Finance: Peer-to-Peer Lending

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 19th December 2012 Lords Chamber

[Lord Sassoon]

As always, I am grateful to the noble Lord, Lord Barnett, who keeps me on my toes until the end. On regulation, we had some interesting debates in the course of the passage of the Financial Services Act but, on balance, I think it is appropriate that p-to-p lending comes within the FCA’s regulatory framework. We also need to look at the experience in places such as the US and ensure that regulation does not kill off what could be a very valuable contribution to lending. There are some issues on tax, which are the subject of ongoing debate between the industry and HMRC. We certainly do not want anything to stand in the way of the growth of industry. I do not believe that tax issues do that. There is a big, ongoing agenda of which the noble Lord, Lord Barnett, identifies some of the key issues.

[Lord Forsyth of Drumlean]

My Lords, I add my thanks to my noble friend for the careful way in which he has dealt with our questions and issues and wish him every success. How do the Government expect the banks to lend more money to small businesses if we are requiring them to hold more capital in the form of government bonds or deposits with the Bank of England and taxing them more by increasing the banking levy? Where are they going to find the money? Is there not a case for relaxing, in a counter-cyclical way, the capital requirements so that the money is there to get growth in our economy?

[Lord Sassoon]

My Lords, these are critical issues. There is a fundamental trade-off between stability in the system, which clearly has to improve over what it was before the financial crisis, and the need to boost growth. The fact that the Financial Policy Committee at the Bank of England is up and running in shadow mode and is identifying the counter-cyclical tools that it will need is a very important new step in this area. The Funding for Lending scheme is, I believe, the most important sign of what can be done with the strength of the Government’s balance sheet. Lower funding costs are already coming in to wholesale bank funding, declining by over 100 basis points since June. One indication of the impact on consumers is that quoted rates on fixed-rate mortgages have declined by 0.3 percentage points since the Funding for Lending scheme has come in. However, I certainly agree that we need to be very attentive to this issue.

Autumn Statement

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 5th December 2012 Lords Chamber

[Lord Sassoon]

My Lords, that seemed to be a speech rather than a question. However, I am grateful for some of what the noble Lord, Lord Myners, had to say and I shall miss sparring with him. I remain an optimist. In less than three years since the previous election, the private sector in this country has created 1.8 million new jobs, which is twice what the OBR projected, and the OBR’s projection today for the period up to 2018 is that 2.4 million further new private sector jobs will be created at a time when it estimates that public sector employment will be reduced by 1.1 million. Times are difficult, but I remain optimistic about the underlying strength and vibrancy of the private sector in this economy.

As to the observations of the noble Lord, Lord Myners, about offshore centres, some of the issues that he raises are certainly on the agenda, but it is inappropriate to talk about offshore centres and others. The key thing is to make sure that the so-called offshore centres are brought up to the standards of the best. Some of them have made huge strides; others need to. I take his points.

[Lord Forsyth of Drumlean]

My Lords, does my noble friend not think it remarkable that the Official Opposition have no proposals for reducing the deficit by cutting public expenditure, and that there does not appear to be a scintilla of humility for the fact that they were running a deficit of some £70 billion at the height of the boom times? It was their irresponsible conduct over the economy that has got us into this mess. Should the Chancellor not be congratulated on not being more outraged at the response that he has had from the Opposition, in which former spokesmen are reduced to criticising the grammar of the Statement rather than its content? The truth is that they have nothing to offer the country to get us out of the mess that they created.

[Lord Sassoon]

My Lords, I am very grateful to my noble friend and agree with every word that he uttered.

Banking: National Savings & Investments

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 5th December 2012 Lords Chamber

[Lord Sassoon]

My Lords, the Government are very well aware of the needs of savers. Those who have done the right thing in the good times should not be penalised in these difficult times and the Government understand that. Specifically on National Savings & Investments, as I said, it keeps its product range under regular review so, of course, it looks to see when it is appropriate to bring products back in. However, it has to balance the need to deliver finance to the Government at rates that represent value for money for the taxpayer and the need not to compete unfairly in the savings market by offering products that compete with other providers in the market. The noble Baroness may look askance at that but I assure her that I get constant complaints from the retail savings market if it thinks that NS&I is using its power unfairly in the market.

[Lord Forsyth of Drumlean]

My Lords, will my noble friend accept my warmest congratulations on the announcement by the Chancellor today that he will consult on allowing AIM shares to be included in ISAs, following the persistent representations of my noble friend Lord Lee of Trafford?

Taxation: Avoidance

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 25th July 2012 Lords Chamber

[Lord Sassoon]

My Lords, the important broad picture here is that on the latest annual figures, those for 2010-11, HMRC collects approximately £469 billion a year. The estimated tax gap is 7.9%, a percentage that compares favourably with, for example, the USA at 14% and Sweden at 10%. Nevertheless, there is a gap of £35 billion and it is very important that HMRC does all that it can to close it, which is why it is prioritising this area in many respects. I hear what the noble Lord says about a specific issue and I will take his suggestion away, but I can assure the House that HMRC is prioritising it right across the board.

[Lord Forsyth of Drumlean]

My Lords, does my noble friend agree that if Treasury Ministers wish to minimise avoidance and maximise revenue they should leave delivering moral guidance to the church and concentrate on delivering simpler, lower, flatter taxes as our manifesto promised?

[Lord Sassoon]

My Lords, the lowering of the top rate of tax, for example, makes my noble friend’s point very clearly. By putting the top rate of tax at 50%, the previous Government, as the analysis has now shown, delivered absolutely nothing—or very little at best—in terms of revenue, and made this country uncompetitive. So we need wherever possible lower and broader taxes. I agree with my noble friend on that.

Ulster Bank

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Thursday 5th July 2012 Lords Chamber

[Lord Sassoon]

My Lords, I do not know the cause of this significant failure. The noble Baroness may be right but, as I said, the FSA expects RBS to provide it with a complete account of the issues. I welcome the fact that the chief executive of RBS, Stephen Hester, has made a commitment to a full and detailed investigation overseen by independent experts and publication of those findings. In due course, we will know what the explanation is.

[Lord Forsyth of Drumlean]

My Lords, is my noble friend satisfied with the role of the FSA? Surely it is not enough for the FSA to say, “We want a report”. The FSA is supposed to satisfy itself that people with banking licences have back-up systems to prevent what has happened, which is causing not only distress to families but real damage to commerce in our country. Surely the FSA should be far more active and should be giving an explanation to the Minister for why it has allowed this to happen.

[Lord Sassoon]

My Lords, we delude ourselves if we think that there will ever be a no-failure regime in financial regulation. Regrettably, issues will arise. We want the FSA to do what it is doing: not getting in the way but doing whatever it can to ensure that RBS solves the immediate problems. Then it will get the full explanation and, on the back of that, the lessons for all concerned, including, I am sure, the FSA, will be learnt.

Economic Policies

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 4th July 2012 Lords Chamber

[Lord Sassoon]

I did not bring my IMF quote book today to trade on this one, because the Question is about the Government's assessment of the success of their economic policies, not what the IMF is saying about them. I am sure that we will come back to that on another occasion.

[Lord Forsyth of Drumlean]

My Lords, although reducing the deficit, and even more so the debt, is important, is not relying exclusively on reducing the deficit a bit like playing golf with only one club? Do we not have to have more emphasis on supply-side measures that will encourage the private sector to create the jobs and wealth that the country desperately needs?

[Lord Sassoon]

My noble friend is completely right, and it would be a one-club game if we were not doing all sorts of things on the supply side, such as reducing corporation tax from 28% to 22%, the national loan guarantee scheme of £20 billion, cutting red tape for the first time in living history, enterprise zones, the Regional Growth Fund, the largest number of apprenticeships ever funded by any Government and completely overhauling the planning system, to name a few supply-side reforms.

Taxation: Avoidance

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Thursday 28th June 2012 Lords Chamber

[Lord Sassoon]

My Lords, I certainly agree with the noble Lord, Lord Clinton-Davis, about the seriousness of the problem. That is why the Government—and HMRC in particular—are tackling it with all the available weapons. I stress that the Disclosure of Tax Avoidance Schemes regime, which was introduced by the previous Government in 2004, has been a successful part of that. Of the total tax gap, that is estimated to be around £35 billion, £5 billion is estimated to be as a result of avoidance. It is important to be clear on the figures.

In relation to schemes of wealthy individuals, the K2 and Icebreaker schemes, which have had much recent publicity, are under investigation by HMRC. HMRC and, of course, the Government want to make sure that everyone, wealthy or not, pays a fair amount of tax. HMRC has rolled out some very specific initiatives within its High Net Worth Unit in order tackle even more vigorously the particular challenges around individuals of high net worth.

[Lord Forsyth of Drumlean]

Does my noble friend agree that the best way to avoid people coming up with complex tax avoidance schemes is to have simpler, lower taxes—which will maximise revenue and obviate the need for people to use their energies in this way—and concentrate on creating wealth and growth in our economy?

[Lord Sassoon]

As a general proposition, I very much share the view of my noble friend.

Wales: Barnett Formula

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 20th June 2012 Lords Chamber

[Lord Sassoon]

No, my Lords, the Treasury is not remotely casual about the national finances, and what the noble Baroness says about the Scottish funding situation might well be challenged by others in other devolved parts of the nation.

[Lord Forsyth of Drumlean]

My Lords, it would not be challenged by me—and, indeed, the Select Committee came to that unanimous view. But what is the difficulty with finding an agreed needs-based formula for funding when the money that Scotland receives is distributed to health and local authorities using precisely a needs-based formula for funding? Surely it is time to deal with a matter that is creating division in the United Kingdom at a time when we need unity.

[Lord Sassoon]

My Lords, one difficulty is that there is no consensus on the appropriate way in which to measure needs for any replacement. As the previous Government said in response to the Select Committee report,

“the Barnett formula has a number of strengths, among them the merit of allowing the devolved administrations to determine their own assessment of needs and priorities in devolved areas”.

Debt

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Tuesday 29th May 2012 Lords Chamber

[Lord Sassoon]

My Lords, there are all sorts of good ideas and lobbying that come from all sorts of quarters, but if the Government were to treat £1 billion here or there as petty cash, the British public would be absolutely appalled with what we were doing with public expenditure. As for business investment, yes, we talk to the CBI—it comes up with a lot of good ideas—but what is important is that the provisional data for the second quarter of 2012 indicate that business investment is showing a stronger recovery than forecast by the Office for Budget Responsibility. The OBR did not expect business investment to reach the level that we have seen in the second quarter until 2013. It is good that business investment is rising.

[Lord Forsyth of Drumlean]

When the Deputy Prime Minister made his speech in the tractor factory and said that the Government had a moral duty to the next generation to wipe the slate clean for them, that we had set out a plan that lasts six or seven years to wipe the slate clean, to rid people of the dead weight of debt that had built up over time, what was he talking about? Will not the debt have gone up in six or seven years’ time by half a trillion pounds?

[Lord Sassoon]

My noble friend is right to point out quickly the confusion that many of us occasionally suffer on the difference between debt and deficit. Of course, the two things are different.

Eurozone

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Thursday 17th May 2012 Lords Chamber

[Lord Sassoon]

My Lords, we are not excluding ourselves from very important decisions; we are saying that it is for members of the eurozone to take the lead in sorting out the problems with the euro. We are very much at all the discussions. As well as questions of potential and past bailouts, we are discussing growth strategies and the completion of the single market, which will put Europe back on a sustainable growth path.

[Lord Forsyth of Drumlean]

My Lords, what is complicated about our country borrowing at an increasing rate so that the national debt will be 50% larger in seven years’ time? What is complicated about ruling out providing money to the eurozone that we do not have to spend?

[Lord Sassoon]

My Lords, I have been completely clear that as of this July, the mechanism in the eurozone, which the previous Government signed us up to, will no longer make any future commitments. The new permanent mechanism that is being put in place is a eurozone-led mechanism and the UK is not part of it.

Scotland Bill

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 28th March 2012 Lords Chamber

[Lord Forsyth of Drumlean]

It is very straightforward. We are talking about devolution here, not about establishing a federal system. As someone said, although I cannot remember who, power devolved is power retained. The ability to create a completely new tax—a window tax, or whatever—has to reside with the other place down the Corridor. Within our constitution, in order to create a new tax, you have to have a finance Bill. It used to have to be on the Floor of the House of Commons when it came to Committee, and there is a set of procedures that needs to be followed. It is completely different from devolving the power to set a rate of tax, which this Bill purports to do and is the commitment made in the manifesto.

