Scotland Bill

Debate between Ian Murray and Alistair Carmichael

Monday 29th June 2015 Commons Chamber

[Ian Murray]

I think that the hon. Gentleman is confusing two issues. We fundamentally agree with the clauses relating to the devolution of income tax, but these are hugely complex matters, as is demonstrated by the complicated nature of the devolution of the 10p income tax provision in the Scotland Act 2012. The new clause would not prevent the Bill from proceeding; it would merely allow the Secretary of State to bring to the House a report on the progress of implementation.

There is another difficulty. The hon. Gentleman is absolutely right—the Scottish Parliament could produce a report and submit it—but I cannot, in the House of Commons, command a different Parliament to do something, which is why I am asking the Secretary of State to produce the report.

It is right for these issues to be raised. I hope that the Scottish Parliament will also examine them in great detail, and will present a full report to both Houses. Our aim is to protect Scottish taxpayers rather than to create a political divide. It is disappointing that, although we agree on the broad principles of the devolution of income tax, Members are trying to bring about division between us. We are trying to be a responsible Opposition in calling for a report on the implementation of income tax rates.

New clause 32 calls for

“a report on the identification of Scottish taxpayers”.

The aim is to ensure that individuals are either Scottish or UK taxpayers but not both, to prevent the double taxation that was mentioned by the hon. Member for Dundee East, and to deal with cross-border mid-financial year movements, which is important in the context of where people may live or work.

The review must include the rates and bands at which the Scottish income tax will be set, and a projection of the impact of the tax on revenues generated in Scotland and across the United Kingdom. That is primarily designed to ensure that Scotland does not become worse off over time owing to the relative tax bases and demographic or behavioural changes in the United Kingdom overall. Such a review would allow us to assess the transitional process, and to ensure that the projected rates and bands accorded with the principle of no detriment for both Scotland and the rest of the United Kingdom. That would protect Scottish taxpayers, as well as taxpayers in the rest of the UK.

Critically—the Smith agreement restates this—any updated fiscal framework should secure the Barnett formula, with the Scottish budget bearing the full costs of policy decisions that reduce or increase revenues or expenditure. That is crucial to the fiscal framework.

My hon. Friend the Member for Denton and Reddish (Andrew Gwynne) mentioned gift aid, and I hope that the Minister will be able to respond to what he said.

I think it important for the people of Scotland to know what their Government are doing about these substantial income tax powers, whatever the colour of that Government. Those powers are worth £11 billion, and they are fundamental to the working lives of people in Scotland. As I have said all along, this is about transparency: transparency in regard to whether additional powers should be devolved, and transparency in regard to the use and impact of those that are devolved. That is what our new clauses 1, 21 and 32 seek to foster.

All I ask is that the United Kingdom Government, and, indeed, the Scottish Government, approach the Bill in the same spirit of transparency and openness as us, and agree to new clause 32. We shall be pressing it to a vote later this evening.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

As others have said, the genesis of the clause lies in the report of the Smith commission. I have supported the commission since the day, indeed the hour, when it reported, but we cannot ignore the fact that the process was undertaken at great speed. Necessarily, given that five parties were engaged in the process, it involved a degree of compromise all round. It is for that reason that all of us undertook to ensure that there would be consultation following the publication of the report and, subsequently, the draft clauses.

In a debate in which consensus is not always easy to come by, I am pleased to note that there is consensus on the fact that the clause is a faithful replication of the agreement that was reached under the chairmanship of Lord Smith. However, the consultation that has been conducted since the publication of the draft clauses at the end of January has highlighted, and generated, a substantial number of important matters, some of which are technical and some of which go to the heart of the issue of taxation itself.

I suggest to the Secretary of State that further consideration may be necessary. He has the ability, through the good office that he holds, to bring all the parties together again to consider the representations that have been made during the consultation, and to consider whether, given the complexities and possible areas of conflict that could arise, it is actually worth implementing the tax power in the way that is currently envisaged. If the consultation is to be carried out in good faith—and, for my part, it always has been—there are sufficient matters about which we should be talking. That would still allow us—if it were necessary, and if it were possible to construct a consensus—to return to the issues on Report.

[Nigel Mills]

I rise as a reluctant supporter of the devolution of income tax to the different countries of the Union. I agree with the hon. Member for Edinburgh South (Ian Murray) that people throughout the United Kingdom should feel that they are paying the most important tax—the tax that puts the largest amount of money into the UK pot—and seeing it redistributed. We are where we are, however, and we are talking about devolving income tax to Scotland.

I fear that we have one foot in each camp, with part of the tax in this Parliament and part of it in the Scottish Parliament, and that we will end up in a real mess. I am not sure how it is possible to make a tax work when a Parliament can set the rate, the bands and the starting point, but not the actual rules. A particular policy issue in Scotland may mean that the Scottish Parliament rightly wants to incentivise certain employment and income activities. That may not be not a priority for the United Kingdom as a whole, perhaps for reasons of scale or owing to a different approach, but there will be no mechanism enabling income tax in Scotland to promote that certain activity. A new tax relief for people working in the offshore oil and gas industry, for instance, might not be a priority for the UK as a whole, but it might be a priority in Scotland.

The record of our income tax code is cluttered with examples of the use of the tax code to promote certain types of behaviour. I am not sure that we can secure the full and effective use of a tax code if our Parliament is not setting the rate and looking after local activities.

The flipside will be that tax avoidance as a result of a loophole may become material for the Scottish Parliament in the case of a certain piece of exploitation, but will not become material to the budget of the whole UK. It may be extremely important in Scotland to get that loophole closed, but in the UK there may be several others that are ahead of it in the queue, because it does not represent a large loss to the Westminster Parliament. An action that ought to be taken on something that has a material impact in one part of the UK will not be taken because of the strange disparity that exists.

If we are going to start devolving taxes, we should step back and have a look at what a federal UK tax system would be like. We should work out which taxes are federal and which are devolved, and then try to bring about some consistency in Wales, Scotland and Northern Ireland so that similar taxes can be devolved in the same way, rather than adopting a piecemeal approach in regard to corporation tax in Northern Ireland, income tax in Scotland, and so forth. I do not think that anyone in the country will know to which Parliament they are paying what tax, and who has complete control of it. That means that we will not get all the advantages that we expect, such as the ownership and the accountability that my hon. Friend the Member for Gainsborough (Sir Edward Leigh) mentioned.

I do not think that we are achieving the sharing and the pooling that the hon. Member for Edinburgh South wanted, the coherent use of income tax that the SNP wants, or the full devolution that would make sense. We appear to have become involved in a strange halfway fudge which we may regret in a few years’ time. I think it would be better to step back and try to get this right from the start, rather than trying to find a way of clearing up the mess.

I accept that there are always good reasons why the line is drawn where it is. We must be very careful about tax avoidance through the use of residency, or pretend residency. If I am working full-time in Scotland, to get the Scottish rate—which may be higher or lower than the rate in the rest of the UK—I shall probably have to go and live in Scotland. I suspect that I cannot achieve that artificially. If I have large dividend flows, I can probably pretend that I am in Edinburgh when I am in London and vice versa in order to obtain the tax advantage. I can see why there is an attraction in having one UK-wide passive income tax, rather than an active tax.