Scottish Independence: Currency Union
Duke of Montrose Excerpts(10 years, 9 months ago)
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The Duke of Montrose (Con)
My Lords, at what point will Her Majesty’s Government assess the amount of trade in goods and services from the rest of the United Kingdom into Scotland? Will they also look at the trade between Scotland and the rest of the UK?
Lord Newby
Yes, my Lords. Proportionately, the amount of trade from Scotland to the rest of the UK is much greater than it is from the rest of the UK to Scotland. About 70% of Scotland’s trade is to the rest of the UK and only about 10% of the rest of the UK’s trade is to Scotland. There is therefore a big imbalance in the importance to the two parties of the trade between them.
Barnett Formula
Duke of Montrose Excerpts(11 years ago)
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The Duke of Montrose (Con)
My Lords, I thank my noble friend Lord Shipley for introducing this topic and for giving us such interesting views on a new form of local government that certainly contains many elements.
As he said, it is of course most understandable that devolved Administrations and local government are all looking harder at the way funding from central government is divided up. All are facing much-reduced budgets and the actual cuts relate considerably to the application of the Barnett formula. Until the last election the Scottish Government revelled in the fact that their block grant increased by two and a quarter times to nearly £29 billion. The two years of the current Administration has seen this cut so far by £589 million. My right honourable friend the Chancellor of the Exchequer on 29 June, in Hansard at col. 306, seemed to estimate that the block grant in the current year would be only £26 billion. Perhaps the Minister can tell the Committee if this is still the figure that would apply.
Similar cuts are of course being felt across all Administrations. As my noble friend Lord Shipley was saying, there have been many calls for a needs-based approach to be used in a new calculation—to the extent that many in the public now think that this occurs under the Barnett formula; but of course this is not true. There is some evidence that it was considered in the early days under what was known as the Goschen formula, which was replaced in 1979. The arguments will have been used by Scottish Secretaries of State and others to obtain funding, but the approach has not been part of the Barnett formula.
The needs-based approach was certainly central to the recommendations of the report referred to by the noble Lord, Lord Shipley, which your Lordships’ committee produced in July 2009 and which was firmly rejected by the Government. It now appears that the issue has been taken up by the more recent Holtham commission. It would be interesting to know whether its needs-based formula was the same as that put forward by your Lordships’ report, but this development has meant that people are now beginning to put figures on the disparities that it has thrown up, and local government is taking much greater interest.
Of course, there is a great deal of rethinking going on, both in administration and on the financial front. The Scottish Government are having to juggle three scenarios: the cuts to their previous budget envisaged by the Chancellor using Barnett; their own proposals for a totally independent country, where we are not in the least clear as to what funding will be available under a great many headings; and the wholly new settlement promised by the implementation of Part 3 of the Scotland Act 2012, where the Scottish Government will be raising half the taxation required for their domestic budget. Of course, this will still be governed by the overall size of the estimate of what is due under the block grant.
Given the complications that all this envisages, it is quite easily understood that there is not much sympathy from that quarter for any further adjustments. If the Minister cannot give a positive response to the noble Lord, Lord Shipley, perhaps parties should think about whether this is something that should be in their election manifestos.
The Duke of Montrose
From the study that the noble Lord has made, perhaps I may ask him whether the shortfall that the LGA was talking about is based purely on equality of distribution, or took into account the Holtham needs-based formula.
Lord Wigley
The table that was published, which I do not have time to go into in detail, referred to, “Identifiable public sector expenditure”, which is a different concept from that which is attributed by Barnett and needs analysis in its own right.
Scotland Bill
Duke of Montrose Excerpts(12 years, 9 months ago)
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The Duke of Montrose
The Duke of Montrose
My Lords, this is a paving amendment, and I shall address my remarks also to Amendment 54BA and the other amendments in the group. Amendment 54BA will remove the close connection condition for the purposes of identifying a Scottish taxpayer. This is an effort to remove the complications that come from trying to prove a close association, which is a concept that raises many questions of definition and interpretation. The argument is that the best way to define a Scottish taxpayer is without reference to residence in Scotland. Instead, the definition should be based on being a UK citizen and spending more time in Scotland than in other parts of the United Kingdom. This argument has been put to me by the Law Society of Scotland, and I think it has weight.