My constitutional problem is that that ability of the House of Commons to discuss, through a long-standing procedure, the imposition of taxation is being undermined because all that it requires now is an Order in Council, which by convention cannot be voted on in this House and cannot be amended. That is no basis upon which to create new taxes on the people. It is the nature of the procedure that is the constitutional outrage as far as I am concerned, not the nature of giving the Scottish Parliament the ability to raise a particular tax.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, I will just try to clarify the position here, which might be helpful to this ongoing debate. This is a very important point. We should be clear that we are talking about a power to devolve taxes, which is a constitutional provision that it is perfectly proper for Parliament, including this House, to have a role in. That is quite separate from the creation of the new tax, which will be the responsibility—if it is given it under the provisions of this Bill—of the Scottish Parliament. I suggest to my noble friend that it is misleading to say that somehow we are driving through the creation of new taxes via some improper provision of this Bill. The clauses we are talking about seek to devolve a tax, a power that is retained by this Parliament and around which there will be all sorts of safeguards, as we will come on to. There will be a joint assessment by the Government here and in Scotland before such proposals come forward. But the creation of the new tax will be for the Scottish Parliament and will go through a proper, full parliamentary process of that Parliament.

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[Lord Sassoon]

My Lords, I shall try to address some of the further points that have come up, although I have addressed one of the key points so I will not repeat myself. Although my noble friend Lord Lang of Monkton went rather wider—I thought we were going back to Second Reading—he provided some important context for the clause. We do not want to leave ourselves with the impression of a weak Scottish economy that my noble friend paints. It is right to remember that with 8.4 per cent of the UK’s population, the gross added value contributed by Scotland was 8.3 per cent, which is almost in line with the percentage of the population. I could cite many figures, including some which show that Scotland’s economy outperforms that of the UK as a whole. We should not think that we are making Scotland too reliant on the 10 per cent of tax base. I think my noble friend suggested that we were relying excessively on that 10 per cent. To be clear, under the Bill about 60 per cent of Scotland’s budget will still come from the block grant, so that context is important.

I wish to address one or two of the issues specific to this clause and the amendment. It is important to realise that the power we are talking about allows for the Scottish Parliament to be given full control over a specified tax. It does not allow for the Scottish Parliament to be given control over particular aspects of taxes such as the rate. It is a power to devolve complete control of a specific area. As I have explained, it will then be for the Scottish Parliament to go through a process to create a new tax to fill the space.

[Lord Forsyth of Drumlean]

On a point of information, is my noble Friend saying that the Scottish Parliament cannot think up a completely new tax, such as a window tax, for example?

[Lord Sassoon]

First, this Parliament needs to devolve the power to create the space and then the Scottish Parliament can move into it.

There are two reasons why we need this power. One is to enable those taxes and duties which are already in contemplation to be devolved. Then there is the question of future specified taxes, which relates to Calman. We may or may not come back to the question of an air passenger duty and an aggregates levy, which we discussed at length in Committee. However, this power is needed under the construct which the Government propose whereby we have APD and an aggregates levy to be devolved in due course. We are not in a position to do so at the moment and the power is required to enable that to happen. However, I completely accept that that is a separate matter from the identification of future taxes and how that relates to the Calman recommendation. It is clear that there are different interpretations of what Calman recommended, as we have heard this afternoon. I could read out large chunks but I suspect that would not lead to our agreeing on the precise construction of the words. I repeat that I believe that Calman envisages the devolution of future specified taxes rather than just taxes that have been specified up to this point. I agree that the words are not easy but I will quote a chunk from Calman:

“We see no reason why the Scottish Parliament should not be able to legislate to create new taxes that affect the whole of Scotland uniformly and not just via local taxation, if it does so with the agreement of the whole UK Parliament”.

I believe that that is the context in which this central power should be seen.

I will not repeat our previous discussion but I remind noble Lords that, whether they have noticed it or not, a very similar power is embedded in Section 30 of the Scotland Act. Therefore, like it or not, it is simply a fact that that power has existed for a number of years and there is a record. That relates to one of the points made by my noble friend Lord Lang of Monkton about abrogation or abnegation—whichever or both—of responsibility by HM Treasury. It is already clear from the operation of Section 30 and requests made under it to devolve tax and non-tax powers that the Government have a record of looking carefully at the evidence and rejecting any proposals that do not meet the tests that, in the context of the Bill, we will come on to talk about a little later.

I say to my noble friend that there will be no shirking of responsibility by the Treasury or any other part of government. The tax, and evidence base for any proposal to devolve responsibility for a particular tax, will be agreed between the UK and Scottish Governments before the Government bring any order before the House under the affirmative order procedure. We will come on to this, but the impacts will have to be assessed in line with the guidelines set out in the Command Paper. We will discuss what the standing of those guidelines should be, but that is how any proposal will be assessed.

The power is necessary and appropriate as regards the two taxes that have been identified but which we are not in a position to devolve at this time. The power is consistent with the construction of Calman, which I believe is appropriate, and consistent with the spirit of Section 30 of the Scotland Act. The evidential base will be properly assessed against the criteria set out in the Command Paper that we will discuss in more detail shortly. After this useful discussion, I ask my noble friend Lord Forsyth of Drumlean to withdraw the amendment.

[Lord Forsyth of Drumlean]

My Lords, I am most grateful to my noble friend for that very unsatisfactory response. He has not answered any of the points that have been made, particularly as to whether he could give an example of where taxes have been imposed by secondary legislation, subject to a vote in this House. His comparison with the Section 30 procedure in the Scotland Act to justify this is ridiculous. On that basis, Ministers could impose taxes on England using the secondary legislative procedure because there is a precedent of secondary provision in other legislation.

My noble friend did not read out the bits of the Calman report to which he referred because I suspect that they are crystal clear. It talks about specified taxes, and when I have repeatedly asked the Minister to specify the taxes that could be imposed using this power, we have been told that the aggregates levy and other taxes could be written into the Bill, with a commencement provision by order. I would not have a problem with that.

My noble friend says that he does not understand what the constitutional difficulty is, because the Scottish Parliament will follow its procedure in deciding on the tax. However, the ability to raise taxes on the people of this country should reside with the House of Commons. The House of Commons, having gone through the proper procedures may delegate decisions to the devolved institutions, but what my noble friend is doing is turning that principle on its head. I do not wish to embark on the debate on the next set of amendments and the sensible amendment of the noble Lord, Lord Browne, but one has only to look at the first subsection of his amendment, which states that the use of the section,

“shall be assessed against the following criteria … the potential for the new tax to create or incentivise economic distortions and arbitrage within the UK … the potential the new tax might create for tax avoidance across the UK”.

These are matters of interest to people not just in Scotland but in the rest of the United Kingdom, and should be debated properly in the normal way that applies to tax policy—on the Floor of the House of Commons, not in this place by order. We have no business in relation to the imposition of tax, and have not had any since 1911.

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[Lord Sassoon]

I understand that my noble friend feels very strongly about these matters, but does he agree that the Scottish Government, in the process leading up to the Bill, asked, among other things, for the assignment of excise duty revenues and the devolution of corporation tax, but have not got them? With all due respect to him, the idea that the Government will somehow roll over to every request from the Scottish Government is simply wrong, as evidenced by the perfectly proper negotiations leading up to the Bill, where the Scottish Government have not remotely had all their asks granted.

[Lord Forsyth of Drumlean]

I am most grateful to my noble friend for the stand that he has taken on corporation tax. That is an example of an existing tax. We are not talking about existing taxes. My noble friend has confused the issue—I am sure not deliberately. We are talking about the creation of completely new taxes that would apply only in Scotland but which might have an impact on the rest of the United Kingdom.

I am simply saying that the procedure included in the Bill, which requires that to be dealt with by order, is inadequate. It should be dealt with by primary legislation. My noble friend is, in effect, enabling Ministers, by Order in Council—without having to go through the whole difficulty of introducing primary legislation—to give consent to new taxes that might be proposed by the Scottish Parliament. In doing so, he is driving a coach and horses through the way in which we levy taxation in this country. That is a huge step and that is why I feel strongly about it.

What is particularly irritating is that it is unnecessary to do that to achieve my noble friend’s objectives. In his reply, he said, “Of course, we have these agreed criteria”. Everything he said has been about how the Executive will ensure that there is protection. The whole point of our parliamentary democracy is that Parliament should provide protection for the people, because it is accountable to people in a way that the Executive are not. The Executive are accountable to Parliament. This procedure suggests that we should have an order. In this House, not only is it unamendable but, by convention, we do not vote against it.

That is a big step for no apparent reason other than administrative convenience—unless, of course, it is in the Government’s mind that they want to give more powers to raise taxes or create new taxes without the bother of having to go through the procedure of having another Scotland Bill. I can well understand, given the time that I have devoted to my noble friend, why he might wish not to have another Scotland Bill and prefer the convenience of this procedure, but that is not right. Therefore, I am not satisfied with his response. I can see that I am not going to change his mind, and I am certainly not going to win a vote on this, so I beg leave to withdraw the amendment.

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[Lord Sassoon]

Then it was a no for a very good reason.

My Lords, I thank the noble Lord, Lord Browne of Ladyton, and the noble and learned Lords, Lord Davidson of Glen Clova and Lord Boyd of Duncansby, for the amendment, which exposes an important issue that it is quite right that we should debate. As was well anticipated, I say at the outset that it does not find favour. However, in the spirit in which the noble Lord, Lord Browne of Ladyton, led me on, I will be positive in my response, because there is further reassurance to be given here about what I hope your Lordships will think is a pragmatic and proportionate way forward.

I am not sure whether we are talking about Amendment 17 at this point. My noble friend did not speak to Amendment 17, which is a fundamental one about removing the ability of the Scottish Government to legislate on any taxes that are devolved. Perhaps I will not need to say very much about that; it links to our previous discussion.

[Lord Forsyth of Drumlean]

I have not moved Amendment 17.

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[Lord Sassoon]

I thank the noble Lord for that clarification.

Amendment 16 inserts the conditions and procedures required prior to the devolution of further taxes. It would put the considerations required for the devolution of a new tax outlined in the Command Paper on a statutory basis. Of course I confirm at the outset that the Government still fully agree that the criteria in our Command Paper are the right ones. In that sense, the words were picked up correctly and I am afraid that I have to hold up my hand to my noble friend Lord Lyell and remind him that the criteria came from the Government, so there is no way for me to avoid the accusation of Monty Python-speak—I cannot pass on the responsibility to the noble and noble and learned Lords who tabled the amendment.

I hope that my noble friend recognises the serious point that in devolving responsibility for taxes, we do not want knowingly to set up a massive opportunity for tax avoidance because of a mismatch in the tax systems between two parts of the United Kingdom. That is rightly what the criteria are intended to prevent. There is no question about the criteria; we endorse their aims. I think that even my noble friend, Lord Forsyth of Drumlean, would accept that if there are to be criteria, he has not suggested any better ones. So that is a good starting point. The question then becomes about the statutory basis or otherwise. First, I suggest that because we all agree about the nature of these criteria without debate, perhaps they are self-evidently the criteria which any Government would use. They are common-sense criteria which any Administration or Parliament would address in looking at these matters. They are self-evidently reasonable and have not been challenged. That questions why we need to state the obvious in statute. However, I appreciate the concerns and let me come to the positive of how we can reassure noble Lords on this point.

This links to Amendment 29, which we will come to later: the proposal to place a statutory requirement in the Bill for both Governments to provide updates to their respective Parliaments on the implementation of the Bill. That is the mechanism under which the Government propose these criteria should be properly considered. The criteria themselves can be debated and discussed before any proposals come forward to this House and another place, and to the Scottish Parliament.

This provision recognises that the implementation of these measures will be very important. Under the proposal that we will come to in Amendment 29, there is a requirement that both Parliament and the Scottish Parliament be well informed after the Bill completes its passage through your Lordships’ House but before further and future proposals come forward for taxes that might be devolved. I can specifically commit that the first report under this new power, which we will propose later, will be published within 12 months of Royal Assent and will include the criteria set out in the Command Paper. So the criteria will come in the first report that will be presented. They will be included in the detail of the report, which will allow consideration and possibly debate in this House if your Lordships consider it appropriate. In that way, I believe we will go as far as reasonable or necessary to have a specific debate, to make it absolutely sure for the avoidance of doubt in a paper which comes forward to both Parliaments that the criteria are indeed the criteria following passage of the Bill.

