18:59 - The House divided: - Ayes: 54 / Noes: 297 - Question accordingly negatived.
19:12 - The House divided: - Ayes: 201 / Noes: 295 - Question accordingly negatived.
The Secretary of State for Scotland (David Mundell)
Let me add my welcome to this debate this afternoon. A debate on Scottish public spending is important at any time, but it is particularly apposite today, as our colleagues at Holyrood are debating the latest draft Scottish Budget.
I am sure that we will be hearing a lot from SNP members about austerity, even as their counterparts in the Scottish Parliament vote through massive cuts to Scottish local government, while maintaining a council tax freeze which prevents councils from addressing their shortfalls and making use of the new Scottish rate of income tax. Public spending is about choices, and I am proud to be part of a Government who cut tax for over 2.3 million people in Scotland, reducing the tax paid by a typical taxpayer by £825 and taking 290,000 Scots out of paying any income tax at all.
David Mundell
I have not started yet. I will give way to the hon. Gentleman in due course.
On the motion and the amendment, let me start by reminding the House what the Government are working on in relation to the fiscal framework. We are implementing the Smith commission—a cross-party agreement for the future of Scotland. I am determined to deliver the legislation required to implement the Smith agreement in full. That is why we are negotiating a new fiscal framework agreement for the Scottish Government. That is what the people of Scotland voted for—a stronger Scottish Parliament in a strong United Kingdom. They did not vote for independence. As the SNP’s former adviser Alex Bell has noted,
“the SNP’s model . . . that it was possible to move from the UK to an independent Scotland and keep services at the same level, without either borrowing a lot more or raising taxes”
is “broken”.
We base our position on the principles set out in the all-party Smith agreement. Smith stated that a fiscal framework needed to be agreed—that there should be no detriment at the initial point of devolution, that there should be appropriate indexation to adjust the block grant in future years, that this should be fair to taxpayers across the UK, and that we should address so called “spillover effects”. That means that the Scottish Parliament and Government will take on more economic responsibility and accountability.
Callum McCaig (Aberdeen South) (SNP)
The Secretary of State quoted the Smith agreement as stating that, at the point of devolution, there should be no detriment to the Scottish public finances, but does he agree that the key to that is ensuring that the fiscal agreement does not build in detriment in the coming years, which is the crux of the deal and the problem in reaching agreement?
David Mundell
The crux of the deal is to deliver a settlement that is fair to Scotland and fair to the United Kingdom. As the hon. Gentleman knows, a number of mechanisms have been set out that could achieve that and they are part of the ongoing negotiation.
Melanie Onn (Great Grimsby) (Lab)
Will the Secretary of State give me a little more information about what he considers to be fair? Will he explain the mechanisms that are being discussed?
David Mundell
If the hon. Lady is new to this debate, she will be able to find many detailed discussions about all the mechanisms. Under the new proposals, the Scottish Government would benefit from good decisions that they take which produce additional revenue for them, but they would bear some of the risk if they take decisions that lead to less revenue than had been anticipated. That is what I think is at the heart of fairness in the proposals being debated.
Mr Christopher Chope (Christchurch) (Con)
Following on from what my right hon. Friend has just said, does he therefore confirm that the per capita indexed deduction is not the right way forward?
David Mundell
I do not think even my hon. Friend would expect me to express a view because I am not going to negotiate the arrangement on the Floor of the House. I am happy to comment on a number of aspects of the negotiation, but the Deputy First Minister of Scotland has made it abundantly clear to the United Kingdom Government that it is he who is negotiating these arrangements on behalf of the Scottish Government, not MPs, not the First Minister and not members of the Scottish National party. I have confidence in his wish to reach an agreement and to conduct those negotiations, as we have done so far, on the basis that we committed to—that is, by not giving a detailed running commentary.
Several hon. Members rose—
Pete Wishart (Perth and North Perthshire) (SNP)
We have heard from the Labour party that it does not know which index it favours in these negotiations, and I think that the Secretary of State is saying that he does not have a view about the indexation he prefers. Surely we need to know what both respective parties favour. We know what we want. What does he want?