Perhaps the definition I have just pointed out goes some way to answering the call of the Institute of Chartered Accountants of Scotland for a definition in statute of what constitutes a Scottish taxpayer. At present, new Section 80D defines a Scottish taxpayer as,
“an individual … who is resident in the UK for income tax purposes, and ... who, for that year, meets condition A, B or C”.
These conditions are that the taxpayer,
“has a close connection with Scotland … does not have a close connection with any part of the UK other than Scotland … and … spends more days of that year in Scotland”,
or is an elected parliamentary representative for Scotland.
The residence qualification is typical of the sort of issue that has raised controversy in recent legal cases. I mention Gaines-Cooper v Her Majesty’s Revenue and Customs and Tuczka v Her Majesty’s Revenue and Customs. New Section 80D, when combined with new Sections 80E and 80F, presents problems for those who move between jurisdictions within the United Kingdom inasmuch as they create uncertainty, difficulties of interpretation and potential problems regarding compliance. In particular, the definition of “close connection” contained in new Section 80E creates a difficulty of interpretation—and what does “place of residence” mean? It appears to be different from residence as understood in other areas of tax law, such as capital gains tax. Does “place of residence” imply ownership when juxtaposed with “main place of residence” in paragraphs (b) and (c) of new Section 80E(3)? “Place of residence” and “main place of residence” are not defined in new Section 80E, and therefore create potential problems of interpretation for those who may live in Scotland yet work in England, or vice versa, including those living on the Scottish-English border.
Lord Maxton
There are, of course, people who live in Scotland, who even work in Scotland, but who are paid from England or elsewhere in the United Kingdom. They, too, create a problem because, as far as I am aware, the PAYE system does not depend on where you live but where you work or who you are employed by.
The Duke of Montrose
My Lords, this is the type of complication that we are talking about. In fact, the way the Bill is at the moment, it will practically be a question of where you spend the night. There are commuters from Glasgow or Edinburgh to London, and a variety of public office holders, who may have a place of residence in Scotland yet work for considerable periods in England or Wales, such as Members of the House of Lords, who are not included in new Section 80D(4), or Supreme Court judges. If a clause such as this remains, should the Bill not contain an obligation for each individual to state what he regards as his main place of residence?
New Section 80E also highlights the issue of split-year residences. Unfortunately I just missed the debate immediately preceding this, but I thought that my noble friend Lord Forsyth would cover the point. Her Majesty’s Revenue and Customs currently applies, in extra-statutory concession A11, split-year treatment to individuals who spend only part of the tax year resident in the United Kingdom. The concession means that, for example, an employee who comes to the UK for a secondment beginning on 1 June would be regarded as a non-UK resident and therefore non-taxable in the UK on his or her general earnings from the same employment for the period from 6 April to 31 May in that year.
The Law Society of Scotland questions whether setting up the provisions of new Sections 80D, 80E and 80F will require the creation of a similar extra-statutory concession. It would seem more sensible to create a robust system that does not rely on extra-statutory concessions in order for it to work—one whose fundamental architecture takes account of movement of people within the United Kingdom, and therefore within different tax zones, in one tax year.
Lord Maxton
My Lords, quite properly everyone has been raising the issue of those people who live and work across borders, work on ships and trains, or are lorry drivers. My concern to some extent is those people—I could be one of them—who live in Scotland but whose sole income is a pension from the other place, and whose tax office is Cardiff and not East Kilbride or anywhere in Scotland. I am still not quite clear how that tax office will know that I am a resident in Scotland. As far as I know, it does not have to know my home address. I would accept that if this debate was back in the 1990s. Of course, technology has moved on and it may be that we now have a database that allows the Inland Revenue to know exactly where you live. I rather doubt whether it has ever bothered to update the records and keep them up to date. What happens to someone who lives in Scotland and should be paying tax in Scotland but whose sole source of income and tax office are outside Scotland? How does that person know what tax they should pay in Scotland?
The Duke of Montrose
I wonder whether the noble Lord remembers getting a demand for taxes from the Inland Revenue which, presumably, was sent to his house because it knows where his house is.