[Lord Forsyth of Drumlean]

Before the Minister draws this red herring across our path, it will be interesting to discuss these proposals when we come to that point in the Bill. As we all agree that this is a model set of criteria that in some way circumvent the use of this power, what is his objection to putting them in the Bill? Nothing he has said explains why he should not accept the noble Lord’s amendment and put it in the Bill. It is written by his Treasury staff, they are his own words, everyone agrees that they are sensible criteria and it will offer reassurance to us, so why is he not prepared to accept this amendment? Is it because he is worried about judicial challenge?

[Lord Sassoon]

No, I am not specifically worried about judicial challenge. I just think that it is reminiscent of debates I am becoming increasingly used to in your Lordships’ House. I am sure many noble Lords are much more familiar than I am with these arguments that regularly come up: if it is so obvious, we do not need to put it in because everybody understands it; or, if it is so clear and everybody accepts it, let us put it in. I have suggested to your Lordships that the criteria, based on the limited discussion that we have had here, are widely accepted. They should be debated if your Lordships want to debate them properly.

We do not have the opportunity here, and have not had it in Committee, to debate the criteria in detail because we have a “take it or leave it” provision to put them in. I believe that the proportionate, appropriate and sensible way forward is to set them out in the first report that we will require, if the House agrees, under Amendment 29. At that point, if your Lordships want it, there could be a specific debate on the criteria.

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[Lord Sassoon]

My Lords, let me give a brief response to the noble and learned Lord’s question. If we take the example, say, of stamp duty land tax, we have not set out the new tax framework for land tax in Scotland, which will be for the Scottish Parliament to do. We have devolved the policy space. It will be for the Scottish Government to design a new system that suits the requirements of Scotland, which will go through the tax-making procedures of the Scottish Government and the Scottish Parliament. That is exactly the approach which will apply to any new tax devolution proposal. It is as simple as that.

[Lord Forsyth of Drumlean]

It is not as simple as that. The SDLT tax is in the Bill. Here, we are talking about taxes which are not in the Bill and could be completely new taxes. That is why the criteria are so important.

[Lord Sassoon]

We are going back to another question. I am answering the question about the empty space that is created. It is easiest to do that by reference to a specific example of where we are creating the space within which the Scottish Parliament will have the ability to create a new tax framework to fill that space. That example is specifically envisaged. By analogy, that is how I anticipate it will work for possible other taxes in the future if they meet a number of thresholds and requirements, legislative and otherwise, including meeting the requirements that we have been discussing in the Command Paper.

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[Lord Sassoon]

My Lords, let me first thank the noble Lord, Lord Eatwell, for confirming what I and the Government strongly believe but clearly have not communicated to my noble friend Lord Forsyth—that the no-detriment principle simply does not have the sort of double-benefit effect to Scotland that he seeks to portray that it has.

[Lord Forsyth of Drumlean]

Of course it does.

[Lord Sassoon]

It is not a matter of “of course it does”. I regret that not all noble Lords seem to have been able to come to the briefing for all Peers that we had earlier this week to go through the Holtham-style block grant adjustment, because it is complex. Regrettably, under the conventions of the House, I cannot hold up charts and explain the money flows. However, that was precisely why we had an all-Peers meeting earlier this week, when we were able to go through the mathematics of this in detail.

[Lord Forsyth of Drumlean]

I am grateful to my noble friend. However, he organised that meeting in the middle of lunchtime on Monday. We were given a few hours’ notice of the meeting, and some Peers did not even know that it was happening. Some Peers were travelling down from Scotland. This Bill has been around for 18 months, so if the suggestion is that we have not been considering the arguments or been open to briefing, it is not correct.

[Lord Sassoon]

I am sorry—I have been very patient with my noble friend—but we had a very short window. We were asked to set up a meeting and we did so as quickly as we could. I appreciate that not all noble Lords could come but we did respond to the request for a meeting. If any other noble Lords had wanted a one-on-one explanation of the detail of how the adjustment works, my officials or I would have responded. I am not aware that any request was made because the meeting time was inconvenient. We have tried to be—

[Lord Forsyth of Drumlean]

My Lords—

[Lord Sassoon]

I am sorry, but—

[Lord Forsyth of Drumlean]

My noble friend has made an accusation; perhaps he will let me respond.

[Lord Sassoon]

I am sorry. I was merely trying to suggest that we have been as accommodating as possible in the very short time that we had available. I am not aware that there were any further requests for a detailed explanation of the complicated series of adjustments that would need to be made to make sure that the no-detriment principle works in a symmetric way, and is not a double hit to either the Scottish or the UK taxpayer.

[Lord Forsyth of Drumlean]

If my noble friend will allow me, the meeting was organised at 1.30 pm on a Monday when I was hosting a lunch. I replied to his officials saying that I might be able to do something at three o'clock. He will recall that the Scotland Bill came on later that day and that I had tabled a number of amendments to it. I was not able to attend, and other Peers were not able to attend because they were travelling. This is, by the way, not an argument about the technicalities. However, it is really quite unacceptable to suggest that we do not understand the arguments because we disagree with my noble friend, or to criticise us for not coming to meetings that were organised at short notice.

[Lord Sassoon]

My Lords, I do not want to prolong this but I resent the suggestion that we have not tried to be accommodating on this issue. We have all been considerably inconvenienced by the difficulties of the parliamentary timetable. I merely want to make the point that that timetable has been difficult and we have all sat around waiting for things to happen. I am sorry that we have not had an opportunity to take some of that time to discuss the details of this very technical series of adjustments under these arrangements. I say at the start of my response to this discussion that it is simply not possible to go through the adjustment line by line, but I shall make some points on it.

For those who have looked through the adjustment carefully—the noble Lord, Lord Eatwell, clearly has, as he does at such things—I believe that the way that the adjustment works means that the block grant is protected in the way that it should be. Scotland is exposed to the effect of decisions that are taken by any variation in the 10p rate, and that is all it should be exposed to in this case. That is entirely as it should be.

I turn to some of the questions about how the adjustment will operate. The first point related to when announcements are made and in-year adjustments or adjustments within the fiscal period. It is consistent with the Government’s approach to tax policy-making that we would seek normally to make any relevant tax adjustments and announcements well in advance. For example, the adjustments to the personal allowances that were announced in the Budget this year come into effect in just over a year’s time, giving time for any adjustments of a sort that will be needed to be worked up in future. So there is nothing more behind this than simply confirming that we are conscious that an adjustment will need to be made and it will be better if it can be made in advance. That is consistent with the normal approach that we now have to tax-making.

On the question about the OBR’s description of where it is at, the important point is that the OBR will use the period between this year, 2012, and the time when the new tax powers are transferred to refine its approach, including moving from historic to actual data, so that the impact from UK policy decisions will be refined and the methodology will evolve in the periods between 2012 and 2016. I am sure that, as it has done to date, the OBR assessments will set out transparently in successive reports how its methodology is changing. In the spirit of that—although I think this anticipates a situation that we are not remotely in—notwithstanding that there are four years to refine the methodology, if we get to a position where the OBR data are used to make some block grant adjustment and it subsequently discovers that it was misguided, something has changed and it refines that adjustment, I am sure that that will be taken into account. The more important question for the moment is the time period that it has to refine its methodology over the next few years before any question of block grant adjustments comes in.

On the question of macroeconomic shocks—

--- Later in debate ---

[Lord Forsyth of Drumlean]

My Lords, perhaps I may begin by commenting on the shortage of time and the pressure that has been put not just on Ministers but on Members of this House. That is nothing whatever to do with people who are not members of the Government. It is the Government who introduced the Bill more than 18 months ago; it is the Government who chose to wait so long between its introduction in this House and its Second Reading and Committee stages; it is the Government who decided to produce a consultation paper in the middle of the Committee stage, which meant that we had to delay consideration of part of the Bill; and it is the Government who landed us in a position where we were in Committee on Wednesday last week and had only one day in which to table amendments for Report.

The noble Lord, Lord Browne, raised the question about the formula that none of us, apparently, understands, and we received from the Bill team an invitation to come to a briefing at 1.30 pm on Monday. I travelled down from Scotland on a plane that arrived at London City Airport at 10.30 am. I did an interview with the BBC. I had a lunch to host. I got here at 3 pm and responded to the invitation to come to the briefing, saying that I could not come because I was hosting a lunch. I received a response asking whether I would like an individual briefing. I pointed out that the Report stage was happening at 3.30 pm but that I could do something at 3 pm. I received no response because, I would guess, the Bill team were preparing for proceedings on the Bill just as I was. Frankly, for the Minister to criticise us for not attending those briefings is, perhaps I may say, unfair. As it happens, his briefing is completely irrelevant to the argument. He seems to be satisfied with the technicalities. My argument is one of principle. The principle is clear. He asks: do I really expect the Scottish block to be reduced as a result of changes in taxation here? Yes, I do. That happens at present.

My noble friend shakes his head. I have been doing this for the best part of 20 years. When I was Secretary of State, I negotiated with the Treasury. I understand how Barnett and the block works, along with my noble friend Lord Lang. I also know how you can get round that and how you can pull the wool over the eyes of the Treasury. We spent some six or seven years of our lives doing that. I understand how it works.

My noble friend shakes his head to say that reductions in taxation do not actually result in a change to the block. Of course they do. How does my right honourable friend the Chancellor achieve reductions in taxation? He has to do it by reducing expenditure. If expenditure is reduced, the formula consequences are translated to Scotland. For example, when it was decided to privatise water, which helped the then Government to continue with their tax reduction programme, the Scottish block lost the block consequences of the money made available for the provision of water by public services. Of course there is a relationship between the size of the block and the spending decisions taken down here.

My noble friend is muttering. I am happy to give way to him if I am saying something that is incorrect.

[Lord Sassoon]

I completely agree with my noble friend about his last statement: there is a clear link through the Barnett formula to spending decisions here. There is not the same hardwired link between tax decisions on, for example, income tax and personal allowances and the block grant. I completely agree with him about the link between UK spending decisions and the block grant. That is clear, but it is very different from linkage between decisions about income tax matters and what is already agreed in the settlement for the block grant in a spending review period.

[Lord Forsyth of Drumlean]

Indeed, but I described the present situation. My noble friend proposes in the Bill to change it and to take part of the block grant, which is the equivalent of 10p on income tax, which, we agree, is £4.5 billion out of £28 billion, set it aside and say that that is the product of 10p on income tax. He suggests that that bit of the block grant is completely insulated from the effects of tax changes made at a UK level from which people will benefit. He says that I should have come to the briefing so that I understood it. I understand it. He is creating the illusion that the tax-raising decisions of the Scottish Parliament—whether it decides on 10p, 9p, 11p or whatever—will be directly related to its spending decisions if, at the same time, as a consequence of reductions in taxation down here, the block is automatically topped up to compensate the Scottish Parliament as a result of changes in allowances.

For example, if the threshold at which people pay tax was raised to £25,000, so everyone in Scotland who earned the average wage would not pay any income tax, that would have an enormous cost. As I understand it, under my noble friend’s equalisation proposals, the Government would say, “Your 10p on the basic rate no longer raises any money at all. That is a result of a decision that we have made here in the UK. Therefore, you have to be compensated for that and we will send you a cheque”. Do I misunderstand this? I will give way to my noble friend if he tells me that I am talking nonsense, but am I not correct in that understanding of the situation?

[Lord Sassoon]

My noble friend is positing a completely unrealistic situation. I do not see that that is ever going to happen.

[Lord Forsyth of Drumlean]

I agree. Of course it is not going to happen because our public expenditure commitments are so immense. I posit that in order not to get bogged down in complexity, formulae and detail because the principle here is quite clear. The idea that this is about Scotland raising its own revenue and being accountable for it is an illusion. My noble friend is simply recreating the block and saying that Scotland will in any event get the equivalent of the Barnett formula consequences because it will be compensated as a result of any changes in the allowances. That is what he is saying. Therefore, it is not what we are being sold; we are being sold—

[Lord Sassoon]

My Lords—

[The Deputy Speaker (Lord Brougham and Vaux)]

I remind the House that we are on Report, not in Committee, so I ask noble Lords to stick to the rules of the Companion.

--- Later in debate ---

[Lord Sassoon]

My Lords, this has been an interesting debate as we draw towards the end of consideration of the Bill. I am grateful to the noble Lord, Lord Eatwell, whose analysis I very much agree with. It has been a fascinating debate that has taken almost an hour. Sadly, as it has continued, more and more voices have been raised making all sorts of correct arguments that this is not the time and place for it. Many voices in this House accept the starting point of the noble Lord, Lord Barnett, which is that although his eponymous formula has stood the test of time, its time may nevertheless be coming. However, we are not at the point of having a ripe solution, and having a one-country answer within the vehicle of the Bill is not the way to address these proper concerns. I often find that noble Lords from all sides of the House are against me, but it is rare to find myself in substantial agreement with them.