David Mundell
The hon. Gentleman has just heard me set out the position. We are in an ongoing negotiation, and I remain optimistic that it will reach a positive conclusion. I must say that I do not recognise some media reports that say there is a gulf between the two Governments. I believe that we are both on the same page—one Government might be at the top of the page and the other might be at the bottom, but it is eminently possible for us both to move to the middle. That is what my colleagues the Chief Secretary to the Treasury and the Deputy First Minister will continue to do when they next meet. The Government are doing all we can to reach an agreement based on the Smith principles.
Neil Gray (Airdrie and Shotts) (SNP)
The Secretary of State is unwilling to state his position today, but surely he agrees with Professor Anton Muscatelli, and indeed with the Scottish Trades Union Congress, that these powers cannot come at any cost. He must commit today to a position on non-detriment to the Scottish budget.
David Mundell
What I commit to is a fair settlement for Scotland. The discussions are ongoing. I am confident that we will be able to achieve a fair settlement for Scotland. The hon. Member for Edinburgh South (Ian Murray) alluded to the fact that the Joint Exchequer Committee has met eight times, with constant engagement at official level. I have met John Swinney on numerous occasions during this period. Work at official level continues. Senior UK Government officials will meet Scottish Government officials in Edinburgh tomorrow. My right hon. Friend the Chief Secretary to the Treasury has today confirmed that he will be available all day on Monday for further discussions. We stand ready to agree a deal. Our door is open and our efforts continue.
Stella Creasy
The Minister is setting out the discussions that have taken place and are taking place. I take him back to the Smith principles, to which he alluded, which state that there should be
“pro-active reporting to respective Parliaments of, for example, the conclusions of Joint Ministerial Committee, Joint Exchequer Committee and other inter-administration bilateral meetings established under the terms of this agreement.”
Is he really telling us that refusing today’s request for the minutes meets that principle, because it does not sound like it, and we have had so little detail of so much work?
David Mundell
I am sure that the hon. Lady could find a lot more detail if she studied the Scottish press and looked through the various debates that have been conducted on the issue. We will report what happened in full. I do not recall important negotiations being reported in detail and on a daily basis in the House of Commons or elsewhere when Labour were in government. We do not intend to do that. We intend to reach an agreement that is fair for Scotland and fair for the rest of the United Kingdom. That is where our efforts are focused.
I remain an optimist. We are making progress, and I believe that we will reach an agreement. A deal can and will be reached if both sides want it. I know that the UK Government want a deal, and I believe the Scottish Government when they say that they want one too. The two Governments have agreed to speak again in the coming days. Although there are still some difficult issues to resolve, we remain confident that a deal can be reached that is fair to Scotland and fair to the rest of the UK, now and in the future.
John Redwood
I am grateful to the Secretary of State, who is doing a difficult task with great skill. Has a recent model been produced for how the income tax might work, because we have seen in previous debates that the forecasts for oil revenue were grossly exaggerated, and there is an unfortunate danger that with the collapse of the oil price will come the collapse of oil-related incomes in Scotland, which would have a bad impact on income tax receipts?
David Mundell
My right hon. Friend makes an important point, which speaks against those who argued just a few short months ago for full fiscal autonomy. It is quite interesting to look back at the amendment launched by the SNP in November to bring about full fiscal autonomy, which the Institute for Fiscal Studies predicted would create a £10 billion gap in Scotland’s finances. When the SNP asked for that full fiscal autonomy, it did not ask for what they now claim are the levers it needs to grow the Scottish population and offset the risk it is being asked to take on in relation to the Smith commission proposals.
The Government have been as open and transparent as possible in these negotiations, and each meeting has been notified to the House. Just this afternoon, the Chief Secretary appeared before the Scottish Affairs Committee. Last month, we responded in detail to the Economic Affairs Committee in the other place on fiscal devolution, having previously submitted written evidence to that Committee.
