with one question that my hon. Friend the Member for Milton Keynes South (Iain Stewart) raised, for the purposes of the day count, an individual has spent a day in Scotland or in any part of the UK when they are present at the end of the day—in other words, at the stroke of midnight. That is consistent with the existing and long-standing rules that determine presence in the UK for the purposes of tax residence.

Condition C, which I suspect is of particular interest to a number of hon. Members, is set out in proposed new section 80D of the 1998 Act and is very straightforward. If someone represents a Scottish constituency in the Scottish, UK or European Parliaments for any part of the year, they will be a Scottish taxpayer for that tax year, provided of course they are UK resident, which I assume will generally be the case. The definition has also been designed in such a way that an individual will be a Scottish taxpayer for a full year. They cannot be a Scottish taxpayer for part of the year and not a Scottish taxpayer for the rest of the year. That again helps to reduce unnecessary complexity in applying the definition and understanding of whether or not an individual is a Scottish taxpayer.

It is envisaged that the new Scottish rate of income tax will first be applied from 6 April 2016, as we have already heard. There are more than five years before the provisions take effect, and during that time we will continue to discuss with businesses, employers, taxpayer representatives, charities and software providers the necessary practical steps to achieve a successful implementation. The measure will need to work successfully throughout the UK tax system, as it will not impact on Scottish taxpayers or on Scottish employers alone.

HMRC has therefore established three technical groups with representatives throughout the UK, including a pensions group, charities group and an income tax group. Those groups are reporting to the high-level implementation group, which the Secretary of State and I established last summer. We are discussing with the technical groups the implementation issues—for example, the application of differing rates throughout the UK on tax relief for contributions to pension schemes and on gift aid. It is also conceivable, given the lead time to implementation, that there might be changes in the business or tax environment or to processes.

As we discussed when considering the earlier amendments, the clause includes a number of supplementary powers to allow certain modifications to be made at a later date—for example, enabling certain types of income or relief to be included or excluded from the Scottish rate to provide the flexibility to respond to stakeholder input and to the changing environment.

I shall pick up on some of the questions that I have not dealt with in my explanation, which I hope the Committee has found helpful. A worker who spends significant amounts of time on an offshore oil rig or another place of work off the UK coastline will not usually need to count the number of days they spend there to determine whether they are a Scottish taxpayer. The oil rig is not likely to be their sole or main place of residence in the UK, so any time spent on it can be disregarded when deciding whether they are a Scottish taxpayer. The only exception is if the location of the individual’s main place of residence is genuinely unclear. In such cases, whether someone is a Scottish taxpayer will be determined by the day count. If the oil rig is in Scotland, those days will need to be included for the Scottish count.

We continue to look, with the Ministry of Defence, at the issues surrounding our armed services, and we will come to a firm conclusion on that in the near future.

The question was raised of whether a personal representative of a deceased person will be a Scottish taxpayer, and the answer is no. A Scottish taxpayer will be an individual, and after their death that will not extend to the personal representative. It follows that any income arising during the administration of the deceased’s estate will not be subject to the Scottish rate of income tax.

I was asked whether it was fair that people will not receive split-year treatment when they move between Scotland and the rest of the UK, and I touched on that briefly a moment ago. No split-year treatment applies to those leaving or arriving in Scotland: an individual will be a Scottish taxpayer for a full tax year or not at all. There is no prospect of double taxation when someone lives part of the year in Scotland and the rest of the time in another part of the UK. It would be administratively much more complex were we to try to split the year.

On whether proposed new section 80G is too broad, that goes back to my earlier discussion of the amendments in this group. The power in the new section is needed to deal with mainly technical changes and to decide which reliefs should be taxed at the variable or UK rates. That is almost a mirror image of the power to deal with the consequences of setting the Scottish variable rate, which is already in section 79 of the 1998 Act. It is worth pointing out, as I said earlier, that we have set up three technical committees, on charities, pensions and income tax, to discuss the impact that the Scottish rate of income tax will have on the wider tax system, and to consider where modifications might be required. Therefore, we need the power to deal with that situation.

I reassure the Committee that the Treasury does not seek a general power to impose retrospective legislation; the measure set out in proposed new section 80G is limited to the start of the tax year. If we need to make a consequential change, we will ensure it takes effect at the same time as the provision to which it is consequential. We think that that will be helpful.

A point was made about what HMRC and the Government will do to support employers, and about the concern that the measure might be administratively difficult for employers when identifying who is and is not a Scottish taxpayer. Let me assure the Committee that it will be HMRC’s responsibility to identify who is and is not a Scottish taxpayer. Scottish taxpayers will then be given a Scottish tax code by HMRC, and employers will use it in the PAYE system, just as they do with other employees. It is also worth mentioning that there will be an awareness campaign in Scotland and in the rest of the UK ahead of the system’s introduction.

The rights of appeal will be based on existing mechanisms, but they might need to be adapted, and HMRC will discuss that with the professional associations in due course through the technical groups that it has established. The self-assessment form for the self-employed will need to be altered to reflect the existence of Scottish taxpayers.

On condition C, which applies to Members of Parliament and of other elected bodies, the question was asked, “Why not Scottish judges, other senior members of the Scottish civil service and so on?” We have singled out only elected representatives; others will be subject to the same rules as other Scottish taxpayers. We think it appropriate that there is no ambiguity in the case of elected representatives, and those representing Scottish constituencies at whatever level should be Scottish taxpayers.

That is a rather lengthier speech than I had hoped to make, but a number of questions were raised and I wanted to provide as many answers as possible to what is one of the most technically challenging aspects of the Bill. The solutions that we have reached are those that improve what we are building on, and they should provide as much clarity as possible.

[Ann McKechin]

May I welcome you to the Chair again on this Bill, Ms Primarolo? I also thank the Minister for a full explanation of the various technical measures, and for his response to the questions that have been raised in the debate. I appreciate that it might not have been the most exciting debate; indeed, it might have rendered some Members closer to sleep than the Caledonian sleeper could have done. Nevertheless, it is important that we have on the record the Government’s response to a number of key questions that, when we come to implementation, will impact on many hundreds of thousands of people. It is important that we have as full a picture as possible in our debate this evening.

I accept the Minister’s comments about amendment 68 requiring the Scottish Government to consult such persons as they consider appropriate. The taxpayer would anticipate and expect the various business organisations and tax specialists who are generally consulted by the UK Treasury as a matter of routine and good practice to receive the same approach and level of consultation from the Scottish Government. I am sure that the Scottish Government, of whichever political hue, will want a full consultative process. The Minister noted that the Scottish Parliament has a specific power to lay this down in Standing Orders, and I hope that it will give recognition to what has been said in this debate.

20:00

I note the Minister’s comments on amendment 69, which have been helpful in clarifying the Government’s approach and the fact that they already have a number of mechanisms, with the Joint Ministerial Committee and the interchange of work with civil servants on both sides of the border, through which they can consult Scottish Ministers. That is a very strong and robust system, and it is important that it is maintained and enhanced as we go through this process over the next few years, when it will be important that all parties work together as closely as possible to ensure that policies work.

This debate has shown up the complexities regarding residency. My right hon. Friend the Member for Stirling (Mrs McGuire) was right to point out how the interpretation of where someone stays or lives can have different connotations. Those of us who have represented a constituency for a number of years will recognise the complex personal lives that some of our constituents have. They may sometimes be a bit reluctant to tell people where they are staying or living at any particular time of the week or month of the year.

[Mrs McGuire]

Does my hon. Friend recognise that the situation can be further complicated if one asks where they come from?

[Ann McKechin]

Yes, indeed.

That brings us to how the questions are phrased on any self-assessment form and the guidance that is provided to individual taxpayers and to their employers. Obviously, employers will have a high level of responsibility in advising their staff about whether they will be covered. The Minister cited the example of a travelling salesman, but there are many other examples of staff who travel the country from time to time. Some people’s lives are entirely peripatetic—entertainers, for instance. I remember many years ago, when I was a lawyer, acting for entertainers who spent the summer season living down in Blackpool and then came back up to Scotland for the winter season.

[Mrs Eleanor Laing (Epping Forest) (Con)]

Does the hon. Lady recall the leading case on residence in Scots law—Udny vs. Udny—in which the fact that the person in question, despite having a house in England, continued to take The Sunday Post every week proved that he was still domiciled in Scotland?

[Ann McKechin]

Indeed. The hon. Lady attracts me into an interesting debate on the difference between residency and domicile, but I am not going to bore the Committee—I can see that the Under-Secretary is getting a bit concerned—about the distinction between the two. That sort of thing keeps tax lawyers very busy.

[Jim McGovern]

Surely my hon. Friend would agree that going to Blackpool in the summer guarantees that one is Scottish.

[Ann McKechin]

Indeed. Travelling down there on the train to the Labour party conference on a Glasgow holiday weekend was an interesting experience. One could easily distinguish between those who were delegates and those who were on their holidays. I remember one occasion when people had brought along half a band, which was playing on the train.

The hon. Member for Milton Keynes South (Iain Stewart) and others commented on the Caledonian sleeper. Let me say that the Caledonian sleeper provides an essential travel service for many of us, and long may it remain so, because otherwise our travel plans would be even more difficult than they are given that certain flights will be withdrawn at the end of this month. That brings to mind a story that I recall being told about a colleague who represented the city of Glasgow many years ago, and who was a member of the railwaymen’s union. He regularly managed to sleep on the train. One night, he asked the guard to make sure that he was taken off the train at Motherwell, not Glasgow, because he had to address a union meeting just before the workers went on shift. There would be several hundred people there, and it was absolutely essential that he got off. He duly woke up in the morning and found himself at Glasgow Central station. The guard opened the door and said, “I know you’re really angry, but you’re not as angry as the man we shoved off the train at Motherwell.” I am sure that there are many such stories about Members of Parliament.

I note the Minister’s comments regarding residency of Members of Parliament. Some people might think we are getting special preferential treatment so that we can easily distinguish whether we are UK tax residents who are not living in Scotland or vice versa. However, I do not object to the definition. Perhaps it makes things a little easier if, when the Bill becomes law, we are asked awkward questions about our own position. I am sure that some of the points raised today will be considered by implementation committees.

On the Minister’s comments about armed forces personnel, we need to be able to define this at a fairly early point. It would be preferable if at some point during the passage of the Bill—certainly before it comes back from the Lords—we knew about the position of the armed forces. Will the Minister ask his colleagues to ensure that we have a definitive response before we reach our final conclusions on the Bill?

The Minister’s comments on amendment 70 were helpful in defining the circumstances in which retrospective amendments may be made. I acknowledge that there will be limited circumstances where that is appropriate. Given the timing of the Budget, it is almost inevitable that this may occur from time to time. His clarification helped to show that he regards this as a de minimis clause rather than one that will be used to the maximum extent. However, I hope that he can assure us that Scottish Ministers and the Scottish Government will be provided, at the earliest opportunity, with information about how this is likely to impact on them. Perhaps it is part of the Exchequer’s standard consultation process and pre-Budget report that it is fully engaged with the Scottish Government so that they are able to make appropriate contingency plans should a clause in the Finance Bill then be passed by this House and by the House of Lords.

I believe that we have had a reasonable level of reassurance from the Minister on those questions. These are primarily probing amendments. Accordingly, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 26

Scottish rate of income tax

Amendment made: 61, page 20, line 31, after ‘Treasury’, insert ‘by order’.—(Mr Gauke.)

Amendment proposed: 42, page 20, line 31, after ‘Treasury’, insert

‘, with the consent of the Scottish Parliament,’.—(Stewart Hosie.)