Let me start by reminding noble Lords of one or two things that we should be clear about. First, one of the things that the Bill will do is devolve some of the financial management of income tax to the Scottish Government. However, it will not fix the Barnett formula in stone for the future, and we need to be clear about that, for the avoidance of doubt. It is also worth dwelling on Calman for a moment. My noble friend Lord Forsyth of Drumlean referred to the Calman report, but it is perhaps worth quoting at some length. Recommendation 3.4 states:

“The block grant, as the means of financing most associated with equity, should continue to make up the remainder of the Scottish Parliament’s Budget but it should be justified by need. Until such times as a proper assessment of relative spending need across the UK is carried out, the Barnett formula should continue to be used as the basis for calculating the proportionately reduced block grant”.

The Bill certainly does not therefore lock in the funding formula but, as a number of noble Lords, starting with my noble friend Lord Maclennan of Rogart, have pointed out, this is very much an issue for the whole United Kingdom and should be dealt with at the appropriate time.

Just before I come back to one or two more points on the broader issues, I should for completeness comment on the technical drafting of the amendments.

[Lord Forsyth of Drumlean]

No.

--- Later in debate ---

[Lord Sassoon]

My noble friend says no. Well, I will do so anyway—very briefly. I want to do full justice to the amendments of my noble friend and the noble Lord, Lord Barnett, even if they are so modest as to not want to go through the pain of my analysis.

Very briefly, I suggest that April 2016 is not the ideal timing—coming, as one would expect it to do, part way through a spending review. Timing is an issue. The noble Lord, Lord Barnett, himself pointed out that the current formula is an administrative procedure. It does not appear in legislation. The formula is not specific to Scotland. That goes beyond the purely technical question of the drafting into a wider debate, as I have mentioned. I suggest that it is not right to legislate for a United Kingdom formula that is not at the moment in legislation in a specific Bill related to Scotland that is about tax-raising powers rather than spending.

[Lord Forsyth of Drumlean]

My Lords—

[Lord Sassoon]

Of course I am always happy to give way to my noble friend.

[Lord Forsyth of Drumlean]

I am most grateful to my noble friend for giving way as we reach the end of these proceedings. I entirely accept, as I am sure that the noble Lord, Lord Barnett, does, that this may not be the ideal vehicle. I think that the House would be very happy to hear a commitment from the Minister that he will address the issue at some near date in future.

[Lord Sassoon]

This will not meet the stringent test that either my noble friend or the noble Lord, Lord Barnett, will set, but let me go as far as I can.

The Government understand the concerns expressed in this House and in another place about the devolved funding arrangements. The Government’s position is clear. As the noble Lord, Lord Barnett, recognised, there must be other priorities at this time. It is clear that the Bill does not rule out or in reform of the formula in future. The Government hear, loud and clear, concerns about the formula.

As is clear from our discussion, as well as to those who have followed the debate more broadly, most would concede that there is no consensus across the UK on how to measure the needs of the four countries. Therefore, it is not possible to say what the impact of replacing the Barnett formula might be. Within the devolved formula as it works now, the devolved Administrations determine their assessments of needs and priorities in the devolved areas. That is a strength of the Barnett formula—a point made by the previous Government in responding to the Select Committee’s recommendations then. It is a complex area. Successive Governments have acknowledged the difficulty both with the existing formula and of putting something else in place. The Government certainly do not dismiss that.

I will disappoint my noble friend and, I fear, the noble Lord, Lord Barnett, but I think that it is extremely useful—although not directly linked to the substance of the Bill—that we have had this discussion, because the linkages are clear. My noble friend Lord Steel of Aikwood points out one scenario in which it may all go away. Others have challenged that scenario but have nevertheless agreed that now is not the time to do it.

The issue will not go away. I am sure we will come back to it, if only because the noble Lord, Lord Barnett, will regularly ask me questions on it, and there may be other opportunities for more substantive debate. However, for the reasons that noble Lords from all sides of the House have given, important topic although it is, this is not the time nor the vehicle to address it. I therefore ask the noble Lord to withdraw his amendment.

Scotland Bill

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Thursday 15th March 2012 Lords Chamber

[Lord Davidson of Glen Clova]

If such an event came about, any retractions that might be required from any quarter could also be added into the consultation. We support the amendment.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, as my noble friend Lord Forsyth of Drumlean has explained, Amendment 53A would require the Scottish Parliament to consult interested parties prior to passing a resolution that would see a Scottish taxpayer paying a higher rate of tax on non-savings income than the equivalent UK taxpayer. Of course, my noble friend has also explained in passing that there is no such requirement on the UK Government to consult interested parties when they make similar decisions.

There are two reasons why the Government do not see merit in my noble friend’s amendment. First, the underlying purpose of the Bill is after all to provide for greater financial accountability of the Scottish Parliament to its electorate and give the Scottish Parliament a real stake in Scottish economic performance. I hear, and heard in our previous sitting, my noble friend’s doubts about that, but that is the purpose of the Bill. Devolving the right to set a Scottish rate of income tax to the Scottish Parliament is absolutely key and central to that, which clearly my noble friend accepts. In devolving that key power, I do not believe that it is right for the Government to impose conditions on how the power is used. Ultimately, as the noble Lord, Lord Browne of Ladyton, pointed out in the previous discussion, the Scottish Parliament is and will continue to be subject to regular elections. My noble friend seems to be blithely suggesting that somehow the income tax rate will go up and up in Scotland without reference to the fact that it might not be an election-winning strategy. The Scottish Parliament should not be fettered in the consultation processes through the legislation.

[Lord Forsyth of Drumlean]

My Lords—

[Lord Sassoon]

I shall, if I may, continue and complete the two legs of this argument. If the setting of the Scottish rate becomes part of the existing budget process of the Scottish Government, my noble friend’s amendment will be unnecessary because currently the draft Scottish budget is published in September or October, following which the public and Scottish parliamentary committees are consulted on its proposals. A budget Bill is then typically passed in the spring and, if the Scottish rate is announced as part of the draft budget and the resolution is passed as part of the Bill, the Scottish Government’s existing processes will already include the type of consultation that my noble friend envisages, irrespective of whether it is an increase in the rate or not.

[Lord Forsyth of Drumlean]

That is very helpful, but on the previous point that it would be wrong to constrain the Scottish Parliament and that this is about accountability, the Bill is bristling with provisions that require the consent of the Treasury before the powers can be enacted. Is it not a bit strange to argue that it would be wrong to constrain the Scottish Parliament in consulting the people in a Bill that requires and constrains it to consult the Treasury?

[Lord Sassoon]

No, I do not accept the logic of that. We can debate as we go through which powers require what sorts of consents, but the central nub of the Bill is to devolve income tax rate-setting to the Scottish Parliament. That is what is envisaged. As I say, I believe that it should be done in a clean and clear way and it is then for the Scottish Parliament and the Scottish Government to decide what consultation there is. As I pointed out, the Scottish Government at the moment consult in a very sensible and open way for their budget Bill. There is no reason to doubt that they would do something sensible and proportionate with the new power.

To answer my noble friend’s question about allowances of one kind and another in the context of a higher Scottish rate, the position is that the Government are consulting with representatives from the pension industry, charities—which he specifically mentioned—and other interested parties through the Scotland Bill technical groups. There will be a technical note setting out proposals in these areas after the Bill receives Royal Assent, so it is very much work in progress. My noble friend identifies important issues but, on the basis of my explanation, I ask him to withdraw his amendment.

--- Later in debate ---

[Lord Forsyth of Drumlean]

As my noble friend is dealing with these issues now, it might be in the interests of saving a little time if he addressed the position of members of the Armed Forces.

[Lord Sassoon]

I am very happy to address the position of the Armed Forces, but, if my noble friend will allow, we should perhaps deal with that when his amendment on that subject—if he wants to move it—comes up a little later.

--- Later in debate ---

[Lord Sassoon]

I will come back to that point because the question of credits is very important. I am happy to talk to that but let me answer one or two of the other questions that have already arisen. I shall pass over some of the detailed questions that are largely in the same category as some that I have already addressed.

On the question of safeguards and appeals, the appeals process will apply as it does to appeals and disputes with HMRC across the rest of the UK. That is clear and straightforward and, in general, applies to a number of the concerns of the noble and learned Lord, Lord Davidson of Glen Clova.

Let me address the issue of personal service companies as that has been somewhat topical recently. The Calman commission recognised that the changes would need to apply the Scottish rate of income tax to income from savings and dividends. The changes needed to apply the changes to savings and dividends would be prohibitive and so, as noble Lords know, savings and dividends are not within the scope of the Scottish rate of income tax. However, HMRC’s compliance work, including that relating to IR35, will continue to ensure that all taxpayers pay the correct amount of tax and national insurance contributions, including those who are liable at the Scottish rate. As is evident, all noble Lords who are here today are expert in these matters and I hardly need remind them that the aim of IR35 is to eliminate the avoidance of tax and national insurance contributions through the use of intermediaries such as personal service companies or partnerships. The noble and learned Lord is right to be concerned about this but the matter has been considered by HMRC in the construct that we are talking about today.

[Lord Forsyth of Drumlean]

Could the Minister elaborate on that? Setting up a bogus company in order to avoid tax is clearly black and white, but where someone living in Scotland who meets the test has multiple sources of income, perhaps through being on several boards and so on, surely they could legitimately set things up so that their only income was paid as dividend income and therefore avoid, quite legitimately and within the rules, the Scottish tax. Or is he saying that there will be some additional anti-avoidance measures?

[Lord Sassoon]

My Lords, depending on the nature of the scheme, it may or may not be caught by the anti-avoidance rules that already exist. Clearly HMRC, in its compliance role, will have to ensure that the issue of avoidance is fully addressed. These are complex areas and perhaps my noble friend will permit me to consider whether there is anything I can do to help where we see new areas of avoidance, if any, potentially being opened up, and what the technical thinking is about how these might be closed down. Some of the areas referred to by my noble friend sound as though they are getting precious close to artificial schemes that would be covered at present. However, let me take the matter away.

Let me address a couple of more points. On the broader question of the noble Lord, Lord Foulkes of Cumnock, of what had changed since the workshop, yes, I appreciate that the workshop raised a number of issues and I wrote to all noble Lords who were there answering the questions that arose. There have not been any changes proposed as a result of the issues that came up but it was a useful session. As noble Lords who were there will know, HMRC was there and listening hard. All the issues raised were already being thought about and, of course, this will be reflected in the guidance. It was a useful session because it will inform the drafting of the guidance. As the noble and learned Lord, Lord Davidson of Glen Clova, said, there will need to be clear guidance around this issue and therefore the more questions that are raised generally—but, please, not immediately—will help HMRC with the drafting of the guidance that will be needed.

Finally, I want to come back to this question of benefits and the universal credit, which is a very important area. The clause does not address it directly but it would be wrong to dismiss it at this point. The universal credit forms the background against which we must look at this. As noble Lords know, the universal credit is going to deliver a dramatically improved, simpler benefits system that smoothes the transition into work and improves work incentives. By 2016, when the Scottish rate of income tax is proposed to come into effect, the transition to universal credit will almost be complete, as that will be finished by April 2017. Universal credit is expected to be awarded on the basis of income net of tax, as existing income-related benefits are now. If the Scottish rate and the UK rates differ, then net incomes may of course differ depending on the amount of income tax paid, so that it is possible that there would be a difference to an individual’s universal credit entitlement as a result of the Scottish rate.

However, it is worth bearing in mind that many factors determine an individual’s net income and that a range of local factors could determine their universal credit award, such as housing or childcare costs. The Scottish rate would be another factor to be taken into the calculation. The extent of any divergence of entitlement would depend on a number of factors, including the prevailing rates in the United Kingdom, the rate set by the Scottish Government and whether an individual’s income is subject to income tax at all. I hope that gives the noble Lord some reassurance that the linkage with universal credit has been carefully considered.

[Lord O'Neill of Clackmannan]

I am grateful to the Minister for seeking to respond to this very complex issue. The kind of people who are likely to be affected by this may well be those who are currently employed in the public sector and whose wages are being considered for possibly no longer having a national rate. We could have the anomalous position of someone working for a local authority in Berwickshire being paid the same rate as someone in Northumberland—which is probably less than some other parts of the county—but ending up, because of the universal credit, getting paid more through benefit compensation than people south of the border in Cumbria or Northumberland, because they are being charged a higher rate of tax in Scotland. This kind of anomaly is going to create all kinds of difficulties. This form of taxation may not be the cause of it, but it will certainly be an exacerbating factor and have social consequences of quite a dire character.

