18:06 - The Committee divided: - Ayes: 8 / Noes: 292 - Question accordingly negatived.
20:09 - divided: - Ayes: 9 / Noes: 286 - Question accordingly negatived.
21:26 - The Committee divided: - Ayes: 7 / Noes: 393 - Question accordingly negatived.
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.
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
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?
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
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
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’.
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.
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.
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
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.
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)
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.’.
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.
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:
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.
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
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.