Lord Maxton
Oddly enough, I am in the unfortunate position at one level but fortunate in another that about five years ago, if not longer, I got my last letter from the Inland Revenue. It said, “Please do not send us any more tax returns because we know what your income is. It has been the same for the last 10 years so don’t bother any more”. If I moved house, I am not sure that anyone would know where I had gone. I assume that you have to tell the Inland Revenue but the fact is that there is this problem. As far as I am aware, PAYE is paid on the basis of where you are employed, who employs you and the income that you are paid. That can come from a variety of sources and is taxed at source. I am never quite clear whether one’s residence is an important part of that issue.
The Duke of Montrose
My Lords, this has been a very far-reaching and complicated debate and I must thank all those who participated in it. I must also apologise to your Lordships for starting off in such a rushed manner. I had gone out of the Chamber to see if I could find out what on earth the order was that we were trying to follow. Outside, I could find no evidence of what the order was, which was what brought me back in again—luckily, I was just in time.
Most of my amendments in this group were consequential with the exception of the last one, Amendment 54FB, which the Minister very kindly answered even though I had not spoken to it. It was about the definition of a day. The idea of saying that a day,
“means a period of twenty-four hours terminating at midnight”,
was to couple it on to subsection (1)(a) of proposed new Section 80F, which refers to,
“the number of days in the year on which T is in Scotland at the end of the day”.
The Minister seems perfectly happy to leave this as a vague definition, but to some of us it is hard to know whether,
“the end of the day”,
is the end of the working day or when you finally get home for your supper, or when you go to bed. Apparently in tax terms it is perfectly natural and normal to leave it completely undefined, which is certainly an interesting explanation.
I was interested when the noble and learned Lord, Lord Davidson of Glen Clova, raised the definition of a residence. It is reassuring to hear that the Government are already on to the case and are hoping to define a residence in statute. Although that is obviously a little further down the line, it will presumably be in place before the measures of this Bill come into effect. There is still the question of how HMRC will have a way of determining the total number of days that somebody has spent in Scotland for those who require this definition, in order to know whether they are taxpayers. I thought that the Minister was not quite correct to say that the object was to simplify the definition, because what I presented in my amendments is by far the simplest form of definition. The Minister seems to think—he might be right; I could not say until I look into it some more—that by bringing out a slightly more complicated definition he is making it simpler in application, which perhaps has much to recommend it.
The noble Lord said that nobody had raised the question of what would happen to Scots who were astronauts. However, if the Scottish Government start playing rather extraordinary games and the Bill does not pass in its present form, the Minister might have to address what will happen to a Scotsman living in Antarctica. In the mean time, I beg leave to withdraw the amendment.
Lord Sassoon
I am not sure what it is that the noble Lord wants me to come forward with. There are two things here: the basic test, where the Government’s position is that the close-connection test should apply; and the question of what the compensation arrangements might be in the hypothetical circumstances, which are quite possible, of a higher rate of Scottish tax being imposed. I cannot give a commitment to come back with anything more on either point, although I am taken in particular with the very practical points that might arise if, for example, there are security reasons for not disclosing the address of a main residence. These are the sorts of important and practical issues that need to be taken account of in the guidance which serving personnel clearly need to be given, as and when they have to apply the test.
The Duke of Montrose
My Lords, it is probably not my role to get the Minister off the hook in any way but we are, quite rightly, taking the sober and, one might say, realistic view that Scottish tax might go up. We are obviously missing what one might consider to be the almost messianic view of Alex Salmond that everything is going to be paid for by North Sea oil, renewable energy, and marine and wind energy, and that tax rates might go down.
Lord Forsyth of Drumlean
Picking up the last point made by my noble friend the Duke of Montrose, the Bill does not provide for North Sea oil, wind energy or any of those things, and that is why the tax will go up. If Alex Salmond were here, that is what he would say and it is what he will say. He will say that the Scottish rate of tax has to go up because Scotland does not have the power to deal with all these other things. I can write the script; it is not very difficult. The tax is going to go up.
I thank everyone who has participated in the debate. I think that my noble friend should be very influenced by the words of the noble Lord, Lord West, who knows a bit about the military. He should also be very influenced by the position in Ulster that has been spelt out. It is simply not fair to expect members of the Armed Forces who are deployed and living in barracks in Scotland to pay a higher rate of tax. When my noble friend says, “We consulted the Scottish Parliament and it was happy to leave it as it is”, of course it was happy to leave it as it is; it wants the money. It is in its interests to have as many people as possible paying. My noble friend shakes his head. Why is it not in its interests?