[Lord Forsyth of Drumlean]

My Lords, I was going to follow up on the noble Lord’s point by saying that one of the consequences of this will be that the Scottish rate of income tax is higher in order to fund the Parliament’s additional commitments, but the English taxpayer is going to have to foot the Bill for the increased benefits payments that arise. Will my noble friend make arrangements so that the additional cost of the benefits that arise, because of the increased taxation being levied on benefit recipients, is taken from the Scottish block grant?

[Lord Sassoon]

My Lords, as I have tried to explain—and we can talk about the block grant at another point—the key point for these clauses and the interaction with the benefit system, which is very relevant, is that there will be a range of factors that will already be taken into account in calculating net income for the purposes of universal credit. I do not think that is conceptually any different for somebody who is working on one side of the border and living on the other. As we have been discussing during this really useful and important debate, the main-residence test will be the key driver here for most people. That will underpin all these considerations. In a sense, the points that the noble Lord has raised in relation to benefits are actually income tax points, which I have tried to cover by explaining that we are keeping this as simple as we can.

--- Later in debate ---

[Lord Forsyth of Drumlean]

I appreciate that my noble friend may not have had briefing or thought about the question of benefits, and I must say that I had not thought about it until the noble and learned Lord, Lord Davidson of Glen Clova, and the noble Lord, Lord O’Neill, raised it. But it is an important point because of how very small changes in income make a huge difference to the benefits that people are entitled to, because of the nature of the taper. So there is the effect on the individuals of the use of these powers by the Scottish Parliament; they will not be dealing with the Scottish Parliament or Scottish Government but with the Department for Work and Pensions.

There is a serious point here, because if the Scottish Parliament substantially raised income tax so that net incomes were lower there could be very significant increases in benefit costs arising from that action. My noble friend finished his speech by saying that this was all about increasing accountability of the Scottish Parliament for its decisions, but how can it be increasing accountability if the result of its decisions was to send a bigger Bill to my right honourable friend Iain Duncan Smith in his department and perhaps, thereby, create pressure on payment on benefits in England because of the unexpected consequences of this provision? So this is a transfer payment.

Before we get to the next stage, could my noble friend have a word with his colleagues whose responsibilities lie in this area and write a letter to those of us taking part in these proceedings, indicating how the circle will be squared?

[Lord Sassoon]

I am very happy to give that confirmation and will write.

--- Later in debate ---

[Lord Forsyth of Drumlean]

I am most grateful for that guidance and I apologise for having spoken too early to this amendment. We have had quite a long debate about the incidence of liability for Scottish income tax. I thought that I might be able not to move this amendment, which is why I interrupted my noble friend and asked him to say something about the Armed Forces. I am very concerned about the position of people serving in the Armed Forces who may be stationed in Scotland, and whether they will be liable for the Scottish income tax. This is an important point which touches on a later amendment—which the noble and learned Lord, Lord Davidson of Glen Clova, mentioned—to do with the period to which Scottish income tax relates. Regardless of whether the test is no longer met, this could create an anomalous position in respect of servicemen.

During consideration of the Bill in the other place, the Government promised to bring forward a definition that dealt with servicemen. I have included one in the amendment—which is probing and not meant to be the answer—in the hope that I might provoke my noble friend into providing an answer that makes the system simpler. Judging by his remarks about the very concise definition in the 1998 Act and the definition in the Bill, that may mean that it looks more complex. However, at the moment, it seems that the position of people in the Armed Forces who perhaps live in rented or service accommodation is not clear. I beg to move.

[Lord Sassoon]

My Lords, Amendments 54A and 54E would add this new condition—condition D—to the definition of a Scottish taxpayer. If I understand rightly, my noble friend’s intention here is that a serving full-time member of the Armed Forces should be a Scottish taxpayer only if their main place of residence for any part of the year is in Scotland and that residence is a property that they own rather than one provided by their employer.

The Government have given careful consideration to the treatment of serving members of the Armed Forces in relation to the Scottish rate of income tax. We have consulted with the Scottish Government and following that consultation the Government have decided that members of the Armed Forces who meet the close-connection test should be liable to pay income tax at the Scottish rate. Prior to the introduction of the Scottish rate, HMRC will work with the Ministry of Defence to ensure that guidance is available to service men and women on their particular circumstances.

My noble friend raises a perfectly reasonable question about whether there is or should be an alternative test. At present, however, members of the Armed Forces will be Scottish taxpayers if they meet the close-connection test. It is difficult to see any justification for distinguishing between those who rent and those who own property, or the extent to which members of the Armed Forces do or do not rent property from the Ministry of Defence rather than having their own. Therefore, we believe it is appropriate to keep the basic test also for members of the Armed Forces. On that basis, I hope that my noble friend will withdraw the amendment.

--- Later in debate ---

[Lord Sassoon]

My Lords, they will pay the Scottish rate of tax only if they meet the close-connection test that is at the heart of the clauses we debated in the previous group of amendments. It therefore entirely depends on the close-connection test, and particularly where their main place of residence is.

[Lord Forsyth of Drumlean]

Further to that point, this is a circular argument. My amendment chose to alter the provisions in the Bill because the test of close connection does not deal with the circumstances that the noble Lord just mentioned. On my reading of new Section 80E, which defines close connection,

“where T has 2 or more places of residence”,

a soldier may have one residence in the family home in Northern Ireland and the other may be barrack accommodation in Edinburgh or some other part of Scotland. As I understand it—the Minister can tell me if I am wrong—under that definition the soldier would be liable to pay Scottish income tax. That is clearly and absolutely not fair. He might be in Afghanistan or Scotland. No one expects him to pay Afghan tax.

I tabled my amendment to suggest a possible remedy, although it may not be ideal—perhaps my noble friend can comment further. I may be wrong but my recollection is that during consideration of this matter in the other place Ministers said that they would come forward with a view. My noble friend seems to be saying, “Well actually, soldiers are the same as everyone else”. They clearly are not the same as everyone else, and are not in the same position as someone who works for the Royal Bank of Scotland who gets posted from London to Edinburgh. I do not want to prolong the debate by talking about the military covenant and so on, but these service men and women are paid very poorly for the job they do, and therefore the burden of increased taxation could be significant.

What my noble friend said was very welcome if it was that where such soldiers are caught by Scottish taxation they will be compensated by having their gross salary increased so that their net position remains the same. That would be fantastic, but can we have that as an undertaking from the Government and perhaps have it written into the Bill at a later stage? Perhaps my noble friend will come forward with an amendment to achieve that purpose. Could we then also work out a system similar to the transfer payment that we mentioned when we talked about the impact of a higher tax rate on welfare payments that would be made in Scotland? Such a system would involve a transfer payment from the MoD budget to compensate for the increased revenue that was being raised from tax in Scotland. The MoD therefore would need to be compensated for that by a reduction in the Scottish block grant.

[Lord Forsyth of Drumlean]

I agree with the noble Lord, which is why my amendment proposes that if they are in military rented accommodation, they should not have to pay. Another way to deal with it would be to give them the choice of where they pay their tax. As it stands, their position is anomalous. I must say to my noble friend that if I were a member of the armed services listening to him saying that there are a number of options that the MoD will look at, I would not be very satisfied. We need clarity, particularly because so many Scots serve in the armed services and so many bases to which members of the forces are deployed are in Scotland. On the argument about accountability, as my noble friend said, many of them will not have had the opportunity to vote in the Scottish parliamentary elections on the taxes that will be imposed on them.

The military are a special case, and my noble friend ought to say that he will take this away and come back with a government amendment to deal with it, either in the terms that he suggested—that the MoD would provide compensation—or some other terms. Simply saying that the Bill provides for it and it is just about applying the test of close connection will not do.

[Lord Sassoon]

My Lords, at the risk of repeating myself, the Government undertook to come back, having looked at this again. We have; we consulted the Scottish Government; and we consider that there are lots of individual situations that can be called anomalous, but that there are just lots of individual circumstances related to Armed Forces personnel and a lot of other categories of people who should be taken into account when considering how the Bill will operate. On reflection and after consultation, it was decided that the basic test of close connection should apply to the armed services, as it will to everybody else. I accept that how it works out will depend on an individual’s circumstances.

As I explained as clearly as possible, not only will guidance be given so that individual members of the armed services know how to interpret the test, but—I repeat again—in the event that Scottish and UK rates differ at any point in future, the Ministry of Defence will consider exploring options to mitigate the effects of different rates of tax by using existing processes used for personnel serving abroad. The metric is already there for service personnel sent abroad.

In answer to my noble friend’s further point, I do not believe that that should be written into the Bill. It is something that the Ministry of Defence does in the normal course of events—it looks at the anomalies, in his terms.

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[Lord Forsyth of Drumlean]

My Lords, I shall try once more with my noble friend. Perhaps he could translate the language that he used, which I recognise as coming straight out of the script of “Yes Minister”. I know that this is fed to him from elsewhere and we are not supposed to notice but, when he said that the MoD would use its usual procedures and look at all the options, did that mean that the MoD would pay the tax if soldiers stationed in Scotland were subject to a higher rate of income tax? If that is clearly and absolutely understood, I am less concerned about the definition. However, his language was a bit fuzzy and he did not really seem to make that absolutely clear. If he is giving an undertaking on behalf of the Treasury and the Government that servicemen stationed in Scotland will not lose out as a result of the incidence of Scottish income tax, I shall be very happy to withdraw my amendment.

[Lord Sassoon]

The words were carefully considered. I have put them on the record twice and my noble friend knows perfectly well that I am not going to go any further, whether I have a script or not. The Ministry of Defence will do just what I said it will do in these circumstances, if and when they arise.

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[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]

It is simply that it is a matter of principle how tests should apply to different categories of people. It is not a numbers game as to how many will necessarily fall into what categories. It is a matter of principle as to how members of the Armed Forces should be treated. The Scottish Government—not the Scottish Parliament, to correct my noble friend—believe that the proper principle here is that the close-connection test should apply.

[Lord Forsyth of Drumlean]

I stand corrected. If my noble friend followed any Scottish business, he would realise that the Scottish Parliament and the Scottish Government are treated as the same thing by the First Minister.

I am so pleased that my noble friend has made this point. It is a matter of principle that members of the armed services who are deployed to Scotland, living in barrack accommodation, who have no choice in the matter, being under military discipline, should not be required to pay the additional tax. If the Government take the view that the additional tax should fall on them because it is administratively convenient for them, they should get a clear and absolute undertaking that the Ministry of Defence will meet the costs of that. The costs should fall not on the English taxpayer but should be rebated back by the Scottish Parliament. Otherwise it is a transfer of money from the MoD to the Scottish Government because they have put taxes on members of the armed services who are stationed in Scotland.

I will happily withdraw the amendment but we will come back to this at a later stage in the Bill. I advise my noble friend to discuss with his colleagues how he can improve the position. I do not believe that it is sustainable. It is an extremely unfair position, and for us to be doing it at this moment—of all moments—when the whole country is very conscious of how much we owe the armed services, would be a mistake. I beg leave to withdraw the amendment.

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[Lord Sassoon]

I repeat that if the noble Lord, Lord Myners, had been able to be here for the earlier discussion, the key question about the residence test in this Bill is that it builds on UK residence; you have to be a UK taxpayer before the question of the Scottish status applies. We discussed that at some length earlier, and the whole concept is to keep it as simple as possible for the basic overlay of the Scottish status on the UK status. Exactly the same thing applies in respect of this proposed amendment—which goes directly to his challenge—which is that theoretically we could find more perfect concepts but we have to live in the real world. We want to make this fair but we want to make the tests workable for both the individual and, of course, HMRC, but particularly for the individual.

[Lord Forsyth of Drumlean]

My Lords—

[Lord Sassoon]

Perhaps I can come back to my noble friend’s point before he jumps in again. He gave an example to make a particular point, but I should have drawn his attention to the fact that the example he gave of residency of two months—April and May—in Scotland of course does not make that individual a Scottish taxpayer. The basic test, as we have discussed at some length, is if your sole or main place of residence is in Scotland for the majority of the tax year. We need to be very careful about what examples we give.

[Lord Forsyth of Drumlean]

That is definitely a point to the noble Lord. I was thinking on my feet and of course he is quite right. If he wants, I can spend the next 10 minutes giving him examples where it does apply but I suspect he would rather I did not.