Question put, That the amendment be made.

20:09

Division 223

Ayes: 9

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Scottish National Party: 5
Plaid Cymru: 2
Green Party: 1
Labour: 1

Noes: 286

---

Conservative: 244
Liberal Democrat: 40
Democratic Unionist Party: 1

Amendment made: 62, page 20, line 35, after ‘Treasury’, insert ‘by order’.—(David Mundell.)

Clause 26, as amended, ordered to stand part of the Bill.

Schedule 3 agreed to.

Clause 27

Income tax for Scottish taxpayers

Question proposed, That the clause stand part of the Bill.

[Ann McKechin]

I wish to ask the Exchequer Secretary a couple of questions about this technical clause. Can he confirm how deductions for pension contributions and gift aid will be made? Will the taxpayer be able to choose the order of deductions against various sources of income?

The Scottish Parliament will need to know the size of the tax base before setting the rate. Will the Government undertake to ensure that they give the Scottish Parliament, as well as the Scottish Government, early notice of changes in the level of income tax personal allowance and thresholds? I asked that question in relation to clause 26, but it is important to have the earliest possible consultation and information given not only to the Scottish Government but to the Scottish Parliament.

[Mr Gauke]

I thank the hon. Lady for her questions. If somebody is classed as a Scottish taxpayer, they will be liable for income tax at Scottish rates on the income that they receive from their pension. We recognise that the treatment of reliefs associated with pension contributions is complex, and our approach will be set out in implementing legislation. Her Majesty’s Revenue and Customs has set up a pensions technical group to consider those very issues, and it is examining the practical questions surrounding the new Scottish rate and will make its recommendations in due course. Those recommendations will inform the implementing legislation. There are some potentially difficult administration issues to consider, and HMRC is working with the sector to keep the administrative burdens to a minimum.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Clause 28

Scottish tax on transactions involving interests in land

Question proposed, That the clause stand part of the Bill.

[Ann McKechin]

Again, I should like to ask the Exchequer Secretary a couple of technical questions about the implementation of the clause. He has defined in proposed new section 80J(2) the people who will not be liable to pay the tax in question. Perhaps he could clarify for the record that that relates to people acting in their official capacity, and that if they happen to have property in Scotland on a personal basis, they will still be liable for the tax.

Will the Government undertake that they will not appoint the day on which the tax powers will come into effect until the Scottish Government confirm that they have satisfactory legislation in effect? I realise that the proposed implementation date is 2015, and perhaps the Exchequer Secretary could confirm that that is still the Government’s intention. It is important that people with an interest in property have an early indication of when they can expect the tax to be changed.

[Mark Lazarowicz]

I, too, have a couple of questions, and I would be most grateful if the Exchequer Secretary could deal with them. Does he believe that the provisions of the clause mean that the tax will be applied at the same rate throughout Scotland, or will it be possible for different rates to apply to different parts of Scotland? At the moment, for example, there are times when stamp duty land tax is waived for certain areas that require special assistance. Could that still apply?

Will the Scottish Parliament have the ability to delegate the power in clause 28 to local authorities, for example, so that varied rates could be offered? I am aware that that would not normally be permissible, but the Exchequer Secretary will certainly remember the debate about the possibility of a local income tax in Scotland a couple of years ago. There was a suggestion that if the Scottish Parliament introduced such a tax, it would be ultra vires. That was never tested, because of course the legislation never went through. The suggestion was that a local income tax could give local authorities the power to levy income tax through the back door. Similarly, it could be suggested that they be given the power to vary stamp duty land tax if the Scottish Parliament allowed them to do so. I would very much appreciate some guidance on those points.

I do not want to skip ahead to clause 30, but the same question applies to tax on disposals to landfill—will there be a Scottish rate, or could it be varied? Perhaps the Minister could give me the same reply to deal with both clauses.

[Mr Gauke]

As far as the list contained in proposed section 80J is concerned, I can provide the reassurance that transactions will be non-taxable only when people are acting in their official capacity. There is not some perk being made available to particular people.

The switching-off of stamp duty land tax will be achieved by Treasury order. However, the UK Government will consult the Scottish Government in setting the switch-off date and will not disapply SDLT in Scotland until the Scottish Government have the necessary legislation and administrative arrangements in place for the devolved tax.

The Scottish Government will be able to delegate the SDLT power in question to local authorities, so the matter could be further localised.

[Mark Lazarowicz]

I thank the Exchequer Secretary for his answer on that point, which I think will be received with some interest in Scotland. My other, perhaps more substantial, question was whether the Scottish Government could implement a variable rate of SDLT, or whatever equivalent they wished to introduce, in different parts of Scotland. For example, could they decide that in certain areas of high unemployment there would be no SDLT, or a lower rate? Would that be within their powers?

[Mr Gauke]

Yes, that would be within the Scottish Government’s power. I hope that my points of clarification are helpful to the Committee, and that the clause will stand part of the Bill.

Question put and agreed to.

Clause 28 accordingly ordered to stand part of the Bill.

Clause 29

Disapplication of UK stamp duty land tax

Amendment proposed: 63, page 23, line 12, after ‘Treasury’, insert ‘by order’.—(Mr Gauke.)

[Mark Lazarowicz]

For the sake of clarity, the point that I raised about the Scottish Government’s ability—

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

Order. I am sorry. I should have put the Question, because the amendment has already been debated in a previous group.

Amendment 63 agreed to.

Clause 29, as amended, ordered to stand part of the Bill.



Schedule 4

Scottish tax on land transactions: consequential amendments

20:29

[Mr Gauke]

I beg to move amendment 33, page 33, line 33, after ‘buyers)’ insert—

( ) in subsection (2)(b) after “under the law of” insert “Scotland or”;

( ) ’.

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

With this it will be convenient to discuss Government amendments 34 to 36.

[Mr Gauke]

Schedule 4, which is introduced by clause 29, makes consequential provisions in connection with the disapplication of stamp duty land tax in Scotland, and is in two parts. Part 1 provides for general amendments to stamp duty land tax legislation in consequence of stamp duty land tax ceasing to apply in Scotland, and part 2 provides for the Scottish Government to supply information to HMRC regarding Scottish land tax.

Amendment 33 makes changes to the stamp duty land tax first-time buyers relief to ensure that a person who has previously bought a property in Scotland cannot qualify for relief when he or she subsequently purchases a property in England, Wales or Northern Ireland. Amendment 34 omits a further reference to Scottish land law terminology.

Amendments 35 and 36 omit provisions in the Finance (No. 2) Act 2005 and the Public Finance and Accountability (Scotland) Act 2000, which is an Act of the Scottish Parliament relating to functions of the keeper of the registers of Scotland. Those relate to the registers of Scotland’s automated registration of title to land system, which includes facilities for returns and payment of stamp duty land tax.

Lastly, amendment 36 makes detailed modifications to the provisions in the Finance Act 2009 in relation to alternative finance investment bonds or sukuk. Those modifications reflect the fact that the stamp duty land tax relief will no longer apply to sukuk in relation to land in Scotland, although the provisions for capital gains and capital allowances will continue to apply. Those changes are essential to the proper operation of stamp duty land tax after the tax is disapplied in Scotland.

Amendment 33 agreed to.

Amendments made: 34, page 35, line 36, at end insert—

‘( ) In paragraph 10 (tenants’ obligations etc that do not count as chargeable consideration), in sub-paragraph (1)(a) omit “(in Scotland, the leased premises)”.’.

Amendment 35, page 36, line 9, at end insert—

‘Finance (No. 2) Act 2005

In section 47 of the Finance (No. 2) Act 2005 (e-conveyancing) omit—

(a) subsection (1);

(b) subsection (6)(b).’.

Amendment 36, page 36, line 12, at end insert—

‘Finance Act 2009

(1) Schedule 61 to the Finance Act 2009 (alternative finance investment bonds) is amended as follows.

(2) Paragraph 1 (interpretation) is amended as follows.

(3) In sub-paragraph (1)—

(a) before the definition of “HMRC” insert—

““effective date”, for a transaction relating to land in Scotland, is the date which would be the effective date (under section 119 of FA 2003) if Part 4 of FA 2003 applied to land in Scotland;”;

(b) omit the definition of “qualifying interest”.

(4) After sub-paragraph (1) insert—

(1A) In this Schedule “qualifying interest”—

(a) in relation to land in England and Wales or Northern Ireland, means a major interest in land (within the meaning given by section 117 of FA 2003) except that it does not include a lease for a term of years of 21 years or less;

(b) in relation to land in Scotland, means—

(i) the interest of an owner of land, or

(ii) the tenant’s right over or interest in a property subject to a lease,

except that it does not include a lease for a period of 21 years or less.”

(5) Paragraph 5 (conditions for operation of relief) is amended as follows.

(6) In sub-paragraph (6) (Condition D)—

(a) after “Condition D” insert “(which applies in the case of land in England and Wales or Northern Ireland)”;

(b) omit paragraph (b).

(7) In sub-paragraph (7) (charge or security for purposes of Condition D)—

(a) omit “or security”;

(b) in paragraph (a) omit “, or a security ranking first granted over,”.

(8) In paragraph 6(1)(a) (relief from stamp duty land tax) for “the United Kingdom” substitute “England and Wales or Northern Ireland”.

(9) In paragraph 7 (withdrawal of relief in certain circumstances)—

(a) in sub-paragraph (1) after “This paragraph applies if” insert “paragraph 6 applies but”;

(b) in sub-paragraph (2) after “This paragraph also applies if” insert “paragraph 6 applies but”.

(10) In paragraph 9 (discharge of charge when conditions for relief met) omit “or security”.

(11) In paragraph 11(2) (disapplication of CGT relief if charge not given) for “the United Kingdom” substitute “England and Wales or Northern Ireland”.

(12) In paragraph 12(1)(b) (CGT relief on second transaction) for “the United Kingdom” substitute “England and Wales or Northern Ireland”.

(13) In paragraph 18(5) and (6) (discharge of charge if original land replaced)—

(a) for “the United Kingdom” substitute “England and Wales or Northern Ireland”;

(b) omit “or security”.

(14) In paragraph 19(1) (HMRC to notify Registrar of discharge)—

(a) omit “or security”;

(b) omit paragraph (b).

Public Finance and Accountability (Scotland) Act 2000 (asp 1)

In section 9(1) of the Public Finance and Accountability (Scotland) Act 2000 (Keeper of the Registers of Scotland: financial arrangements) omit “(other than payments of stamp duty land tax)”.’.—(Mr Gauke.)

Schedule 4, as amended, agreed to.

Clause 30

Scottish tax on disposals to landfill

Question proposed, That the clause stand part of the Bill.

[Mark Lazarowicz]

I shall again raise the two points that I raised in relation to clause 29. Can the Scottish Government vary the tax rate applied to different parts of Scotland, and can they further devolve the power to local government to a greater or lesser extent if they so wish? I presume that the Scottish tax rate could be different from the rate that applies in England. If so, what measures can be taken to stop the flow of waste towards the part of the country that has the lower rate of landfill tax?

[Mr Gauke]

Clause 30 provides for the devolved tax on the disposal of waste to landfill sites in Scotland. One Calman commission recommendation on tax was to devolve landfill tax, which was endorsed by the Scottish Parliament when it voted its consent on 10 March.

The tax will be a devolved tax for the purposes of part 4A of the Scotland Act 1998, which is introduced by clause 24. That means that the Scottish Government and Parliament will have complete control over the design and administration of the Scottish landfill tax, allowing them to complement their wider waste policies and to legislate to introduce a devolved tax to replace the existing UK landfill tax in Scotland. I hope that answers the main questions asked by the hon. Member for Edinburgh North and Leith (Mark Lazarowicz).