Lord Sassoon
I will correct this if I am wrong, but I believe that it is set out not in statute but, along with a lot of other critical issues relating to the financial arrangements, in the financial accords with lots of other things that support the way in which money flows through to Scotland.
The Duke of Montrose
I hope that the Minister will forgive my ignorance on this matter, but he put forward in support of his argument the power under Section 30 of the Scotland Act. My noble friend Lord Forsyth was looking at that, as am I. Section 30(4) states:
“An Order in Council under this section may also make such modifications of—
(a) any enactment or prerogative instrument (including any enactment comprised in or made under this Act), or
(b) any other instrument or document”.
Does that cover tax?
Lord Sassoon
My Lords, I think my noble friend will find that taxation is set out in Schedule 5 to that Act, if memory serves. Section 30 can amend Schedule 5, so tax—
Scotland Bill
Duke of Montrose Excerpts(12 years, 9 months ago)
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Lord Sassoon
My Lords, on the first point, this will be the cost in isolation of the changes necessary to enable the introduction of the Scottish income tax provision. Of course, for fully devolved taxes, the cost will depend on decisions taken by Scottish Parliaments on the design of those taxes, and of course who should administer them. It is therefore a cost estimate that relates essentially to income tax. It assumes that nothing changes in the deployment of other people. It is the necessary cost related to the introduction of the new Scottish income tax regime. As the noble Baroness will know, it is a principle of devolution that costs that are to the benefit of the devolved Administration fall on the devolved Administration, so that is where these costs will fall.
The noble Lord, Lord Browne of Ladyton, asked important questions relating to the Scottish Government’s readiness for implementation, the high-level implementation group and the joint Exchequer committee. I very much agree with him that these are important issues about the capacity of all sides, particularly the Scottish Government, to carry out what is necessary. I have already addressed the mechanics of the processes. We have the high-level implementation group, as the noble Lord has set out, and below that the technical groups established by HMRC to work out the detail.
The Scottish Government have focused on pressing for further powers in the Bill. Of course, while one respects their different views on other matters that they might want in the Bill, we would welcome greater attention on implementation from them. I appreciate the point that the noble Lord is making. Close attention has been shown to issues, such as the block grant adjustment mechanism. There is work to do and we should like to see the Scottish Government set out how they will use the powers provided to them in the Bill. My right honourable friend the Secretary of State for Scotland yesterday called for clarification in particular of the stamp duty land tax, and I very much agree with him on that point.
The high-level implementation group was established by the UK Government. It is chaired jointly by the Secretary of State for Scotland and the Exchequer Secretary to the Treasury. It has met four times since July 2010 and the role of the group is to oversee the implementation of the financial provisions of the Bill. As I have just said, the technical groups established by HMRC report to the high-level implementation group, and they provide detailed consideration and advice to inform implementation.
On the progress that has been made, the high-level implementation group is a UK Government group. It is entirely within the capacity and the direction of Ministers in London to press on with the work of that group. It is clear that the Scottish Government want their powers increased. To do that, clearly we would welcome more progress to begin setting out how the powers will be used. From that, many more questions will flow about implementation. That is where things stand at the moment.
The Duke of Montrose
On a slightly peripheral question, I am getting very worried that we are setting a precedent here. This may not be quite the moment to raise it with this Minister at the Dispatch Box but I still think that it is extremely relevant. The first indication of a legislative consent Motion was taken when the Scotland Bill was going through this House. It was dubbed the Sewel Motion thereafter. That was to allow Westminster to legislate on devolved matters.
We were told that a legislative consent Motion would be required not when the Bill started here or in the other House but when it reached the “second House”. We could not progress further until the legislative consent Motion was in place. Now we are dealing with a convention that was established outwith Parliament whereby Westminster is asking for a legislative consent Motion for a reserved matter, which this is. Are we establishing a precedent that Westminster goes ahead and produces legislation without legislative consent Motions—admittedly it is quite within its powers to do so because this is the sovereign Parliament—because it appears that the legislative consent Motions are getting slightly out of sync with each other. There is a danger that this is a precedent.