Following up on the point made by the noble Lord, Lord Myners, it is the case that for wealthy people who are non-doms, the Revenue can accommodate them. My noble friend said—I thought very unfairly—that the noble Lord, Lord Myners, had not been here for the bit of the debate where he dealt with these issues. I have been here since the beginning and nothing he has said addresses this point.

[Lord Sassoon]

My Lords, I am sorry, but we discussed at some length the fact that the Government are working to introduce a statutory residence test that deals with these things. Forgive me, but that goes absolutely to the heart of the point that the noble Lord, Lord Myners, is raising. I suggest that we have actually gone to this point very directly this afternoon.

[Lord Forsyth of Drumlean]

I think that my noble friend is missing the point that is being made; namely, that the Revenue is able to deal with people who are flitting in and out of being liable for UK tax. It has nothing to do with the test of residency. In this case, it is about fairness and whether you are liable for the tax arising from whether you are a Scottish taxpayer or an English taxpayer. The noble Lord was simply making a parallel case and asking why the Revenue can accommodate some people. I suspect the reason is that there are a few of them and they pay a lot in tax. The Inland Revenue might look at this and say, “Oh well, we could have a lot of people who might be moving and it will be difficult”. I thought that the whole argument for this was based on it being terribly simple because it simply means changing someone’s tax code. Tax codes are changed all the time. What is so difficult about changing someone’s tax code when they have moved from Scotland to somewhere else or to change their liability for Scottish income tax during the course of the tax year?

[Lord Sassoon]

My Lords, let me have a go again. I think that my noble friend has answered the key part of the question. As we have been discussing for a long time today, we want to make this construct as simple as possible for the great majority of people. That is why the test is the close-connection test, which comes back essentially to where the main residence is for the majority of the year. It is as simple a test as there can be.

As my noble friend rightly points out, these questions about non-residents, non-doms and all that refer to a comparatively tiny number of people with complex tax affairs. Suggesting that the Revenue can deal with individuals with complex affairs and usually high incomes is quite a different matter from requiring the majority of the Scottish population, for example, to have to deal with a complex test of coming in and out of Scottish tax treatment.

[Lord Forsyth of Drumlean]

My Lords, we have had a very useful debate. I am most grateful to the noble Lord, Lord Myners, for his contribution, which woke us all up a bit. I am not persuaded by my noble friend’s argument, at the end of which I think we got to the bottom of the matter—it simply is going to be too much trouble and, as regards these people whose tax status changes during a year, there might be rather a lot of them and we are not too bothered about it.

I venture to suggest that for those people the difference between perhaps paying Scottish tax and English tax might be significant. When my noble friend says, “Well you would be dealing with the whole of the Scottish population”, I do not think that the whole Scottish population will change their tax status in any one year. The Revenue is quite capable of dealing with changes in circumstances in a variety of ways. When my noble friend says that he wants to keep it as simple as possible, perhaps I may suggest that the way in which to do that is to drop this whole idea of having a separate Scottish income tax.

This is the Government’s idea and if they are going to change the tax system, they should be able to make sure that it is workable and treats people fairly, and that the answers to our questions are delivered. For the life of me, I cannot see how it can be right that someone who moves from Scotland to England continues to have to pay Scottish tax. Of course, at the other end of this building, none of this was discussed because it was guillotined and there was no opportunity. But I would not like to be a Member of Parliament living in England who receives a letter from a constituent asking why they are having to pay Scottish income tax when they are now living in England. I do not know the answer. If we sent a standard reply from the Treasury saying, “Well, it is administratively simple to make it this way”, that would be a vote lost and a very unhappy constituent.

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[Lord Forsyth of Drumlean]

Actually, I am not a tax expert. I think that my noble friend is taking us down a diversion, because Members of the House of Lords are not paid, they are reimbursed for their expenses. It is not a taxable benefit. My beef with the Bill is that it singles out elected Members for particular, special tax treatment. It does not really matter whether it is to their advantage or disadvantage. I was not raising a general point about the taxation of travel by Members of Parliament or Members of the House of Lords.

[Lord Sassoon]

Well, my Lords, let me give it a go. My noble friend is not easy to satisfy on these things, but I argue that it is entirely consistent with my arguments for the rest of this afternoon to say that this provision, as drafted, gives simple and clear guidance for a category of individuals, namely Members of any of the three parliaments, that they do, for the avoidance of doubt, have a close connection with Scotland and should therefore fall into the “Scottish taxpayer” definition. It is as simple as that. Once one accepts, which I am not sure that my noble friend does, that the close-connection test should be at the heart of this, I suggest that this is a simple follow-on from that, an avoidance-of-doubt provision which is entirely appropriate. We have spoken today about members of the Armed Forces who may not have a choice about where they serve, but it is right that a Member of any Parliament who has chosen to serve a Scottish constituency is for the avoidance of doubt treated as a Scottish taxpayer. They have a clear connection to Scotland which should be recognised and which is consistent with the basic provisions of the test that we are talking about.

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[Lord Sassoon]

My Lords, I see a clear distinction between the previous category of people and parliamentarians, who are different in a number of respects, not least because they are specifically tied, in a very clear way that we well understand, to the electorate and a constituency in Scotland. However, the extent to which a judge, a Peer or a civil servant could be said to have responsibilities for Scotland will vary enormously from case to case. My noble friend has said that this is a probing amendment and that he is not serious about it, so it would be wrong to criticise the amendment for the flaws in its drafting, but goodness knows how one would go about defining what “responsibilities” means in this context and how the test would apply in practice. It would be very difficult.

I certainly agree with the sentiment that we do not want to go down the slippery slope that the noble Lord, Lord Kerr of Kinlochard, identifies of putting lots of people into some special category. Obviously, many judges, civil servants and, dare I say it, Peers will have a close connection with Scotland and will therefore be caught or encompassed by the definition of “Scottish taxpayer” as defined in the draft Bill. I am with the noble Lord, Lord Kerr, in that I do not think we should go further down this route other than in the specific case of the parliamentarians, where the considerations are different in a number of respects, not least because they are very specifically tied to Scotland in a way that this other, looser, category would not be. It is right that the individuals identified in Amendment 54D should have the conditions A and B applied in the same way as all other taxpayers. On that basis, I would yet again ask my noble friend to withdraw his amendment.

[Lord Forsyth of Drumlean]

Well, I am absolutely persuaded by my noble friend’s argument that it would be wholly inappropriate to list these people in the Bill, but I am not persuaded by his suggestion that Members are in some special category that requires them to be defined in that way. Indeed, the only example that my noble friend could come up with was the example of someone who had lost their seat and had moved to England. I certainly lost my seat, but I did not move to England. That is really stretching it, because presumably if they have lost their seat it no longer applies, but he was arguing that they should pay tax for the part of the year when they were not actually liable for tax, which related to one of my previous amendments. We are really therefore in Humpty Dumpty territory here: when I say something means something, it means what I say. There is an anomalous position here, which the amendment highlights.

I do not agree on the point about judges. The last thing I want to do is to increase the taxes of someone for whom I have considerable regard, such as the noble and learned Lord, Lord Hope of Craighead, who lives in Edinburgh and sits in the Supreme Court. I do not know whether it is formal or informal, but in the Supreme Court we have always had an outstanding judge. Sadly, one of the Scottish judges, Lord Rodger, passed away. Clearly, those judges have a connection to Scotland, and I could make as strong a case as my noble friend makes for Members of Parliament, but I would not dream of doing so because I think that it is rubbish. I do not think that the arguments apply.

It is a very bad principle to use legislation as a chalkboard to write political statements. It could very well backfire. There is not the slightest possibility that there will be a reduction in income tax as a result of the power being available to the Scottish Parliament, unless a Government come in who are both mad and committed to slashing public services in a big way. However, if it worked the other way round and, of all the Members of Parliament sitting in the Chamber, those from Scotland paid a lower rate of tax because it was written into statute, that would be a tricky thing to defend, not because they were liable for the lower rate but because it had been written into statute that their status applied in that way.

These are not trivial points. It has been a useful debate, if only to illustrate that this has not been properly thought through. We will return to it at a later stage. I beg leave to withdraw the amendment.

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[Lord Davidson of Glen Clova]

My Lords, I support the noble Lord, Lord Forsyth, in seeking further areas of consultation. How true it is that the Scottish Parliament, under improved devolution, will have greater powers. None the less, it remains part of the United Kingdom and therefore it would be very important that consultation on areas which could have a significant effect throughout the United Kingdom should be put in place by the Treasury.

[Lord Sassoon]

My Lords, Amendment 54G would indeed require the Treasury to consult interested parties, specifically including the Scottish Government and Parliament, on its plans. It may be helpful to explain the Treasury’s new approach to tax policy-making, which was published with the 2010 Budget, because that sets out the Government’s commitment to consult on tax changes in legislation. Secondary legislation made under the power in proposed new Section 80G would be treated no differently, so we already have a commitment to consultation through the Government’s general approach to consultation on tax changes. Indeed, in the context of the Bill and through its technical groups, the Government are already consulting on further changes needed as a result of the Scottish rate. The Scottish Government have been involved in these discussions, so I have absolutely no difficulty with the underlying concern that my noble friend seeks to address here. I simply point him to the fact that since 2010, under the new framework which the coalition Government have put in place, we are doing all these things already on a UK-wide basis under the policy that we announced.

It is important to recognise, nevertheless, that any changes which are made as a consequence of the introduction of the Scottish rate will still need to fit within the wider UK income tax system. I believe it is correct that while the Government are committed to consulting with the Scottish Government, Ministers and Parliament, and with others as part of our general approach, the Government should nevertheless have the final say on how these matters are handled, just as they do on how matters are handled across the UK tax system. On that basis, I again ask my noble friend to withdraw his amendment.

[Lord Forsyth of Drumlean]

I thank my noble friend for that answer. I have noticed that there is quite a lot of consultation going on these days on tax policy, in the run-up to the Budget. I accept that the Government have made strides in this respect and that my amendment may indeed be redundant. I beg leave to withdraw it.

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[Lord Sassoon]

My Lords, as my noble friend said, Amendment 54H would remove the retrospective element of the power to make supplementary changes. It gives me the opportunity to reassure the House—which I hope is what my noble friend seeks—that the Treasury does not seek a general power to impose retrospective legislation. This is a very limited power to make any changes retrospective to the start of the tax year. Because of the timing of the budget cycle, most finance Bills receive Royal Assent after the start of the tax year and so contain proposals that come into effect before Royal Assent. It is therefore important that, where necessary, any consequential change made using the order-making power can also take effect from the start of the tax year. The power is identical to that in Section 79(4) of the Scotland Act 1998 for the Scottish variable rate. I hope that my noble friend is reassured that this is just a necessary provision to take account of when Royal Assent is given to finance Bills and that, yet again, he will be prepared to withdraw his amendment.

[Lord Forsyth of Drumlean]

My Lords, on the basis of that very helpful response, I am pleased to withdraw my amendment.

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[Lord Sassoon]

As my noble friend said, this point is very similar to the issue that came up on Amendment 54G. I suggest again that the coalition Government’s new approach to the transparency of policy-making, and our commitment to consulting in advance on tax changes and legislation, means that not only the Scottish Government but any other interested party will have an opportunity, under the normal framework that we now apply, to see what is going on. It will be transparent to the Scottish Parliament as well.

I think that this is consistent with what the noble and learned Lord, Lord Davidson of Glen Clova, said. If I interpret coherence as opposed to unity in the correct way, I believe that the process is achievable through the approach that we now adopt to consultation. However, as I said in relation to the previous amendment, we can achieve that while not fettering the hand of the Government in how they go about consulting on and consenting to taxation changes that may impact on the wider UK tax landscape any more than it is fettered in respect of other aspects of UK taxation.

[Lord Forsyth of Drumlean]

I am afraid that I am not as convinced by the response to this amendment as I was by the response to the previous amendment, as this one is rather more far-reaching in its possible impact. Given what my noble friend said, and the Government’s view of the Scottish Parliament, I have no doubt that they might well be inclined to do this anyway. However, Governments come and go; it is important that the rules of the game should be clear.

One aspect of the Bill that is very striking is the number of powers that are given to the Treasury to bring forward regulations and changes that are not specified, are not clear and which in the other place were subject to comments from Ministers to the effect that there was a working group looking at this and something would be published in due course. I am not absolutely persuaded on the matter. I have every faith in my noble friend ensuring that there is consultation, but he did not quite deal with the question of why the consent of the Scottish Parliament should not be sought before using the powers. I hope that he will respond to that.