The revenue raised by the tax will remain in Scotland for use by the Scottish Government. Clause 30 provides as blank a canvas as possible for the Scottish Government to design their tax by simply providing the power to introduce a tax on material disposed of as waste to landfill sites in Scotland. It will come into effect when the Bill receives Royal Assent, which will allow the Scottish Parliament to legislate for the devolved tax, and for the Scottish Government to make the necessary administrative arrangements. The clause, however, provides that the devolved tax cannot apply to disposals made before the date on which the existing UK landfill tax is disapplied in Scotland, as provided in clause 31.

To answer the question on landfill tax competition, the Government are fully devolving that matter. Those setting the structure and rates of landfill tax in Scotland will clearly want to take into account the factors that were raised, such is the nature of devolution in such areas.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31

Disapplication of UK landfill tax

Amendment made: 64, page 24, line 8, after ‘Treasury’, insert ‘by order’.—(Mr Gauke.)

Clause 31, as amended, ordered to stand part of the Bill.

Schedule 5 agreed to.

Clause 32

Borrowing by the Scottish Ministers

[Stewart Hosie]

I beg to move amendment 51, page 24, line 20, leave out from ‘which’ to end of line 22 and insert—

‘are required by them to meet current expenditure because of a shortfall in receipts from the Scottish rate of income tax or devolved taxes.’.

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

With this it will be convenient to discuss the following:

Amendment 52, page 24, line 22, at end insert—

‘(1ZA) In borrowing sums under subsection (1), the Scottish Ministers must have regard to any code of practice agreed by them and the Treasury.

(1ZB) A code of practice agreed under subsection (1ZA) may include provision as to—

(a) how the Scottish Ministers are to determine and keep under review how much they can afford to borrow,

(b) the terms and conditions on which sums may be borrowed,

(c) limits on the aggregate at any time outstanding in respect of the principal of sums borrowed.’.

Amendment 54, page 24, line 23, leave out from ‘may’ to ‘any’ in line 24 and insert ‘borrow’.

Amendment 55, page 24, line 28, at end insert—

‘(1C) In borrowing any sums under subsection (1A), the Scottish Ministers must have regard to any code of practice agreed by them and the Treasury.

(1D) A code of practive agreed under subsection (1C) may include provision as to—

(a) how the Scottish Ministers are to determine and keep under review how much they can afford to borrow,

(b) the terms and conditions on which sums may be borrowed,

(c) limits on the aggregate at any time outstanding in respect of the principal of sums borrowed.’.

Amendment 53, page 24, line 31, leave out subsections (6) to (8) and insert—

‘(5A) Subsections (2) and (3) are omitted.’.

Amendment 56, page 24, leave out line 38 to line 5 on page 25.

Amendment 57, page 25, leave out subsection (10).

Clause 32 stand part.

[Stewart Hosie]

The borrowing powers in the Bill are at the heart of devolution. On Second Reading, a number of serious questions were raised on both revenue and capital borrowing powers. I shall come to the detailed issues in the main part of my comments, but, fundamentally, I am seeking to put in place a code of practice for the Treasury and the Scottish Government to address limits, restrictions, thresholds, maximum amounts and the nature of borrowing, be it through bonds or direct loans from the consolidated fund. That is a sensible way to amend the Bill. To make such provisions otherwise would require draft orders to be tabled, but amendments to Bills cannot be made with draft orders. Much of the narrative on this matter is in the Command Paper, but it is likewise impossible to amend by amending the Bill.

The amendments are pretty self-explanatory but I would like to detail the reasons for them. The revenue-borrowing powers are fundamentally linked to the wider taxation proposals in the Bill. Both the Scottish National party and the Scottish Government have previously made clear their concerns about the tax proposals. If a full range of fiscal policy levers were available to the Scottish Government, it would have to include a borrowing regime with sufficient flexibility to allow public spending profiles to be managed across entire economic cycles, not simply four-year forecast periods. The UK Government’s proposals, however, fall far short of that, yet by exposing the Scottish Government and the Scottish Parliament to cyclical fluctuations in income tax they embed a high degree of volatility in Scotland’s public finances, which cannot be right when we are seeking to protect public services and find means to grow the economy.

The Bill proposes to allow for annual borrowing of up to £200 million in any one year, and for a maximum limit of £500 million to finance current expenditure where there are differences between forecasts and the outturns of Scottish tax revenue under the Bill’s income tax proposals. Loans must be made within four years of being taken out. I understand that these provisions are additional to the provisions of the Scotland Act 1998, which allows revenue borrowing for the purposes of providing cash balances and maintaining cash flow. The aggregate limit of the Act is also £500 million, so the additional purpose proposed in the Bill, plus the passage of the 13 years since the original limit was set, has apparently not been considered sufficient reason for lifting the limit. We do not believe that that is credible.

The Bill also lacks flexibility to deal not necessarily with forecast errors, but forecast falls identified in advance. I will return later to the reason that that is a problem. More crucially, the provisions in the Bill are insufficient to manage volatility in tax receipts that might reasonably be expected to occur. Importantly, over the past decade, UK Government income tax forecasts have, on average, been overly optimistic, and the annual cap of £200 million would have been insufficient to offset deviations in income tax receipts relative to forecasts in recent years.

[Jim McGovern]

The hon. Gentleman might have heard me earlier saying that these proceedings are televised. The general public would like to know what we are speaking about, so will he keep his remarks as understandable as possible?

[Stewart Hosie]

I thought that my remarks were always understandable. The problem is that we are dealing with the technical provisions—the fiscal and borrowing powers—of a Bill. It is necessarily technical. However, I shall try to summarise it in plain English, if possible, when I get towards the end of my remarks.

In 2010-11, the difference between the Treasury’s original forecast for UK income tax and the most recent estimate is about £35 billion. Under the Scotland Bill, an equivalent forecasting error would have reduced the Scottish Government’s budget by approximately £1 billion. The implication of that and the four-year payback period is that had the system been in place during the last spending review period, repayment of the loan would have had to be made within what are now pressurised budgets—a £1.3 billion cut to Scotland this year, and over £3 billion in the comprehensive spending review—between now and 2014.

In contrast, the UK Government can spread the repayment of cyclical borrowing over a significantly longer period to ensure that it does not adversely impact on the resources available for public services. That is important, because it is accepted in all parts of the House that in times of recession or downturn, tax revenue falls and borrowing goes up—that is an automatic stabiliser—but the same implicit provision has not been made in the Bill. That is a flaw that I know is now recognised by people in many parties.

The inadequacy of the borrowing powers for this purpose was highlighted in the written evidence to the Scottish Affairs Committee from Professor Andrew Hughes Hallett and Professor Drew Scott. They said:

“Over the decade before the current recession, 1997-2007, the UK governments track record for income tax receipts is one of forecast errors that range between +7% to -4%, with an average of +1.1%”

a year. They continued:

“Since borrowing will follow from overestimates”—

the real amount will be less than the forecast—

“this means the Scottish Government will need to cut spending or borrow every year on average and should expect to exhaust its borrowing limit several times in a decade.”

To have such a flaw built into a Bill from the outset is profoundly unhelpful to the efforts of the Scottish Government to protect public services and grow the economy. The proposals also lack any ability to smooth the effects of cyclical downturns.

Unlike the UK Government, the Scottish Government will have no opportunity to use borrowing to compensate for a forecast decline in income tax revenues in the event of, for example, an anticipated slowdown in the global economy. Scotland would have no option but to cut spending to match the reduction in revenue at precisely the time when we might want to invoke an economic stimulus—a policy of the previous Government that we supported. However, it would be impossible to do that, because cuts would be required to match a forecast fall in revenue.

The Bill misses the fundamental point about being able to respond effectively to the natural volatility of tax revenues in managing public expenditure. Paradoxically, the more accurate the Office for Budget Responsibility is at forecasting falls in future revenue, the greater the volatility in the budget, because borrowing is permitted not against a forecast fall but only against a discrepancy between the forecast and the actual level. That is a huge problem with the borrowing powers at the heart of the Bill. If the Exchequer Secretary or his Scotland Office colleague wants to indicate that they intend to table the necessary amendments on Report or later to rectify that, I would be happy for them to intervene at any point.

20:45

The need for appropriate borrowing powers for that purpose was identified by Professor Michael Keating, who said:

“Borrowing powers are needed for three purposes: to deal with short-term shortfalls, which the present proposals provide for; to deal with cyclical downturns; and for capital investment. There should be more scope for borrowing to deal with cyclical downturns.”

That point was also highlighted in the written evidence provided by Professors Hughes Hallett and Scott, who said:

“The current recession, for example, would according to calculations on the Scotland Office website have cut the Scottish budget by £748 million and £559 million in 2008 and 2009 respectively, sums that are beyond the entire borrowing ceiling—let alone the annual limit of £200 million. But no borrowing would be allowed in such cases anyway. Or, to put the point another way, given that there is a cycle and that adverse shocks do occur, the more accurate the tax forecasts the more volatile will Scottish revenues become and the more the Scottish government will be obliged to cut spending and social support in a downturn”—

precisely the wrong time for cuts to have to be made.

“This is why we say the Bill’s borrowing provisions offer only limited protection against forecast errors and none at all against unexpected economic shocks.”

Clause 32 amends section 66 of the Scotland Act, which deals with the borrowing powers of Scottish Ministers. Proposed new section 66(1)(c) of the 1998 Act specifies that revenue borrowing will be permitted when tax receipts fall short of the forecast, but contains no provision to permit it to deal with cyclical fluctuations in tax receipts, regardless of whether they are accurately forecast. That obvious gap in the Bill must be addressed. On Second Reading I raised the issue of revenue borrowing powers being further constrained because the first 0.5% of any shortfall—about £127 million forecast in 2014-15, say—would have to be found from cuts before any revenue borrowing could even take place if there was a forecast error. Again, cutting at that point, when budgets would already be pressurised because of the cuts from the comprehensive spending review, would be the wrong thing to do.

I was pleased with a number of the recommendations made by the Scottish Parliament Committee, which said among other things that

“the Scottish budget should not be required to meet the cost if tax receipts fall below forecast levels. The Committee recommends that this condition be removed from the Bill.”

The Committee also recommended that

“the short-term annual borrowing limit should be increased from £500 million to around £1 billion,”

and welcomed

“the idea of a Scottish Cash Reserve, but proposes going further to ensure that this includes all Scottish End Year Flexibility saved in Scotland without the need for Treasury agreement, so in future Scottish ministers”—

of whatever party or Government—

“will have total discretion over the Scottish budget.”

That should be universally welcomed. I welcome those recommendations, and I hope that the Government will table amendments to reflect them. However, it would be so much better to ensure a code within which revenue borrowing—including repayment time scales and so on—could be organised. That is the fundamental purpose of the amendment, along with ensuring that borrowing for current revenue purposes is sufficiently flexible to cope with fluctuations in revenue over a whole economic cycle.

The Bill as drafted has a number of weaknesses when it comes to capital borrowing. Our key concerns, and those of the Scottish Government, relate to the timing of the introduction of the repayment terms, the limits set by the Bill and the limitations on sources of borrowing, which the Scottish Parliament Committee recognised and made a positive recommendation about.