Catherine McKinnell
It is vital that these negotiations have the confidence of not just the Scottish people, but the people of the whole UK. Does the Secretary of State recognise that there is a significant risk of these negotiations suffering from the same problems as the negotiations over devolution in England, which the Communities and Local Government Committee report published today clearly states have lacked openness?
David Mundell
I do not recognise, for the reasons I have just set out, that those circumstances characterise the negotiations we have been conducting with the Scottish Government, and I make the case that a degree of privacy for negotiations of this type is required.
The hon. Member for Edinburgh South mentioned deadlines. I do not think in terms of self-imposed or arbitrary deadlines. Personally—keen though I am to have a warm and supportive relationship with the Scottish Government—I have never felt that the St Valentine’s day date had much relevance to this process. I am willing to continue working towards a deal for as long as that takes and for as long as we can. However, the usual channels have agreed to move the next day of Committee on the Scotland Bill in the other place to 22 February, as discussions on the framework continue to progress, to enable us to give their lordships as full an update as possible.
We have shown flexibility in the negotiations. While I cannot, as I have said, give a commentary to the House, Members will have seen via media reports that the UK Government have put compromise proposals on the table. That is a clear signal of our commitment to reach agreement and of our willingness to be as flexible as we can be, within the Smith principles.
Without commenting on the proposals, I would point out that the House will be aware of some of the tenets of those on the table. There are some suggestions that the Scottish Government should retain all income tax raised in Scotland, as well as a guaranteed share of the growth in income tax in England, Wales and Northern Ireland. Professor Muscatelli, who was referred to earlier, told the Scottish Parliament that such an approach would not meet the test of taxpayer fairness. This seems, once again, to be the Scottish Government wanting to have their cake and eat it—indeed, to have a slice of everyone else’s cake while they are at it. That might be understandable enough politics, and an understandable enough position to adopt at the start of a negotiation, but it cannot really be said to be a credible position.
Once the powers are devolved, Scotland
“should retain the rewards of our success, as we will bear the risks.” —[Scottish Parliament Official Report, 16 December 2015; c. 23.]
Those are not my words, but those of John Swinney. Mr Swinney has been very clear in the past about exactly what he meant by “risks”. He meant the risk that Scotland’s population might decline relative to the rest of the UK’s.
When asked at the Scottish Parliament’s Finance Committee by Malcolm Chisholm MSP if the Scottish Government would seek to be protected from the possibility that the rest of the UK’s population will expand more quickly than Scotland’s, John Swinney was very clear:
“That is another of the wider range of risks that we take on as a consequence of gaining the responsibilities.”
The Daily Record newspaper, sometimes brandished by SNP MPs, set this out clearly, finding it hard to see why
“a tax-raising Scotland should benefit from a growth in tax receipts in England and Wales”
and stating that
“there is an undeniable logic”
to opposing that view.
Kirsty Blackman (Aberdeen North) (SNP)
The Daily Record completely misunderstood how per capita indexed deduction works. Academics have been clear that the Barnett equivalent is per capita indexed deduction. If the Secretary of State supports anything other than PCID, he is attempting to undermine Barnett. Is he trying to scrap Barnett to appease his Back Benchers?
David Mundell
I respect the hon. Lady’s imagination, which, I am afraid, she still sometimes lets run riot. We are committed to the Barnett formula. We are committed to delivering an agreement that is fair to the people of Scotland and fair to the rest of the United Kingdom, and that is what these negotiations are about.
David Mundell
The position set out in the Daily Record reflects the reality. If the population of the rest of the UK were to rise at a faster rate than Scotland’s, that would cause an increase in demand on public services such as schools and hospitals in the rest of the UK, which would need to be funded. How could it be fair that those services be denied the funding required to sustain them because part of the income tax growth was being transferred to the Scottish Parliament? What would people in Carlisle, Newcastle or Liverpool say if their local services were not able to keep up with demand because the Scottish budget was being increased?