[Lord Sassoon]

I am not sure how much more I can do to help my noble friend on this point other than to repeat that we need to see that any changes that are made as a consequence of the introduction of the Scottish rate will fit within the wider UK income tax system. Therefore, in my view and that of the Government, this blanket provision goes a step too far. We are in favour of consultation but this provision would fetter the hand of the UK Government on matters that would impact on the wider tax architecture. Therefore, I believe that obtaining the consent of the Scottish Parliament is a step too far, although I completely accept the need to consult broadly.

[Lord Forsyth of Drumlean]

Perhaps I can help my noble friend. Perhaps I misunderstand the position but he speaks from the point of view of adjusting the rest of the tax system in the event of the impact of a Scottish tax. But what would happen if this was done the other way round? What would happen if the Treasury proposed to change the tax system in a way that would adversely affect the revenue base of the Scottish Parliament? As I understand it, as the Bill stands, there would be no requirement either to compensate it or to seek leave to do so. Perhaps I misunderstand what these powers enable the Treasury to do but that is my understanding. If so, surely it would be appropriate to seek the consent of the Scottish Parliament. Perhaps my noble friend is suggesting that that consultation would involve asking the Parliament and allowing the ability to ignore it. I can see a difficulty here. For example, suppose some new rule were to be introduced to provide substantial tax relief for particular categories—charities, pensions or some other relief. That could greatly reduce the tax base for the Scottish Parliament and, as far as I can see, there is no provision in the Bill to compensate it for that. There ought to be some basis on which the Parliament’s consent is sought.

I feel as if I have become a sort of advocate for devo-max on this, because I am making a case that might be made by one of the enthusiasts for devolution. However, I am doing that from the point of view that, if we are going to go down this track, we have to make it workable, and I am not sure that it is.

[Lord Sassoon]

Perhaps the difficulty here is that there is a broader principle underlying the matter raised by my noble friend that is completely fair but is not directly addressed by this technical provision. Ministers and Scottish government Ministers have agreed that there should be an underlying principle of no detriment. Now that I understand the matter, I can confirm to my noble friend that if there is a UK decision on income tax that impacts on receipts for the Scottish Government, they will be compensated. If that has teased out the important underlying point, I am happy to give that confirmation. My noble friend’s amendment, which would have a wider and different effect, is not the way to tackle this issue. However, I can reassure him that there is an agreement between Ministers and the Scottish Government that the no-detriment principle will apply, as it should do, along the lines he suggested.

[Lord Forsyth of Drumlean]

I am alarmed by that because my noble friend tells me that there is a no-detriment agreement, but there is nothing in the Bill that tells us that. Does it mean, for example, that if the Chancellor of the Exchequer were able to achieve his youthful ambitions and introduce a flat tax in the United Kingdom at, say, 25 per cent, the Scottish Parliament would be compensated for the loss of revenue that would arise? I do not understand what this no-detriment agreement means. Does it mean that if any change in the tax system resulted in a reduction of revenue in England, the Scottish Parliament would be compensated by sending it a cheque for the equivalent amount?

[Lord Sassoon]

My Lords, this is not something that has come out of the blue from my mention of it now. It has been quite clear from the start—in the Command Paper—that that principle should apply. I am merely articulating something that has been in the construct all along.

[Lord Forsyth of Drumlean]

It is reassuring to hear that, but can the Minister answer my point? Does it mean what I have just said?

[Lord Sassoon]

Perhaps it would help if I write to the noble Lord to make clear exactly how the principle is intended to operate before we get to the next stage of consideration of the Bill.

[Lord Forsyth of Drumlean]

I do not want to press my noble friend; I am happy for him to elucidate what the position is; but throughout this afternoon, his speeches have been peppered with the word “accountability” and how this is making the Scottish Parliament accountable. If the suggestion is that the Scottish Parliament get compensated for the effects of changes in the tax base in England by the English taxpayer, that is not accountability; that is subsidy. It is about maintaining the status quo.

My noble friend shakes his head. Perhaps I have got it wrong. I thought he was saying that if changes are made to the tax system in England which have the result of narrowing the tax base, the Scottish Parliament will be compensated by being sent a cheque. Is that not what he is saying?

[Lord Sassoon]

What I am saying, and why I disagree with my noble friend’s analysis, is that this is all about getting decisions about a certain part of the tax system to be made by the Scottish Government and the Scottish Parliament, and for the Scottish Government to be accountable to the Scottish Parliament and the Scottish people for a part of the tax system to have a clearer linkage between tax and spending in Scotland for the electorate and for the performance of the Scottish economy. Beyond that, there are certain areas where we want to ensure, as is only right and proper, that Scotland is not at risk of detriment because of decisions taken in interlinked parts of the tax system which disadvantage it.

[Lord Forsyth of Drumlean]

I hesitate to press this at this hour but, to give a real example, suppose that it is 2015. We are all enjoying paying these high Scottish taxes. There is a lower tax in England and the Government decide that they are going to introduce a far more generous scheme of tax relief on contributions to charity. Let us say that they make them wholly allowable and the result is that there is a reduction in the overall revenue available to the Scottish Parliament from the tax base on the Scottish income tax, because people are eligible for that. Of course, we are not yet clear whether that would apply to Scotland, but this power would enable the Treasury to implement a policy without any agreement of the Scottish Parliament and it would have a detrimental effect.

My noble friend appears to be saying that the answer to that is that they would be compensated for that, but there would be a transfer of resource from England to Scotland to compensate them for that change in the tax policy. Why would that be appropriate?

[Lord Sassoon]

My Lords, it has been a fundamental principle of devolution from the start that if a decision of one Administration impacts on another, the other Administration should be compensated. We are not doing anything different from the principle under which devolution has existed from the start. Yes, the tax base is shared, so if the UK changes allowances and thresholds, it is quite right that the effect of that should not fall to the detriment of the Scottish Government. As I said, that follows the general principle that applies across devolution spending, as it has from the start.

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[Lord Sassoon]

My understanding is that it is not a convention as defined.

[Lord Forsyth of Drumlean]

My Lords, this has been a very illuminating debate. I have to say to my noble friend that this principle is bonkers. It says that if a Government take people out of tax by raising the threshold because they think that will help with welfare policy and encourage people to go to work because of the effects of the why-work taper, they follow the example that was given by the noble Lord, Lord Kerr, or they cut the top rate of tax—would that they would in order to generate growth and get the economy moving again—Scotland gets a cheque and gets the benefit. So a Treasury Minister trying to find the money to raise thresholds does not just have to find the money to compensate for the loss of receipts but has to send a cheque to Scotland to compensate it. It makes “We’re all in this together” rather strange because we are not all in this together. There is a different rule.

It shows the paradox of this whole Scotland Bill. If anything, it almost makes me become a devo-max person. It almost makes me think that we should go for fiscal autonomy, because it is absolutely bonkers. It is saying that this is not about giving the Scottish Parliament tax-raising powers and accountability for what it does but about taking the block grant and pretending that it is a tax-raising power and, when the tax-raising power does not quite work because of changes in the tax system, topping it up. This is just about recreating the block grant, calling it a tax-raising power and dressing it up as accountability. That is what this principle means. I have studied this quite carefully, and I think that if this principle is to be applied, it is quite shocking that it is not in the Bill, because it is fundamental. It changes the whole architecture. Not many people follow this subject, but I do not believe that among them there is an understanding that changes in the position in England will be compensated for by expenditure north of the border, if, indeed, that is the position.

I would like to give an example from ancient times when I was in the Scottish Office. In England, water was privatised; in Scotland, it was not. The result was that there was no expenditure on water services because they were provided by private companies in England. The result was that the Barnett consequences did not come to Scotland. Under the ancien regime, we did not get an extra grant from the Treasury to compensate us for not doing what would have been the sensible thing, which was to privatise water services in Scotland. This is wholly new, although perhaps I am wrong.

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[Lord Forsyth of Drumlean]

I am most grateful for that very helpful intervention. I am glad that the noble Lord has a clear understanding of how this principle will be applied. However, I do not buy the argument that it is about the UK. Of course it is about the UK, but we still elect Members to the House of Commons from Scotland who are responsible for tax policy in the United Kingdom as a whole. If they support a Government who decide to cut taxes to create growth, they are accountable at the ballot box.

Let us take one of the recommendations of my tax reform commission—it has been abducted by the Liberal Democrat party—to raise the threshold for basic rate taxpayers. That is an example of something that would be compensated for. That is an example of a policy that is being applied across the United Kingdom. The threshold is being raised and it is very expensive. There is a substantial cost to it, and in order to achieve it other services are going to be less generously dealt with than they would otherwise be. Members of Parliament standing at a general election for the House of Commons are accountable for that. However, it is very odd indeed if it is argued that the Member for Stirling in the House of Commons is accountable for the policy that cuts the taxes, whereas the MSP for Stirling is not accountable because a cheque is sent north of the border to compensate for the consequences of this.

[Lord Sassoon]

Perhaps I might try again here. I do not think that my noble friend portrays it as it is going to be, and I am very grateful for the intervention of the noble Lord, Lord Browne of Ladyton. I am sorry that my noble friend portrays this as a great surprise. This was all discussed at length in the November 2010 Command Paper.

[Lord Forsyth of Drumlean]

That does not make it right.

[Lord Sassoon]

It does not make it right, but what we are discussing this afternoon is nothing new. This has been on the table for 15 months or however long it is, a good long length of time. The essential point that we have to understand is that there is going to be a permanent adjustment, as my noble friend knows, to the block grant for the move of the Scottish income tax to Scotland. The compensation that we are talking about is merely that if the basis on which the carve-out of income tax changes so that the relationship between the adjusted block grant and the income tax that Scotland expects to raise changes because of a subsequent decision, in effect we are saying that the permanent deduction needs to be adjusted because we have changed the income base from what it was expected to be, which seems entirely reasonable.

This is not the blank cheque that my noble friend is portraying it as: that the UK Government will be prepared to write whenever the income tax changes. The deal with Scotland is that there will be a one-off change to be worked on, as my noble friend knows. If the basis of that is subsequently changed because the UK Government change the base on which income tax is raised, it is perfectly right and proper that a compensating adjustment is made. It is as simple as that. It is not that there is a double whammy for the UK.

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[Lord Sassoon]

First, I shall repeat what I believe I said earlier. This adjustment would go two ways. We have talked about so many things as being a form of one-way traffic this afternoon, but that is not the case. However, we want to make sure that the Scottish Government are accountable for what they are responsible for under the construct in this Bill, which is the effects of their powers to set a Scottish rate of income tax. They are not accountable either for a windfall gain or a windfall loss—if you can have a windfall loss—resulting from things that are done by the UK Government subsequent to the setting of the block grant adjustment. If we set out a worked example of how this will operate, I would like to think that it will be made clearer.

[Lord Forsyth of Drumlean]

My Lords, that is probably a very sensible suggestion. We have had a useful debate, if for no other reason than that it has persuaded me that there is a stronger argument for fiscal autonomy than I had thought, although it is not one that I accept. I beg leave to withdraw the amendment.

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[Lord Forsyth of Drumlean]

My Lords, by way of explanation, I felt that we had done to death compensation for the Scottish Parliament, which is why I did not move the amendment which would require the bill for costs of collecting Scottish income tax to be sent to the Scottish Parliament. We can return to that later in the context of a debate to which we have yet to come.

Amendment 58A is similar in its impact to Amendment 58C. It would simply ensure that if the Scottish Parliament decides to set different rates of tax as part of the development land tax powers that are set out in the Bill under Clause 33, they should be applied uniformly throughout Scotland. They cannot be used to create different tax levels in different local authority areas. I do not know whether the Government were thinking that that might be the case, and that is why it is not made clear in the Bill that the rate should be applied uniformly, or whether the Government think that it is desirable. The purpose of the amendment is to tease out the Government’s view on this. I beg to move.

[Lord Sassoon]

My Lords, I will speak to both Amendments 58A and 58C, which have similar effects—namely that they would require the Scottish Parliament to set uniform rates across Scotland for taxes on land transactions and on disposals to landfill. My noble friend’s amendments would be an inappropriate restriction on the power of the Scottish Parliament in this area. The purpose of devolving tax powers is to transfer some of the responsibility for public funding services in Scotland to the Scottish Government. My noble friend says that he has been converted to devo-max, whatever that may be, and that he wants more of it. Here is a good example of where we are suggesting in the Bill more devolution than the noble Lord would like through his amendment.