The Command Paper that accompanies the Bill, “Strengthening Scotland’s Future”, sets out in limited detail how the proposals are intended to work. Borrowing is to be available for specific projects, subject to Treasury consent, from 2013, and we discussed that on Second Reading. From 2015, a capital borrowing of 10% of Scotland’s capital departmental expenditure limit, around £230 million a year, up to a cumulative total of £2.2 billion, will be available. To put that into context, the Scottish Government could use up the entire cumulative limit by, for example, paying for the Forth bridge replacement crossing. If my memory serves me correctly, that cumulative amount of about £2.2 billion is less in capital terms than the Scottish Government have been spending in any of the past few years.

[Jim McGovern]

Most hon. Members will know that the hon. Gentleman is my constituency neighbour. He mentioned “Strengthening Scotland’s Future”. Does he actually believe that separating Scotland from the UK would strengthen Scotland’s future?

[Stewart Hosie]

I certainly think that improving the provisions of the Bill that relate to capital borrowing would strengthen the Scottish Government’s ability to do the right thing, whoever was in power. If we want to have a debate about the relative merits of independence versus the Union, I am happy to do that—[Hon. Members: “When?”] Not today, because we are dealing with the Bill.

[Mr Frank Roy]

Does that mean that there will be a referendum in Scotland? Yes or no?

[Stewart Hosie]

I think it was Wendy Alexander who said, “Bring it on,” but Labour then ran away. Let us deal with the provisions of the Bill, because we need to get them right. I suggest to the hon. Gentleman, whom I like and respect, that we will have plenty of time in the next 52 days leading up to the Scottish elections to have this discussion, but we should not take up the Committee’s time tonight.

The Scottish Government, and the SNP here at Westminster, do not consider an arbitrary statutory limit on borrowing set by Westminster and lacking any objective justification to be an acceptable basis for an agreement between the Governments. In particular, an arbitrary limit this low will do little to promote long-term capital investment or responsible capital budgeting. A regime along the lines of the prudential borrowing regime that applies to local authorities, in which decisions are based on affordability, would be far more appropriate. Such an approach could be operated within the guidelines suggested in our amendment. Such guidelines would be agreed between the Scottish and UK Governments, including any terms, conditions and limits set out in the code in relation to capital borrowing between the Treasury and the Scottish Government.

[Fiona O'Donnell]

I was present when Fiona Hyslop gave evidence to the Scottish Affairs Committee, and I am aware that the SNP’s position is to promote unlimited borrowing. Will the hon. Gentleman at least concede that the UK Government do have some interest in this matter, given that any amount that a future Scottish Government might choose to borrow under his proposal would have an impact on the deficit here and on the country as a whole?

[Stewart Hosie]

I recognise that, which is why the proposal is about affordability, and why the code of practice would have to be based on established principles to promote long-term sustainability. Of course, within that, there understandably has to be a recognition of the debt and the deficit position. I was critical of the rise in the deficit, and in the debt, in Budgets from 2005 onwards, before the recession and before the banking crisis, so of course sustainability and affordability have to be considered within this proposal and dealt with in some detail.

[Fiona O'Donnell]

The hon. Gentleman is really confusing me. He seems to be trying to have his Dundee cake and eat it. He said that, in times of difficulty, the last thing we should do is cut expenditure. Is he saying that it was wrong of the previous Government to spend money bailing out the banks when we faced the crisis?

[Stewart Hosie]

No, I said that I welcomed the fiscal stimulus to the economy. Many of the efforts on financial intervention were absolutely necessary, and I supported them. Of course that had to be done. My criticism was not that action was taken during difficult periods, but that we went into the recession and the downturn with half a trillion pounds of debt. I am digressing, however—

[Mr Davidson]

rose—

[Stewart Hosie]

I am not giving way immediately, as I want to carry on developing my case on capital borrowing.

Any code has to take into consideration all the issues and be based on an established set of principles for long-term sustainability. That is incredibly important. The Bill, however, currently limits borrowing to loans, which prevents the use of bonds and other instruments. That is significantly more restrictive than the borrowing powers available to Scottish local authorities and to many Governments in other countries with comparable responsibility.

[Mr Davidson]

I want to clarify whether the hon. Gentleman has a specific figure in mind for borrowing. I understand his point about the criteria, but it would be immensely helpful if he gave us an indication, first, of the figure and, secondly, of whether the bonds and other means of borrowing money would be in addition to that amount or part of the total.

[Stewart Hosie]

I do not have a specific figure, and let me tell the hon. Gentleman why. If bonds are issued in such a way as to generate revenue, that revenue can be used in one sense to offset the level of the loans. That is why I am not being prescriptive about the amount. What I am saying is that the cumulative £2.2 billion is too low for the reasons that I have explained and that the code of practice would allow us to take into consideration all the sustainability and affordability issues and reach a figure that would be much more appropriate. I am not going to be prescriptive; it would be wrong for me to do that.

[Mr Davidson]

rose—

[Stewart Hosie]

I will give way one more time on this point.

[Mr Davidson]

If the hon. Gentleman cannot give a figure, how can he say that £2.2 billion is too small? How does he arrive at that judgment when he is unable to use the same reasoning to identify what the figure might be?

[Stewart Hosie]

There are annual amounts and cumulative amounts. The annual amount at 10% of the capital departmental expenditure limit is very modest and the cumulative amount is less than the amount spent on capital in recent years. That strikes me as inappropriate when we are seeking to stimulate the economy and do all the things that the hon. Gentleman and I both want to see happen. As we can have revenue streams coming in to offset some of this, I do not want to put a limit on it, but the code of practice would do that. [Interruption.] I am not going to be drawn on that. I have explained why and I want to move on to bonds, which is another important issue.

Professor Gerald Holtham said in his evidence to the Committee that there is no macro-economic rationale to prevent the Scottish Government from having bond-issuing powers. I raised that on Second Reading, when I said:

“The borrowing powers in the Bill will limit the Scottish Government to certain types of borrowing. They will be able to use loans, rather than bonds or other instruments that would provide greater flexibility. Transport for London, which is a local authority in respect of its borrowing powers, is currently issuing commercial paper worth £7 billion for Crossrail and other projects. Birmingham city council issued paper to the tune of £250 million in 2006”.—[Official Report, 27 January 2011; Vol. 522, c. 541.]

As I said at the time, it is strange that what should be a seriously enhanced power for the Scottish Parliament, as described in the Bill, does not even put it on a par with TfL or Birmingham city council in its ability to raise cash through commercial paper for important national infrastructure works.

Professor Iain McLean and others have noted that bond issues would have several benefits. First, they would provide the Scottish Government with greater flexibility in the financing of capital projects, and the ability to issue a range of instruments would allow projects to be financed by a mixed portfolio of borrowing both in terms of repayment periods and the interest and other terms of the borrowing instrument. Secondly, in certain circumstances, issuing instruments in the market may offer a better deal on rates and repayment terms than a loan from the Treasury or a commercial bank. Indeed, the Treasury recently announced in the spending review a 1% rise in the charge or cost on loans from the Public Works Loan Board, increasing the cost of local authority borrowing. Having an option to seek financing from the market would provide an alternative in the event of a punitive interest rate being imposed at some future point by the Treasury. Professor McLean said in his evidence that

“it should be for the Scottish Parliament and Scottish ministers—not the UK Parliament or UK ministers—to decide on the soundness of the capital projects to which they commit themselves, and to deal with revenue fluctuations.”

That is the answer to the point raised by the hon. Member for Congleton (Fiona Bruce). If we are serious about responsibility—I hope that we all are—the Scottish Government must be allowed to make the decisions. Those decisions should land squarely on the desks of Scottish Ministers, or those in whatever other body is responsible for raising capital.

21:00

I am pleased that the Scottish Parliament Committee has recommended that there should be higher capital borrowing limits and that they should be introduced earlier, that the limit for prudential borrowing should be increased from £2.2 billion to about £5 billion—the fact that the Committee considers that figure reasonable is a good starting point for negotiations in terms of the code of practice—that Scottish Ministers should have complete discretion in relation to what the money is spent on without having to seek agreement from the Treasury, and that the borrowing powers should be introduced earlier in the next Scottish Parliament. I also welcome the recommendation that the Scottish Parliament should have power to borrow directly from the markets by issuing bonds.

Given the considerable support for these proposals and the deep concern throughout the Committee about some of the Bill’s provisions, I should like to know whether the Government intend to table the necessary amendments for debate on Report on 22 March, or to table them in another place after that point. The Scottish people are entitled to know about the shape of revenue and capital borrowing, and Members representing constituencies in Scotland—and, indeed, elsewhere—are entitled to be able to scrutinise properly whatever proposals may be presented. I hope that the Minister will be able to give us definite information about when amendments will be tabled, and whether they will accord with the recommendations of the Scottish Committee.

[Ann McKechin]

I welcome the clauses relating to borrowing powers. We agree that they make sense in terms of both short-term revenue and capital.

In paragraph 597 of its report, the Holyrood Committee accepted that

“Given its responsibility for macroeconomic management”,

the United Kingdom Government

“has a proper interest in the flow of borrowing”.

We agree with that. However, there is a worthwhile discussion in the report about evidence from the Government and other experts relating to the overall level of borrowing, both short-term and on the capital account, and we think that the Government should consider the Committee’s arguments. It did not identify an alternative figure, but made some suggestions that we think worthy of consideration. I ask the Government to confirm that they will examine the report in detail, and will take the earliest opportunity to present their assessment to the House of Commons or the House of Lords. I note that the Scottish Government will be able to borrow from commercial lenders as well as from the National Loans Fund, and I welcome that as well.

The hon. Member for Dundee East (Stewart Hosie) should be careful. I assume that his are primarily probing amendments, and I think it right to test some of the issues discussed in the Holyrood Committee, but as well as looking for the benefits, he must accept the responsibilities of the Scottish Government for overall public sector borrowing limits. Although we may disagree with the Government on what those limits should be and on the scale of the deficit reduction, we accept that as an important criterion in the debate.

[Stewart Hosie]

I am sure that the hon. Lady will want to be generous and accept that I made it clear on two occasions that affordability and sustainability must be taken into consideration. No one wants to do anything silly with the public finances.

[Ann McKechin]

That marks a first. I cannot recall the Scottish Government asking for less money. I seem to remember that when Labour was in government, they kept asking for more money and saying that they did not have enough.

The hon. Gentleman made a comment about the deficit. Before 2007 it was about 2%, which was perfectly manageable within the fiscal settlement. The increase in the deficit was primarily caused by the banking crisis, which was an international crisis as the hon. Gentleman accepts, and by the fact that we stimulated the economy, which he also accepts, although he said we should have stimulated it even more. He cannot have his Dundee cake and eat it, however. He either accepts one interpretation of what happened, or he accepts the interpretation of the coalition Government, which we believe to be false.

The hon. Gentleman raised a number of queries about the Holyrood Committee recommendations, particularly in respect of the requirement that the first £120 million of any tax shortfall must be met by spending reductions in the year in question. It would be helpful if the Minister could explain the rationale for imposing that. I think that measure is in the Command Paper—it is not in the Bill itself, of course. This issue is of particular concern in the light of the Government’s decision to abolish the end-of-year flexibility scheme at very short notice this year, which will cost the Scottish budget an estimated £23 million.

When the Minister gave evidence to the LCM Committee, he drew a distinction in respect of end-of-year finance arrangements, but at no point did he intimate that the Government or Chief Secretary to the Treasury had decided that they would be gobbling up the £23 million as part of the deficit reduction plan. That raises concerns about the nature of the relationship between the UK Government and the Scottish Government in the so-called respect agenda. Will the Minister confirm at what point this issue was raised with the Joint Ministerial Committee and the Scottish Government? Why was no mention made of this when he and the Chief Secretary were giving evidence to the LCM Committee? Again, this is about trust and the maintaining of good governmental relationships. As I have mentioned before, it is key that that is maintained to the highest degree in these clauses.