David Mundell
Let us imagine if the situation were reversed. Does anyone think for a minute that the Scottish Government would accept a deal in which a growth in Scottish income tax relative to the rest of the UK was clawed back by the Treasury in Whitehall, to the detriment of Scottish public services? Of course they would not, and quite rightly. I want Scotland to enjoy the benefits when good decisions are made at Holyrood. As John Swinney said,
“If we take on a responsibility and make a success of it, we should bear the fruit of that; if we get it wrong, we must bear the consequences.”
Ian Blackford
I am grateful to the Secretary of State for giving way—I almost thought I had become invisible. We are having a very important debate. He talked about his responsibility to put the Scotland Bill through this House. Surely he has to see that the fiscal arrangements that are put in place are central to that. He must have a view on what is in Scotland’s best interest if we are to avoid detriment to Scotland. Is he really Scotland’s man in the Cabinet or the Cabinet’s man in Scotland?
David Mundell
The hon. Gentleman is not invisible, unlike some of his colleagues. He will find that I am very clear on my responsibility, which is to deliver the Scotland Bill and the powers that the people of Scotland voted for comprehensively in the referendum. The fiscal framework underpins that. It is to be based on the Smith principles of no detriment and fairness to taxpayers in Scotland and across the rest of the UK. That is what I am determined to achieve. Because my glass is half full, I have confidence in the Scottish Parliament to do what is right for Scotland—to pass a legislative consent motion to agree a fiscal framework. The powers contained in the Scotland Bill will present the Scottish Parliament elected in May with a great opportunity to show how devolution can really benefit the people of Scotland.
I want to say a couple of things about population risk. I do not accept the counsel of despair that says that Scotland needs a more lax immigration system if it is to address the issue of relative population growth. The Government rightly wish to see net immigration come down, and we are taking steps to achieve that, but I am afraid we do still have some way to go. The latest figures show that annual net migration stands at 336,000 and there were 636,000 migrants coming to the UK in the past year. Those are considerable numbers, and if Scotland is not getting a share of that migration, the Scottish Government have some serious questions to answer.
The levers that the Scottish Parliament has over health and education, among other things, can be used to make Scotland the attractive place to live and work that it should be. The powers contained in the Scotland Bill will give the Scottish Government even more levers to make Scotland even more attractive. If they use the new tax powers in the Bill cleverly, they can attract more taxpayers to Scotland to make a contribution, boost the population and increase the tax take. Of course, if they adopt the frankly ludicrous proposals put forward by the Scottish Labour party this week to increase the income tax bill for most Scottish taxpayers by 5%, they may not succeed in making Scotland a more attractive place to live and work.
Let me conclude as I began. We are negotiating in good faith to deliver on the Smith commission principles, and I am confident that a deal can be reached. I give an absolute undertaking to this House that I will do everything in my power to achieve a deal that is fair to Scotland and fair to the whole United Kingdom. I remain optimistic that we can get such a deal, and that our debates can move on to how those new powers and the existing powers of the Scottish Parliament can be used to improve the lives of the people of Scotland.
Several hon. Members rose—
Stewart Hosie
As the arguments are complicated, it is so much easier simply to quote in full from the 15 January issue of the new Labour leadership’s favourite newspaper, the Morning Star:
“Labour MP Diane Abbott accused her party’s leaders yesterday of doing working people a ‘great disservice’ by backing Tory plans for permanent austerity.”
The hon. Gentleman keeps getting it wrong.
The key thing is that Scotland’s budget has been cut and will continue to be cut by this Government, which makes the achievements of the Scottish Government all the more remarkable. That makes it all the more important not simply that we get any old fiscal agreement, but that we get it right. We must ensure that the Smith commission principle of “no detriment” is adhered to and that we do not embed unfairness in the system, so that we are not subject to possible additional cuts of about £350 million a year. We need to avoid that outcome so that we can continue to do good things and build on the progress we have seen in health spending, which is up to £12.3 billion this year and will be £13 billion next year, and in education.
The Chief Secretary to the Treasury (Greg Hands)
May I bring the hon. Gentleman back to the fiscal framework? I am interested in the amendment that he has tabled, because it seems to quote from the Smith commission—particularly paragraph 95(3) on no detriment, which states that
“the Scottish and UK Governments’ budgets should be no larger or smaller simply as a result of the initial transfer of tax and/or spending powers”.