There have been issues to do with the Government’s criterion of setting a limit of £2.2 billion for capital expenditure. There are some very good suggestions in the Committee’s report about increasing borrowing capacity, which we think are worthy of consideration.

Finally, as the Minister will be aware, my colleagues in the Scottish Parliament have called for the borrowing powers to be brought forward from the proposed implementation date of April 2013 to April 2012. Given that we anticipate that this legislation will be on the statute book by the end of this year and before the next financial year, I can see no good reason why the power cannot be advanced to April 2012, which, as the Minister will be aware, is within the current comprehensive spending review period. That would assist the Scottish Government —of whatever political hue—in making appropriate planning decisions after the election. If the Minister could give an early indication that the Government are minded to bring forward the introduction of this power to 2012, that would be widely welcomed. I therefore hope he can give the Committee one positive piece of news tonight.

[Mr Gauke]

I propose to deal with amendments 51 to 57 first, and I recognise that, as has been said, they partly overlap with the report from the Scotland Bill Committee in the Scottish Parliament. As my right hon. Friend the Secretary of State for Scotland set out last week, the UK Government will consider the recommendations in the Committee’s report thoroughly, alongside an assessment of the impact on the UK fiscal position.

The purpose of amendment 51 is twofold. First, it would remove the requirement for Scottish Ministers to access revenue borrowing to meet current expenditure only in accordance with rules determined by the Treasury. Secondly, it would allow such borrowing to be accessed due to a shortfall in outturn receipts against forecast receipts from devolved taxes and the Scottish rate of income tax. I will deal with each of those in turn.

On the need for borrowing by Scottish Ministers to comply with rules determined by the Treasury, I note that the report from the Scotland Bill Committee in the Scottish Parliament—where the Scottish Government voted with the motion—recognised the need for the UK Government to constrain the borrowing powers. I am delighted that there appears to be a consensus in the Committee that nobody wants to do anything silly with the public finances, as one could have been forgiven for thinking that that has not been the case over recent years.

There are important reasons for Scottish Ministers to comply with Treasury rules on borrowing. The Bill’s new borrowing powers will sit within the UK fiscal framework as a whole; interest on Scottish borrowing will be included in the total UK public sector borrowing aggregates. As overall macro-economic policy will continue to be a reserved matter, it is necessary for the UK Government to set controls and limits on the borrowing powers in order to retain overall control of UK borrowing, protect overall economic stability and minimise fiscal risks to the UK Exchequer. This Government believe that the specific terms and conditions set out in the Bill and the Command Paper strike the right balance between protecting overall levels of UK debt and increasing the financial accountability of the Scottish Parliament.

On the second point, I wish to thank hon. Members for bringing an important discrepancy to the attention of the Committee. Although the Command Paper was clear that revenue borrowing would be used to meet current expenditure because of a shortfall in receipts compared with forecast in devolved taxes and the Scottish rate of income tax, the Bill was not so clear. The Government will therefore introduce their own minor and technical amendment on Report to include the Scottish rate of income tax alongside devolved taxes. In conclusion, given the continued control by the Government over the UK fiscal mandate and the fact the Government will be introducing their own amendment in respect of the second issue, I ask the hon. Member for Dundee East (Stewart Hosie) to withdraw the amendment.

[Stewart Hosie]

The Exchequer Secretary has said that the Government will be bringing the Scottish rate of income tax into the consideration, and I presume that that is still to allow borrowing when the actual figure there is less than the forecast. But that does not address the fundamental issue that if there is a forecast fall, the Scottish Parliament will take the entire hit, because there is still no cyclical borrowing—borrowing where a forecast fall actually happens.

[Mr Gauke]

The point of the amendments that will be introduced on Report is to do exactly as I have described. May I make a point about the cyclical impact and the adequacy of current borrowing? In the past downturn, income tax receipts fell by about 6% or 7%, so we are looking at a variation of 6% or 7% of the £4.5 billion estimated Scottish income tax receipts. That is about 1% of the Scottish budget, because it needs to be seen against the continuing bedrock of stability afforded by the block grant. I make that point so that we can place this issue in context.

Amendments 53 and 66 would have the effect of removing the borrowing limits. They do not replace the limit with an alternative figure, as has been made clear following a number of interventions from hon. Members, so I have assumed that the intention is for these limits to be determined by a new “code of practice”, as set out by the hon. Member for Dundee East and put forward in amendments 52 and 55. There are important reasons why the Bill contains limits, which I have already set out and which include the fact that Scottish borrowing would have an impact on the UK borrowing figures. It is surely right that the limit should be determined by the House, first through its consideration of the Bill and subsequently through approval of any order altering the limit. UK Government analysis continues to suggest that the limits in the Bill for revenue borrowing, together with the Scottish budget absorbing the first 0.5% of the deviation between forecast and outturn receipts, are sufficient in normal conditions.

21:15

Crucially, the Bill allows borrowing to increase above £500 million but not below, so it is a base. Any such changes would require the approval of the House, but the Government are prepared to look at the specific circumstances in future. There might well be circumstances in which greater flexibility would be appropriate. The capital borrowing limits have been set at £2.2 billion and the Government believe that that represents an acceptable level of borrowing for the UK finances. That figure is based on a 10% annual capital departmental expenditure limit of Scotland’s capital budget—equivalent to £230 million in 2014-15—over a 10-year repayment period. Again, the Bill provides for the limit to be increased above, but not reduced below, £2.2 billion. Any such changes would require the approval of the House.

Amendments 55 and 52 would introduce a new code of practice between the Treasury and Scottish Ministers governing capital borrowing and placing it on a statutory footing. The full code has not been set out but it might include provisions on how Scottish Ministers should determine and review what they can afford to borrow and the terms and conditions on which sums can be borrowed, including borrowing limits. For reasons I have set out, it is right that borrowing limits and the terms and conditions around borrowing should be determined by the House—first through its consideration of the Bill and subsequently through its approval of any order altering the limit.

Amendment 54 would remove both the role of the Treasury in approving capital borrowing and the restriction that such borrowing must be by way of a loan. Let me be clear about the scope of Treasury approval in capital borrowing by Scottish Ministers. If Scottish Ministers wanted to borrow before their full power came into effect, that would impact on the UK’s borrowing requirement as set out by the Chancellor in the spending review. The Command Paper therefore sets out a pragmatic way to manage the risks from maximising opportunities for stimulating economic growth in Scotland while retaining control of the overall UK fiscal mandate. Scottish Ministers will need to seek the consent of the Treasury to borrow early, between 2013 and 2015, in a way that does not impact on the fiscal position or alter the plans set out in the 2010 spending review—for example, to make prepayments to fund the construction of the Forth bridge.

The rationale for restricting Scottish Ministers’ borrowing for capital expenditure by way of loans is simple. Scottish borrowing through bonds would be classified as UK borrowing and, as borrowing through bonds is likely to be more expensive than raising finance through UK gilts, those higher costs would be reflected in increased UK debt interest payments, which would ultimately result in higher costs for the UK. In these uncertain times we cannot afford the risk of extending the power to issue bonds. The hon. Member for Dundee East quoted Professor Holtham, but, because of the likely greater cost of bonds, the professor also made the point that the issuing of bonds by the Scottish Government would essentially be a vanity project. These matters need to be considered in that context.

[Fiona O'Donnell]

Why did the Conservative members of the Bill Committee in the Scottish Parliament vote for the measures?

[Mr Gauke]

We will, of course, look at what the Scottish Parliament has set out and we will engage with those suggestions on alternative ways of proceeding. None the less, given the difficulties that would arise if bonds were issued, particularly in the circumstances we face—there is a crisis in the public finances and it is essential that we meet our fiscal mandate and stick to our spending and deficit reduction plans—we need to take into account the uncertainty and additional cost that could be created at this point. However, there is a general point to be made about borrowing limits. Circumstances will change and the opportunity for greater flexibility in future is something we are willing to look at, but we believe we have the balance right at the moment.

[Mr Davidson]

Am I correct in assuming that the Minister is pretty strongly wedded to the set of proposals that he has introduced at this time, but that he and the Government are not necessarily wedded to them for all time? If devolution continues to evolve, that may well result in the relaxation of those rules, a review and a beneficial alteration of the figures.

[Mr Gauke]

The hon. Gentleman sets the position out well, and I do not disagree with him. The Bill essentially sets out a base for current and capital borrowing. It can be increased, and there is a mechanism in the Bill to do so. We would need to look at the circumstances in future to see whether we could increase flexibility in that area. We have to bear in mind the state of the public finances and the importance of maintaining credibility.

[Ann McKechin]

I asked a question about the transitional borrowing powers that require Treasury consent, and whether the Treasury would be minded to bring them forward to 2012. The Minister has given conditions, which we accept would have to apply in the transitional period, but nevertheless that flexibility would be welcomed by everyone.

[Mr Gauke]

I note the hon. Lady’s comments. We are looking carefully at the recommendations by the Committee in the Scottish Parliament. We note her representations, and we will respond in due course. I wish to underline the fact that it is of absolute importance that we manage to maintain credibility, which is perhaps why there is less flexibility now than there may be in future. The hon. Member for Glasgow South West (Mr Davidson) suggested that there might be greater flexibility in future, but we would need to assess that nearer the time. However, I note the hon. Lady’s remarks on the transitional period for borrowing.

Amendment 57 is consequential on amendment 56. As hon. Members wish to remove the borrowing limits from the Bill and the ability to revise those limits with the approval of the House, clause 32 (10) would no longer by necessary as there would be no such secondary legislation. The hon. Member for Glasgow North (Ann McKechin) raised the issue of end-of-year funds across all the devolved Administrations and Departments amounting to some £20 billion. Such large sums of accrued EYF present a fiscal risk to the UK Government, which is why new arrangements will be detailed in the forthcoming Budget. I hope that that clarification is helpful.

I thank the hon. Members for the opportunity to set out the Government’s position on the important borrowing powers provided by the Bill. This has been a helpful and perhaps probing debate—we shall see. However, we do not accept any of the amendments, so I invite the hon. Member for Dundee East to withdraw amendment 51. For the reasons that I have set out, I hope that hon. Members agree that that clause 32 should stand part of the Bill.

[Stewart Hosie]

The Minister has said a great deal, and it was very instructive indeed. The Scottish Government will still be required to absorb the 0.5% cut in the budget before revenue borrowing can take place. On current forecasts, there would perhaps be £127 million in extra cuts even before we could borrow. There has been no confirmation that cyclical borrowing is permitted—it will still only be against changes to the forecast, which means that if there is a forecast fall we take the full hit. That cannot be right if the Office for Budget Responsibility is accurate and there is increased volatility in the Scottish budget. Repayments on the revenue will still be made over four years, which might well mean that if we borrowed at the height of the recession we would now be paying back, because it is such a short-term repayment schedule, even though there is already additional pressure on the Scottish budget.

The Minister said that capital borrowing of £2.2 billion on a 10% annual CDEL was exceptional, but the Scottish Government and the Scottish Parliament Committee did not think so. He is flatly ignoring the recommendations that have been made. He was anxious that the requirement for the Treasury to approve borrowing should be removed. I ask, what price the respect agenda? Incredibly, he offered no support for bonds, even though it was an explicit Committee recommendation that the

“Scottish Parliament should have the power to borrow directly from the markets by issuing bonds.”

The hon. Member for East Lothian (Fiona O’Donnell) sensibly asked what the Tory members of the Scottish Parliament Committee would make of that. One might ask what the Liberal members of the Scottish Parliament Committee make of that. I might ask what all the Unionist members of that Committee would make of that, given that they thought they had a deal and that the recommendations would see the light of day in one form or another in amendments in Committee, on Report or in another place. We will be watching extremely carefully to see whether the Government backtrack now on what appeared to be promises, abandoning all the recommendations of the Scottish Committee, which would be a shameful thing to do. I beg to ask leave to withdraw the amendment, but given how little comfort we have had, I intend to divide the Committee on amendment 52.

Amendment 51, by leave, withdrawn.

Amendment proposed: 52, page 24, line 22, at end insert—

‘(1ZA) In borrowing sums under subsection (1), the Scottish Ministers must have regard to any code of practice agreed by them and the Treasury.

(1ZB) A code of practice agreed under subsection (1ZA) may include provision as to—

(a) how the Scottish Ministers are to determine and keep under review how much they can afford to borrow,

(b) the terms and conditions on which sums may be borrowed,

(c) limits on the aggregate at any time outstanding in respect of the principal of sums borrowed.’.—(Stewart Hosie.)

Question put, That the amendment be made:

21:26

Division 224

Ayes: 7

---

Scottish National Party: 4
Plaid Cymru: 2
Green Party: 1

Noes: 393

---

Conservative: 245
Labour: 106
Liberal Democrat: 39
Democratic Unionist Party: 2

[Mr Davidson]

On a point of order, Mr Hoyle. According to the votes, eight nationalists have been voting on all these things, and now they are down to seven. Has somebody been kidnapped? [Laughter.]

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

Now, then.

Clause 32 ordered to stand part of the Bill.

Clause 33

Maximum penalties which may be specified in subordinate legislation

[The Parliamentary Under-Secretary of State for Scotland (David Mundell)]

I beg to move amendment 31, page 25, line 31, leave out ‘the amount specified as’.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

With this it will be convenient to discuss Government amendment 32.

[David Mundell]

The Government have identified the need for these minor technical amendments to clause 33, which updates the maximum penalties that can be applied to criminal offences created in subordinate legislation made under the Scotland Act 1998. The amendments are sensible additions that will ensure consistency across the different legal systems within the UK. The first amendment is a minor technical amendment to ensure consistency in the terminology used to refer to fine limits for different jurisdictions, which are provided for in the amendments to section 113 of the Scotland Act made by clause 33.

The second amendment ensures that the correct terminology is used in relation to fine limits in section 113 for either-way offences created in relation to the law of England and Wales and Northern Ireland, with the statutory maximum rather than level 5 on the standard scale on summary conviction. Level 5 has meaning only in relation to summary-only offences by virtue of the definition in the Interpretation Act 1978. Clause 33, as introduced, makes this terminology change in relation to fine limits for Scots law offences, and the amendment makes the same change for offences that form part of the law of England and Wales and Northern Ireland.

The amendments will ensure consistency in the terminology used to describe the fine limits for offences created in the Scotland Act orders for each of the legal jurisdictions in the UK.

Amendment 31 agreed to.

Amendment made: 32, page 26, line 2, leave out from second ‘exceeding’ to end of line 3 and insert—

(i) in the case of a summary offence, level 5 on the standard scale,

(ii) in the case of an offence triable either way, the statutory maximum,’.—

(David Mundell.)

Clause 33, as amended, ordered to stand part of the Bill.

Clauses 34 to 37 ordered to stand part of the Bill.



Clause 38

Commencement

Amendments made: 65, page 28, line 5, leave out ‘made by statutory instrument’.

Amendment 66, page 28, line 9, leave out ‘made by statutory instrument’.—(David Mundell.)

Clause 38, as amended, ordered to stand part of the Bill.

Clause 39 ordered to stand part of the Bill.

New Clause 18

Orders

‘Any power to make an order conferred by this Act is exercisable by statutory instrument.’.—(David Mundell.)

Brought up, read the First and Second time, and added to the Bill.

New Clause 1

Abolition of regional members of Scottish Parliament

‘(1) The Scotland Act 1998 is amended as follows.

(2) In section 1—

(a) in subsection (2) “Two members” is substituted for “One member”; and at the end there is inserted “save for those identified in paragraph 1(a) to (c) of Schedule 1, each of which shall return one member,”;

(b) subsection (3) is omitted.

(3) In section 5, subsections (1) and (3) to (9) are omitted.

(4) Sections 6, 7, 8 and 10 are omitted.

(5) In section 11, subsection (2) is substituted by—

“(2) A person is not entitled to vote as an elector in more than one constituency at a general election, and may cast no more than two votes at a poll for the return of constituency members.”.

(6) In section 12—

(a) in subsection (2), paragraphs (e) and (f) are omitted;

(b) subsection (3) is omitted;

(c) after subsection (4) the following subsection is inserted—

“(4A) The provision to be made under subsection (1) must include provision for—

(a) each elector to cast one or two votes of equal value, with no more than one vote to be given to any one candidate, in constituencies returning two members;

(b) the two candidates with the most valid votes to be elected in such constituencies.”.

(7) In Schedule 1—

(a) for paragraph 1 there is substituted—

“(1) The constituencies are—

(a) the Orkney Islands,

(b) the Shetland Islands

(c) the Western Isles [Na h-Eileanan An Iar], and

(d) the parliamentary constituencies in Scotland at the time of an ordinary or extraordinary general election for the Scottish Parliament, except the constituencies of Orkney and Shetland and Na h-Eileanan An Iar”;

(b) paragraphs 3 to 14 are omitted.’.—(Mr Donohoe.)

Brought up, and read the First time.

21:45

[Mr Donohoe]

I beg to move, That the clause be read a Second time.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

With this it will be convenient to discuss new clause 2 —Regional members of the Scottish Parliament—

‘(1) The Scotland Act 1998 is amended as follows.

(2) In section 81, after subsection (2), there is inserted—

“(2A) No provision shall be made under subsection (2) for any allowances for representative work in any constituency or region by a regional member in a registered political party or a group of such regional members; and no allowances may be made for offices or staff or related expenses incurred by such members other than in connection with or at the Parliament’s place of meeting or in connection with a committee meeting.

(2B) Any allowances paid to regional members in a registered political party shall be founded on the assumption that they are representatives of that party from the relevant region and not from any single constituency.”.

(3) In Schedule 3, after paragraph 2 , there is inserted—

2A The standing orders shall include provision for withdrawing from a regional member in a registered political party any or all of his rights and privileges as a member, including any allowances, if he is found to have purported to act, or has held himself out, as a constituency member for any single constituency or for a group of constituencies other than the region from which he was elected.”’.

[Mr Donohoe]

New clauses 1 and 2 relate to regional Members of the Scottish Parliament, who were introduced in an irksome move and have been with us for a long time—since the outset of the Scottish Parliament.

[Mark Lazarowicz]

My hon. Friend describes the provisions for a system of proportional representation as irksome. How many representations have been received by Government or anybody else that call for a change to the voting system for the Scottish Parliament, apart from those of my hon. Friend and a few of our colleagues?

[Mr Donohoe]

Since I have been in a position to see this matter at first hand, I have received many representations over the years from constituents who have concerns about the system, as I am sure has my hon. Friend. As a result of my tabling the new clauses, a number of individuals have written to me to tell me that I was spot on in making this argument. Therefore, there have been a number of representations. Not many people have come to me and argued for the continuation of the crazy system that is in being. I will expand on that point later in my speech.

Never in the history of politics has a political party given so much power to its opponents as in the Scotland Act 1998. Since then, all sorts of people have come on to the scene, cherry-picked within the constituencies and caused mayhem. That is why I have tabled the new clauses. Obviously, we must look at this whole question. We must go back to the first election to the Scottish Parliament in 1999. In my constituency, there was the crazy situation in which not only was the person who came second under first past the post elected to the Scottish Parliament through the pool for constituency Members, but the people who came third and the fourth. As my constituents tell me, something is fundamentally wrong when such a system is allowed to continue. That is the crux of my argument this evening.

[Jim McGovern]

I go round the doors every weekend, as I am sure does my hon. Friend and most Members here. Does he agree that most people on the doorstep are confused about how they vote for the list person? In politics, the people who know about it regard it as the assisted places system.

[Mr Donohoe]

My hon. Friend is absolutely right. I will develop that argument in my speech.

[Pete Wishart]

I am interested to know the view of the Labour party on this issue. The names of the hon. Gentleman and five of his hon. Friends are listed as supporters of the amendment. What is the view of those on the Labour Front Bench on Westminster controlling what happens with Members of the Scottish Parliament? What is the view of Labour Members of the Scottish Parliament on that?

[Mr Donohoe]

I am sure the hon. Gentleman knows that there are varying views on the subject, as there are on many subjects. As far as my constituents are concerned, however, there is no doubt: to a person, they support the argument that I am making tonight that there should be a fundamental change to how we elect our MSPs. There was immense resistance to the fact that the person who came fourth under first past the post was eventually elected to the Scottish Parliament. That seems to me to be wrong.

[David Mundell]

Will the hon. Gentleman give way?

[Mr Donohoe]

Oh, go on then.

[David Mundell]

The hon. Gentleman has been very consistent on this issue, and I respect his views even though I do not necessarily agree with him. However, I am confused about the Labour party position. For many years, those of us who were list MSPs heard the arguments that he is making about how the list was an assisted places scheme for people who failed to be directly elected under first past the post. Now I find that Labour party first-past-the-post candidates are on the list, and some of them are even topping lists when there is a fear that they will lose in the first-past-the-post constituency. How does he feel about that?

[Mr Donohoe]

I had the greatest respect for Phil Gallie, the former MP for Ayr, who was also a list MSP. He hated every minute of his time in the Scottish Parliament, because he knew that as a list Member, he had absolutely no powers. I will develop that argument later in my speech, but even Tory MSPs were opposed to the concept of the list system.

[Mrs Laing]

I understand that the hon. Gentleman’s argument is that the simple first-past-the-post system used in elections to Westminster produces a fairer result than other systems. Is he concerned that the introduction of the alternative vote for Westminster would undermine elections to this place, and therefore the legitimacy of this House of Commons?

[Mr Donohoe]

I am not sure that I want to wander down that road, because the hon. Lady is well aware that I am the joint chairman of the all-party group for the promotion of first past the post, and also the secretary of the relevant group in the Labour ranks. Indeed, last week I asked the Prime Minister a question about the matter and he agreed with me, which is a first. Members all know where I stand and where the campaign on first past the post is going.

Let us examine the situation as it stands. If I go to a health board meeting in Ayrshire, how many MSPs can turn up? Some 24 can turn up and be part of the debate. That is not a problem in itself, but some of those list Members represent areas outside Ayrshire. There is therefore immense conflict when decisions are taken about where health services for them and their constituents should be. I have seen that at first hand on at least a dozen occasions. As a consequence, I no longer go to those meetings. Instead, I sensibly insist on the health board meeting the MPs and constituency MSPs alone, instead of the nonsense of the cherry-picking that was and is going on among list Members north of the border.

[Mark Lazarowicz]

My hon. Friend clearly has strong views. I must say that in the area that I represent, where there are Conservative, Liberal Democrat, Green, Labour and independent list MSPs, I do not have the problems that he seems to encounter. Is not the real difficulty with his proposal that it would lead to an end to the proportional system for the Scottish Parliament? Is that not what it is really about? Would it not be undemocratic and wrong if Labour, the SNP or any other party got a majority of seats with 30% of the vote?