The amendment carefully deletes some important parts of the Smith agreement. It states that
“Scotland would be no worse or better off simply as a result of the transfer of additional powers”.
Why has he deleted the word “initial”, which is very important in respect of the transfer of powers, and any reference to fairness to the UK taxpayer?
Stewart Hosie
For the sake of brevity. Let me be very clear that the negotiations that are under way are founded on a number of principles, including no detriment as a result of the devolution of further powers initially and no detriment as a result of the policy decisions of the UK Government or Scottish Government post-devolution. I would have thought that the Chief Secretary might have known that.
The whole point of getting this right is to avoid a potential cut of an additional £3.5 billion over a decade, so that the Scottish Government can continue their good work. We do not want those additional cuts to be made, because they would weaken our ability to internationalise the economy; hinder our support for businesses seeking to innovate and to do research and development; suck vital resources out of our plans to invest in education and infrastructure; and undermine all the work being done by the Scottish Government to deliver the fall in unemployment and the highest employment rates in the UK.
We understand the trajectory that Scotland’s public finances will take if the wrong block grant adjustment is chosen. As I say, it will perhaps mean the loss of £3.5 billion over a decade.
The Chief Secretary to the Treasury (Greg Hands)
This Government are united in their belief in a successful and prosperous Scotland—a Scotland that is strengthened through being part of the United Kingdom and whose presence makes the United Kingdom itself stronger. It is clear to us that the Scottish people should have greater control over their affairs and that the Government in Edinburgh should be more accountable. The referendum of 2014 was a defining moment in Scotland’s history. The Scottish people’s voice was clear: they wanted to make Britain stronger and not to break Britain up. It is now right that we should deliver a fair and lasting settlement that works for Scotland and for the UK as a whole. The UK Government are committed to delivering the Smith agreement, which, let us remind ourselves, was agreed by all five parties in Scotland, including Labour and the Scottish National party. That commitment has driven every step of our work.
James Berry (Kingston and Surbiton) (Con)
What assessment has the Chief Secretary to the Treasury made of Labour’s recently announced plans to put up income tax in Scotland? What impact does he think that would have on the Scottish economy?
Greg Hands
I was amazed by Labour’s announcement in the Scottish Parliament yesterday about wanting to increase income tax. I think it would be a disaster for the Scottish economy and for the people of Scotland, so I wholly agree with my hon. Friend.
The Smith agreement was clear: the Scottish Government should bear the economic responsibility for their decisions; or, as the Scottish Deputy First Minister has put it:
“If we take on a responsibility and make a success of it, we should bear the fruit of that; if we get it wrong, we must bear the consequences”.
I want to make three main points. Why are we doing this taxpayer devolution? The answer is to give Scotland one of the most powerful and accountable devolved Parliaments in the world. The stress there must be on the word “accountable”. Since 2010, the amount of taxes raised in Scotland and spent by the Scottish Government will have increased from around 10% to around 20% under the Scotland Act 2012, and to 40% under these proposals. These measures would also allow the Scottish Government the opportunity to grow their economy, to use new devolved powers and to see the fruits of their efforts.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
The Chief Secretary to the Treasury is right to say that accountability is at the heart of this matter. That is why we must have a deal, and if we do not get one, we in this House and those in the Scottish Parliament need to be told the reason why. Without a deal, the people of Scotland face the prospect of going to the polls in May not knowing exactly what powers will be given to the Parliament.
Greg Hands
I thank the right hon. Gentleman for that intervention, which leads me nicely on to the fact that the UK Government are absolutely committed to getting a deal. I announced earlier today, before the Scottish Affairs Committee, that I will be going to Edinburgh on Monday to continue the negotiations. I am hopeful that we will get—
Mike Weir (Angus) (SNP)
claimed to move the closure (Standing Order No. 36).
Question put forthwith, That the Question be now put.
Question agreed to.
Question put accordingly, That the amendment be made.