[Mr Donohoe]

I am sure my hon. Friend has examined my two new clauses, which are self-supporting. It is correct that in the first instance I want to bring back coterminous boundaries for all MSPs, so that there is a semblance of an organisation that can be supported by all parties in this place and elsewhere. However, the second point that I want drive home is as important as the first. I do not believe that list Members should be allowed, under any circumstances, to pick up the funds that are currently available to them to represent—or not represent—what they perceive to be their constituents.

That brings me neatly to list MSPs themselves. On a substantial number of occasions, the list Member has cherry-picked, to the detriment of the possibility of inward investment by companies of some size into my constituency—I take exception to that more than anything. On the basis of what they perceived to be environmental issues, they have come in and destroyed any possibility of a company coming into my constituency. That is wrong, and there must be accountability, but the list Member is not accountable to constituents as I am to mine. That must be fundamentally wrong. No hon. Member can tell me whether the list Members have any accountability within the structures of their political parties. That is the problem. There is no accountability whatever for list Members—[Interruption.] Does the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) want to intervene?

[Mr MacNeil]

indicated dissent.

[Mr Donohoe]

I did not think he would. That demonstrates exactly what I am saying. There is no accountability, and no structure to allow it, for list Members. That is a major problem, and why I have tabled new clauses 1 and 2.

[Jim McGovern]

Does my hon. Friend agree that most people would recognise their MP, some would recognise their MSP, and some may even recognise their MEP, but very few would know who their list MSP is?

[Mr Donohoe]

The only one I could think anybody would recognise would be the ex-Member for Cumnock, Carrick and Doon Valley, George Foulkes. Whether that is because of his politics or because he was the chairman of Hearts I do not know.

[Mr MacNeil]

I am grateful that the hon. Gentleman mentions list MSPs. In the highlands, we know that Rob Gibson and David Thompson are the SNP list MSPs, but I have no idea whatever who the Labour MSPs are.

[Mr Donohoe]

The hon. Gentleman makes my point. Nobody actually knows their list Members. I could not name the ones in my constituency because there are 24 of them.

[Pete Wishart]

Does the hon. Gentleman know how many people in Scotland recognise Iain Gray? What would he make of these proceedings?

[Mr Donohoe]

Perhaps the hon. Gentleman’s smile will be on the other side of his face come the end of May. There is absolutely no doubt that Iain Gray will become as well known as anyone in Scotland as a result of becoming First Minister after 3 May this year. That was a great intervention—I would be happy to take similar ones all night.

[Mr MacNeil]

I do not know who the highlands Labour list MSPs are, so could the hon. Gentleman inform us?

[Mr Donohoe]

I think one of them is David Stewart.

[Mr MacNeil]

Think?

[Mr Donohoe]

Am I right?

[Mr MacNeil]

indicated assent.

[Mr Donohoe]

The hon. Gentleman indicates that I got that one right.

The fact is that we must look seriously at the current situation. This argument is what might be described as a slow burner, but I would like to develop it by moving on to the first-past-the-post system. I realise that I am running out of time, but I have a lot of support on both sides of the Committee, even if some hon. Members are hiding behind their mantle.

The fact is that there is only one solution to the problem that we face north of the border—to bring about first past the post for every MSP. As a result, I suggest, for all sorts of reasons, that the best solution is that instead of the list Members system, by which there are 129 MSPs, we simply have two MSPs per Westminster constituency, with the exception of the Western Isles and Orkney and Shetland. I would make that concession. I am sure that the hon. Member for Na h-Eileanan an Iar would be very happy with that indeed. As a result, we would have 119 Members.

[Mr MacNeil]

Will the hon. Gentleman tell us—

20:44

Proceedings interrupted (Standing Order No. 9(3)).

The occupant of the Chair left the Chair.

The Deputy Speaker resumed the Chair.

Progress reported; Committee to sit again tomorrow.

Business without Debate

Monday 14th March 2011 Commons Chamber

Regulatory Reform

Motion made, and Question put forthwith (Standing Order No. 18(1)(a)),

That the draft Legislative Reform (Civil Partnership) Order 2010, which was laid before this House on 25 October, be approved. —(Miss Chloe Smith.)

Question agreed to.

Delegated Legislation

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Data Protection

That the draft Data Protection (Subject Access Modification) (Social Work) (Amendment) Order 2011, which was laid before this House on 3 February, be approved.—(Miss Chloe Smith.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Social Security

That the draft Social Security (Contributions) (Re-rating) Order 2011, which was laid before this House on 3 February, be approved.—(Miss Chloe Smith.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

That the draft Social Security (Contributions) (Amendment No. 2) Regulations 2011, which were laid before this House on 3 February, be approved.—(Miss Chloe Smith.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Taxes

That the draft International Tax Enforcement (Saint Lucia) Order 2011, which was laid before this House on 8 February, be approved.—(Miss Chloe Smith.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

That the draft International Tax Enforcement (Saint Vincent and the Grenadines) Order 2011, which was laid before this House on 8 February, be approved.—(Miss Chloe Smith.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

That the draft Double Taxation Relief and International Tax Enforcement (Montserrat) Order 2011, which was laid before this House on 8 February, be approved.—(Miss Chloe Smith.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

That the draft International Mutual Administrative Assistance in Tax Matters Order 2011, which was laid before this House on 8 February, be approved.—(Miss Chloe Smith.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

That the draft International Tax Enforcement (Antigua and Barbuda) Order 2011, which was laid before this House on 8 February, be approved.—(Miss Chloe Smith.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

That the draft International Tax Enforcement (Saint Christopher (Saint Kitts) and Nevis) Order 2011, which was laid before this House on 8 February, be approved.—( Miss Chloe Smith.)

Question agreed to.

Hindi Radio Service (BBC)

Monday 14th March 2011 Commons Chamber

Motion made, and Question proposed, That this House do now adjourn.—(Miss Chloe Smith.)

22:02

[Mr Edward Leigh (Gainsborough) (Con)]

This is an important Adjournment debate about the future of the BBC’s Hindi radio service. At the moment, it is broadcast for three hours a day, divided between the morning and the evening, and reaches no fewer than 10 million listeners, mostly in the northern Hindi-speaking regions of Uttar Pradesh, Bihar and Jharkhand. Hindi is the second largest language audience of the BBC World Service worldwide—of course, English is the first—and it is precisely these three poorer states in India that the Department for International Development has committed to support until 2015 to the tune of £280 million.

The BBC is cutting its shortwave Hindi service, which costs £1 million a year, but once cut, it will save just 2.5p per listener. This, I contend, is the wrong saving to make, and I very much hope that the BBC will think again. The BBC Hindi service began in May 1940, on the very same day that Churchill became Prime Minister, and it employed I. K. Gujral, who later became the 13th Prime Minister of India. The Hindi service was also the first news outlet to break the news of Indira Gandhi’s assassination.

There has been a so-called partial reprieve—I would call it a climbdown—after the massive outcry over the total abolition of a radio service that serves 10 million people, and which most radio stations in the world would give their eye tooth to have. However, all that will do is save one hour of Hindi broadcasting for just one year, and that is not enough. The work schedules of the poorest Indians mean that they can often hear only one broadcast or the other. Many listeners want their radio news in the morning. This decision will wipe out a large proportion of the audience overnight.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

Does the hon. Gentleman agree that there is widespread concern across the UK about the decision that the BBC appears to be making? Many of my constituents share his concerns about the future direction of the BBC on this service.

[Mr Leigh]

I am grateful for that intervention, which shows the wide cross-party support on this issue, in a well-attended debate, and a lot of determination, in all parts of the House, to resist the BBC’s short-sighted decision.

[Jeremy Corbyn (Islington North) (Lab)]

I congratulate the hon. Gentleman on securing this important debate on what is a ridiculous decision by the BBC. Running the service costs very little compared with the audience that it gets. This decision has been made by people who do not understand that millions around the world rely on ordinary, old-fashioned, shortwave broadcasting. They are not part of the digital revolution, and if this kind of cut goes through, they will not even be informed about the digital revolution.

[Mr Leigh]

That is precisely the point. The false argument that the BBC makes is that there is a revolution in India and elsewhere—as indeed there is—and that more and more people have television, but the poorest of the poor in those states depend on shortwave radio. We provide a relatively cheap and effective service, and we should maintain it.

[Penny Mordaunt (Portsmouth North) (Con)]

As a former director of Diabetes UK who was involved in setting up health care programmes in India, I would echo that point. Quite often the service is the only way that messages about health care or things that are happening in a particular province can reach people.

[Mr Leigh]

That is absolutely right.

Let me read out a couple of quotations by ordinary people from an article in The Times:

“Vijay Kumar Pandey…every day at 6 am, takes his battered transistor radio and places it on a small table outside his house. Through the shortwave crackle a burst of familiar Indian classical music announces the beginning of a half-hour news bulletin.

Other villagers arrive to listen to the world’s most important events. They have been doing this since 1940, gathering at dawn and dusk to hear BBC Hindi’s twice-daily news programmes.

‘I am in shock,’ said Mr Pandey, a farmer in…Uttar Pradesh. ‘It’s like a family member departing from me.’”

The article continued:

“My life would lose its meaning if BBC Hindi stops its service,”

said Tarachand Khatri from Rajasthan.

“Can you imagine living with somebody throughout your life and, suddenly, that person is gone? BBC Hindi was a person; we used to interact with it through its programmes; we used to share our happiness, feelings, thoughts and concerns.”

The respected Indian news weekly Outlook reports that some villagers have threatened to burn David Cameron in effigy—something that we would all deprecate. Mohammed Hasnain Khan, a schoolteacher from Ghazipur, has threatened to immolate himself if BBC Hindi is shut. Ravindra Chauhan of Assam says that hearing that BBC Hindi will close was as if

“someone tells you that your parents will die in March.”

And so the arguments go on. This decision is an attack on people who have no way of hitting back, and I think that we should protect them, especially as the Department for International Development is set to continue funding the poorest states in India to the tune of £250 million.

[Mr William Cash (Stone) (Con)]

Given the BBC’s enormous revenue, which is something like £4 billion a year, and how many correspondents it sends across the world in batches, does my hon. Friend agree that this incredible waste—in respect of which he and I fought to bring the BBC’s accounts within the purview of the National Audit Office—is completely disproportionate to the value that is attached to this service? Lastly, he might be fascinated to learn that 10 May 1940—the day on which the service began—happens to be the day I was born.

[Mr Leigh]

It is a very notable anniversary.

At this precise moment the BBC is wasting hundreds of thousands of pounds on a regionalisation programme—a programme that involves moving the headquarters of “Question Time” to Glasgow, for instance, even though it will continue to move around the country—while it is cutting a valued service in India.

[Keith Vaz (Leicester East) (Lab)]

I congratulate the hon. Gentleman on securing this debate and on getting the climbdown from the BBC, but does he agree that this reprieve is not enough? We need to settle this matter once and for all and acknowledge the important contribution that the Hindi service makes. We need not just a temporary reprieve but a permanent one.

[Mr Leigh]

The right hon. Gentleman is absolutely right. The purpose of this debate is to illustrate that we are saying, loud and clear, from all sides of the Chamber in the House of Commons, that this is only a partial climbdown. The BBC did not realise the extent of the outcry that would be caused by its decision. Some of the service’s best staff will go, and people will stop listening to it. They will no longer be able to listen in the morning; the service will be available only for one hour in the evening. That is not good enough, and we must fight the decision.

We often talk about soft power, and about proclaiming our values. Service such as these represent soft power. They are increasingly recognised as a hugely effective means of delivering diplomacy and our values, with few of the risks associated with more heavy-handed foreign policy interventions. Unlike other countries, Great Britain has a medium through which it can engage with a wide range of Indians, and not simply with the urban elite. That is the point that the hon. Member for Islington North (Jeremy Corbyn) made. We are not simply engaging with the urban elite online; we are engaging with the rural poor.

[Rehman Chishti (Gillingham and Rainham) (Con)]

The service is empowering people in some of the most rural parts of India who might not otherwise get the information that it provides. Providing that information empowers them to become masters of their own destiny and to know what is going on around them, which they might otherwise not do.

[Mr Leigh]

Absolutely. One of the values of the service is that it is a news service. Of course the BBC can go on broadcasting on FM radio, but hon. Members might not know that it is not allowed to put news on FM. It can broadcast news only on shortwave radio. One person has written to ask me what the point is of the BBC just beaming out Bollywood-type programmes on FM when it can beam out real independent news on shortwave radio.

[Joseph Johnson (Orpington) (Con)]

I agree with much of what my hon. Friend says about soft power, and about this decision perhaps not having been taken on the basis of a solid cost-benefit analysis, but why, if he believes in markets, does he believe that only the BBC can provide independent, impartial news in India, which has a very vibrant media sector?

[Mr Leigh]

Of course India has a vibrant economy and many other news outlets will come into the picture, but the fact remains that many radio programmes in India do not have the tradition of real independence and unbiased reportage that the BBC Hindi programme has.

The service also reaches large numbers of listeners in areas affected by Maoist-inspired violence in central India, which Prime Minister Manmohan Singh has described as the most serious threat facing the country. Many BBC Hindi service listeners might be forced to switch to China Radio International or, for Muslim listeners, Radio Voice of Iran, if the service is shut. I would point out to my hon. Friend the Member for Orpington (Joseph Johnson) that the only domestic competition that the BBC Hindi service faces is All India Radio, which has a poor reputation for news and current affairs programmes and is often seen as a Government mouthpiece. In contrast, the BBC Hindi service has built up a strong reputation based on its unbiased coverage of news and current affairs.

Of course news and information will be available via the internet and other new media, but most of the listeners who have access to that technology have already shifted to it. More than 10 million listeners do not have reliable access to the internet or to television, and they would be cut off from the BBC completely if the service were to close. The existence of the BBC’s Hindi broadcasting augments the depth of the BBC’s English language coverage, granting reporters access that they might not otherwise have. Politicians, especially those from the Hindi-speaking north, know and interact with the BBC primarily through the Hindi service. The service has a wide range of local part-time correspondents and information suppliers who provide critical input that goes to the rest of the BBC as well.

The BBC will try to pass the buck to the Minister. It will say that the Foreign and Commonwealth Office has stated that it believes that £25 million of World Service expenditure counts as official development. It is talking about commercial opportunities, and it will ask for funding from the Department for International Development, but I want to put the spotlight firmly on the BBC, which has taken this decision.

Let me end on this note. During the battle of Crete, Admiral Andrew Cunningham was criticised for using Royal Navy ships heavily exposed to assault from German aircraft to evacuate the Army to Egypt. Cunningham, however, was determined that the Navy would not let the Army down, no matter how many ships it lost. Admiral Cunningham said:

“It takes three years to build a ship; it takes three centuries to build a tradition.”

For 70 years, the BBC has built a tradition of unbiased reporting to the poorest people in the world. We must not let this service down.

22:15

[The Minister for Europe (Mr David Lidington)]

I congratulate my hon. Friend the Member for Gainsborough (Mr Leigh) on securing this debate and on attracting such conspicuous and widespread support from both sides of the House this evening. As he said, the BBC Hindi service is not, after all, being completely discontinued. The World Service had announced that the shortwave broadcasts would be stopped, but that the FM and online service would continue. However, the World Service has now been able to identify savings from within its budget to postpone the cessation of the shortwave service. Like many Members who have spoken this evening or attested to their support for my hon. Friend through their presence in the Chamber, we welcome this recent decision by the BBC World Service board.

There is no doubt that the BBC World Service is a much-respected and much-loved British institution. As my right hon. Friend the Foreign Secretary made clear on 26 January, it performs an invaluable role, reflecting British democratic values overseas and supporting British influence in the world. The services it provides are a beacon to many in some of the poorest and most insecure countries of the world.

It is also true that the World Service, like any other body funded by the taxpayer, must ensure that it is working on the right priorities and as efficiently as possible. Last October, my right hon. Friend the Foreign Secretary announced that the World Service’s expenditure limits would be reduced by 16% in real terms over the next three years. There is no doubt that these cuts are challenging, but it is right that all parts of the Foreign and Commonwealth Office family should contribute to reducing the deficit inherited from the previous Government. As part of the settlement, and to provide a balanced package, the Foreign Office provides £13 million a year to help with the deficit in BBC pension funds and £10 million a year for new services in markets that we and the World Service have identified as priorities.

My hon. Friend touched on the division of responsibilities between the Foreign and Commonwealth Office and the BBC World Service, and the broadcasting agreement between the two sets out clearly the responsibilities of each. My right hon. Friend, together with the BBC, sets the objectives, priorities and targets for the World Service and gives his authority for the opening or closure of any foreign language service. Other changes fall under the managerial independence of the World Service and are its responsibility.

From 2014, the funding for the World Service will be transferred to the BBC under its licence fee arrangements—a development welcomed by the BBC Trust. I emphasise, however, that the Foreign Secretary’s oversight role will remain and that he will continue to be involved in the setting of priorities. His authority will still be required to open or close any foreign language service.

On 26 January this year, the World Service announced plans for working within its new budget, and it had to take some difficult decisions. Among the announcements made was the one about the cessation of the shortwave broadcasts in a number of languages, including Hindi. As my hon. Friend said, the Hindi service has a long and honourable history, having been established as far back as 1940. Many millions of people have grown up listening to its broadcasts, and its popularity has certainly been shown by the number of representations that we and the BBC have received and by the passion with which they were made. My hon. Friend cited a number of those representations in his remarks.

According to the World Service, the shortwave audience in India has been falling for some time. In 2007 there were 19.1 million listeners, but by 2010 the number had fallen to about 11 million. That is still a large audience, but it represents a reach of just over 1% of the population, although—as my hon. Friend made clear—the areas covered by the shortwave broadcasts include some of the very poorest parts of India. There is only a small audience for shortwave in any of the urban areas, and the service was broadcasting for only three hours a day.

Last week the director of the World Service told the Foreign Affairs Committee that it had intended to close the shortwave service eventually and concentrate its efforts on the rapidly growing parts of the Hindi media market: online, mobile and television. Its broadcasts on FM would not be affected. The Hindi service has a network of FM partners throughout India whom it supplies with programmes, but—as my hon. Friend said—because of the regulatory framework in India, those services cannot supply hard news programming.

We are aware that the Hindi service was approached with proposals for alternative funding models for the shortwave broadcasts, but needed time to explore whether those possibilities were practicable. In discussions between officials, we made it clear that any decision would have to be made by the BBC World Service within its budget allocation. However, we supported the approach by the Hindi service to continue its shortwave broadcasts.

I am pleased that the BBC World Service has been able to find extra funds in its budget to support the Hindi shortwave service for another year and give it time to establish whether any of the alternative funding proposals are viable. The Hindi service will continue to broadcast on shortwave, albeit for only one hour a day rather than three. The World Service has decided to reprioritise £170,000 of its transmission budget for that purpose. I believe that that is a sensible response not only to legitimate concerns, but to the pressure to explore viable alternatives to continue the Hindi service not just for one year but for much longer, on a sustainable basis.

My hon. Friend spoke of the continuing priority given by the Department for International Development to helping the poorest communities in India. I know that a number of questions have been asked in the House about why that Department could not fund the Hindi service or cover the shortfall in the World Service’s overall budget. Under the broadcasting agreement between the Department for Culture, Media and Sport and the BBC, funding for the World Service should come from the Foreign and Commonwealth Office rather than the Department for International Development. Members will have seen the announcement in which, on 1 March, my right hon. Friend the Secretary of State for International Development clearly set out his priorities for the next few years. They did not include core funding for the BBC World Service, as it did not fulfil the criteria that he had identified.

That said, some World Service activity may count as official overseas development assistance. We are discussing with DFID and the OECD how BBC World Service expenditure may be reported as official development assistance. I understand that the World Service is discussing funding for specific projects with DFID, which already supports the BBC World Service Trust, the charitable arm of the World Service. The Government remain committed to an enhanced partnership with India.

[Mr Thomas]

Has the Minister had discussions with his counterparts at DFID to establish whether they might provide funds either to extend the one-hour service that has been saved or, in the longer term, to keep the shortwave service going beyond 2014?

[Mr Lidington]

There have been discussions at official level about the BBC decision to discontinue the Hindi service and about the pressure from the Hindi service for there to be a stay of execution while it explored other funding models. As far as I am aware, discussions between the Foreign Office and DFID about whether World Service expenditure can be classified as overseas official development assistance have been held largely at official level, although clearly if there were to be a major policy shift in this area the Minister of State, my hon. Friend the Member for Taunton Deane (Mr Browne), who is the Minister responsible for the World Service within the FCO, would be directly involved with his DFID counterparts.

[Mr Thomas]

With due respect, surely the Minister knows whether or not there have been ministerial discussions, and given the strength of concern in the House, surely a Minister from the Foreign Office could talk to DFID colleagues, or, potentially, to those who run the BBC World Service, to get some clarity about possibly at least extending the one-hour service back to the three-hour service.

[Mr Lidington]

The discussions that have taken place so far have been at official level about the decision the BBC took on the Hindi service earlier this year. The point I made a few moments ago is on a bigger issue: the extent to which expenditure on the World Service could qualify as official development assistance, and whether there were any problems in respect of the International Development Act 2002, which has to govern DFID’s expenditure. It is sensible that those conversations should initially take place at official level before advice is put up to Ministers, taking account not only of the views of the people in the two Departments, but also, as I mentioned, the opinions of the OECD, which has an authority in defining those areas of expenditure which count for ODA purposes and those that fall outside that definition.

There has been significant progress on building the bilateral relationship with India since the Prime Minister’s visit in July 2010, with increased co-operation across the full scope of activities in areas such as the economy, defence, counter-terrorism, climate change, science and innovation, and education. The presence of the World Service is one of many important elements in our ties with India, and we hope a solution can be found to the problems in respect of the Hindi service that demonstrates this value. Clearly, the World Service cannot be immune from public spending constraints or the need from time to time to reassess its priorities in the light of changing technologies and audience patterns.

[Bob Stewart (Beckenham) (Con)]

Does the Minister agree that it is very important that we keep the Hindi service and other such BBC services, because we are retracting from our embassies? The influence throughout the world of the BBC World Service in all the languages is therefore terribly important.

[Mr Lidington]

First, I want to assure my hon. Friend that this Government are not going to be retracting from our network of embassies and high commissions. Indeed, my right hon. Friend the Foreign Secretary has made it clear that he sees the network of posts overseas as absolutely core to the mission of the FCO as a Department. I agree about the continuing importance of the World Service, but I also say that the current pattern of the language services provided by the BBC World Service cannot be preserved in aspic. There will be changes in priorities as the years go on. Changes will be occasioned by: the political priorities of the Foreign and Commonwealth Office; shifts in audience; and changes in technology. In some parts of the world the use of online access to the BBC is increasingly rapidly, and that is being coupled with a significant reduction in the use of shortwave broadcasting. Clearly the patterns of provision need to take account of that. I am pleased that in this instance the World Service has been able to keep the Hindi service shortwave broadcasts operating while a sustainable solution is explored, and I hope that that leads to success.

Question put and agreed to.

22:30

House adjourned.