Accepting as I do that we should wholeheartedly support improvements in the accountability of the Scottish Parliament to the people of Scotland, the devolution of stamp duty, land tax and landfill tax is very important. The Calman report estimated that these could yield the Scottish Government over £600 million a year, so it goes to the heart of the accountability issue. Also, a key premise of the Calman report is for the Scottish Parliament to be fully accountable for its devolved taxes, a principle which the Government support. To achieve this, the Scottish Parliament must be allowed the full power to vary the rate of the devolved taxes. It is for the Scottish Government and its Parliament to take decisions over the design of the taxes through consulting the Scottish people and passing its own legislation. Scottish Ministers may well decide to set uniform rates of tax on land transactions, or on disposals to landfill, across Scotland, but I suggest that that decision is for them and not for this House or this Parliament. I cannot see a strong argument—any argument—as to why we should interfere with the Scottish Parliament’s freedom to set its own taxes across Scotland as it sees fit, once there has been an agreement that a particular tax should be devolved. For that reason, I urge my noble friend to withdraw his amendment.

[Lord Forsyth of Drumlean]

When my noble friend says that the Scottish Parliament should not have to apply it uniformly throughout Scotland and thatit could be used in different areas, does he mean the Scottish Parliament, or does he mean local authorities?

[Lord Sassoon]

To be clear, my noble friend talked about different areas. I do not know how a rate may be changed, but it would not necessarily be changed on a geographical basis. There could be changes of rate based on other parameters which would not necessarily be geographic. The policy and the ability to deal with these taxes are entirely devolved to the Scottish Parliament and the Scottish Government. It is for them, on a national basis, to decide how they design the taxes from thereon.

[Lord Forsyth of Drumlean]

My Lords, I can see how the Calman commission had to scrape around to find taxes that the Scottish Parliament could be allowed to levy. As my noble friend has touched on the amendment which deals with landfill, I shall, if I may, speak to that issue at the same time to save the time of the House.

I do not really have a problem if the Scottish Parliament wants to set the tax on landfill or on development land. I do have a slight problem with my noble friend’s suggestion that it could be different in different parts of Scotland, which he is enunciating as a principle, without it being clear who would set it in different parts of Scotland and who would get the money. If it is proposed that it should be possible for the tax-raising power to be devolved still further to local government so that we could have differences in different areas, the Bill should spell that out and make clear who is responsible for collecting it and who gets the money.

I can see how the development land tax could be used to make it more difficult to develop particular areas; I can see how it could be used positively—perhaps by not having the tax at all—to encourage development in particular areas. However, on the landfill tax—and I am all for competition in taxes—the idea that you should combine raising the revenue with creating some kind of competition between local authorities is a little worrying, because, on the whole, people do not like having landfill sites next to them and local authorities like having sources of revenue. I would have thought that if one was planning where the landfill sites were going, and wanted to have a sensible allocation and availability of landfill sites, how and where the taxes were levied would be rather important. I would feel much more comfortable if this power was being exercised by the Scottish Parliament on a uniform basis. If that is not so, the Bill should indicate how it would operate and who would do it. Just by devolving the power and leaving it to the Scottish Parliament, we may be creating difficulties caused by the desirability of the revenue over the proper planning of landfill and development activity throughout Scotland. Perish the thought that political and other considerations might fall into this, but I am very nervous about the laissez-faire attitude that my noble friend is taking towards this tax.

[Lord Sassoon]

Laissez-faire can be a good thing or a bad thing. I suggest to my noble friend and to the Committee that we must treat Scotland more respectfully than this. As Calman recommended, these are two taxes that should be devolved. If it is right to devolve them, as the Government believe, in line with the Calman recommendations, my noble friend should not suggest that it is inappropriate for the Scottish Government and the Scottish Parliament to determine—whether on a regional or any other basis—how they levy them. I am sure that all the considerations about the design of the taxes which my noble friend mentions, which are perfectly proper and important, will be taken into account by the Scottish Government and the Scottish Parliament. In our proposing the devolution of these taxes, that is precisely what is intended.

[Lord Forsyth of Drumlean]

Perhaps I may ask my noble friend just one more question. Does he think that it might be a good idea to devolve both these taxes to local authorities in England?

[Lord Sassoon]

I am sure that my noble friend is not proposing that the Scottish Parliament should somehow devolve the taxes on to England. I merely say that it is a decision for the Scottish Parliament and the Scottish Government, just as the UK Government decide how the taxes should be handled in the UK. The Scottish Government and Parliament may decide that the design of these two taxes should be much as it is now—I do not know. It will be for them. If they have a good reason for doing it differently in the circumstances of Scotland, that is what devolution is all about. It is their responsibility; their accountability.

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[Lord Sassoon]

My Lords, I think I should allow the noble and learned Lord, Lord Davidson of Glen Clova, to continue; he seems to have made the points in a way that I could not hope to match. I suppose I should do more than say that I agree with everything that he said and sit down.

I do not want to reopen all the discussions that we had in the previous Committee session but it is important to recognise that, as the noble and learned Lord said, there is an appropriate series of checks on both sides before any power could be devolved under Clause 28. I remind my noble friend that a similar power exists under Section 30 of the Scotland Act. I see the noble Lord, Lord Sewel, nodding. A power already exists for the Scottish Government to request new powers, including on taxation, under Section 30 of the Scotland Act. Perhaps I should not have gone into this territory, but it provides important background to this matter.

My other point is that Scottish Ministers referred to the Section 30 power when seeking legislative responsibility for a whole range of things, from firearms to consumer protection. As noble Lords will know, in each case the Government rejected the requests made by the Scottish Government. As background to this discussion about air passenger duty, it is important to remind ourselves that there are proportionate powers under Clause 28.

[Lord Forsyth of Drumlean]

I have the Explanatory Notes to the Scotland Act here. They state:

“Section 30 … permits certain alterations to be made to the legislative competence of the Scottish Parliament but only with the agreement of both Parliaments”.

As I am sure my noble friend will agree, tax has always been dealt with entirely differently, not least in the exclusion of this House from consideration of tax matters since the 1911 Act. Tax is dealt with by a procedure under the Finance Act and is subject to a proper Committee stage on the Floor of the House of Commons. I believe that that is still the case. To suggest moving to a situation in which taxes can be introduced and imposed by orders—which are not amendable and which, traditionally, we do not vote against in this House—is to stretch the elastic to breaking point.

[Lord Sassoon]

I merely refer my noble friend to the arguments that I made on this point in our previous Committee session two weeks ago. I will not repeat them because it would take up too much of the Committee’s time to refute those points. It is important, as other noble Lords, including my noble friend, have said, to remind ourselves of the context in which specific taxes are referred to in the Bill. I certainly agree that, as the noble and learned Lord, Lord Davidson of Glen Clova, said, the reason not to take the issue of air passenger duty further at this time rests partly on the existence of the powers in Clause 28.

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[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—

[Lord Forsyth of Drumlean]

My Lords—

[Lord Wallace of Saltaire]

My Lords, it would be appropriate to allow the Minister to finish answering one point before the next one is made.

[Lord Sassoon]

I hope that I may finish. I merely wanted to remind noble Lords, as a background to this discussion of whether it is appropriate for this tax to be in the Bill at this time, that there is a power, which we debated extensively, that would enable air passenger duty to be devolved in due course, if appropriate. I also remind noble Lords that there are similar powers in Section 30 of the Scotland Act. Of course they are not exactly the same; they work in different ways. However, we are not going into uncharted territory. This is territory in which the Government have been requested to devolve powers—not tax powers, although they could have been requested, but powers in other important areas. The Government have consistently said no because they do not believe that the arguments for that have been made.

[Lord Forsyth of Drumlean]

Section 30 clearly does not provide for tax powers. But if my noble friend is correct and it does, then why does he need the powers contained in the Bill to implement the taxes?

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[Lord Sassoon]

I thought that the noble Lord, Lord Kilclooney, asked me two questions. I answered one; I was coming on to answer the second; although I know that he asked them in the other order. It is completely clear that there will indeed be a permanent adjustment to the block grant for any devolved tax, including, if it came about, APD. That is unequivocal.

We need to consider the full impact. The Bill contains powers in Clause 28 which would enable the Government and Parliament to devolve APD should they decide to in future. Although I fully agree with my noble friend about the importance of the recommendation for APD, I agree on this point with the noble and learned Lord, Lord Davidson of Glen Clova, that now is not the time to amend the Bill. APD can be looked at on its merits under the framework of the Bill in due time. I therefore again urge my noble friend to withdraw his amendment.

[Lord Forsyth of Drumlean]

My Lords, the St Augustine approach to the Calman commission is upon us. We have heard repeatedly that the Bill is to implement the Calman recommendations, which included devolving air passenger duty. Now we are being told by both Front Benches that the time is not right: “Oh Lord, make us have air passenger duty, but not yet”. The reason that the time is not right is that the Government are reviewing air passenger duty. We learnt from the noble Lord, Lord Kilclooney, that the Government are prepared to devolve it to Northern Ireland and that the Secretary of State is prepared to give it to Northern Ireland. We are told that it would be difficult to include it in the Bill because there could be all kinds of implications because of changes to air passenger duty. We already have differences between Scotland and England. My noble and learned friend Lord Wallace will know the answer to this question, but I am pretty certain that highlands and islands airports are exempt from air passenger duty.

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[Lord Sassoon]

Right. I had quite forgotten that we are on the aggregates levy. Let me answer my noble friend’s points. Yes, the Calman commission recommended the devolution of the aggregates levy and, as my noble friend knows, the Government agree with that recommendation. We are committed to devolving the aggregates levy to the Scottish Parliament but, to confirm what he said, we believe that that can and should be done only once the complex legal challenges against it in the European and UK courts have been fully resolved. The Government were clear about their position in the Command Paper for the Scotland Bill, and we remain firmly committed to it.

The position is still moving on the court challenge. The European General Court delivered its judgment in the case of British Aggregates Association v the Commission on 7 March this year. The judgment does not conclusively resolve the legal challenges. Appeals can still be brought against the judgment to the European General Court. Once the action in the European General Court has concluded, action in the UK Court of Appeal will resume. As we have discussed at considerable length, the Bill enables the Government to devolve taxes in future, and it means that devolving the aggregates levy after full resolution of the legal challenges can be achieved quickly. I am happy to say that my noble friend’s very extensive amendment technically broadly works. He is too modest. There would be one or two things to look at, but that is not the issue.

To make sure that things continue and we do not lose momentum on this, as a practical and necessary step to prepare for devolving the levy the independent Office for Budget Responsibility will start to provide forecasts of Scottish aggregates levy receipts from April 2012. The Treasury will also notionally assign these forecast receipts to the Scottish budget. Together with the tax powers in the Scotland Bill, this will allow for the speedy devolution of the levy when the legal challenges have been fully concluded. At that time, the order can be drawn up to reflect the position post the completion of the challenges.

I hope I have made it clear that the Government’s desire to devolve the levy as soon as is feasible continues. It is not feasible to do it while the legal challenges are ongoing. The Bill gives adequate powers for that devolution in future. I thank my noble friend for putting forward a carefully thought through amendment, but I ask him to withdraw it.

[Lord Forsyth of Drumlean]

My Lords, I am very puzzled by this. The Minister says that the amendment is competent. The Minister says that it was included in Calman. The Minister says that the Bill is about implementing the Calman proposals. The levy is certainly subject to a legal challenge. He did not explain why the fact that it is subject to a legal challenge precludes accepting my amendment and putting it in the Bill, and making that a devolved tax for the Scottish Parliament.

[Lord Sassoon]

I tried to make it clear that while we could draw up—as he has had a shot at drawing up—a technical solution within the framework of the levy as it exists now, and put through something in the form that he has proposed or a government amendment to do it, until we know whether it is premised on a legally sound basis it would be a waste of time to do so. We need to have a firm legal basis on which the levy exists before we can be sure of the proper basis to devolve it to Scotland. It is as simple as that.

I am surprised that he expresses such puzzlement. As I said, in the mean time we are doing all the practical things we can to make sure that when we have the legal green light, the devolution powers can be progressed as speedily as is appropriate.

[Lord Forsyth of Drumlean]

I am still a bit puzzled. Perhaps I do not understand it. Are the Government still collecting this levy?

[Lord Sassoon]

Yes, they are.

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[Lord Sassoon]

Let me make one last attempt at trying to help my noble friend as to why particularly the legal challenge means that it would be foolish and unsafe to try to draft an appropriate devolution mechanism now. As he may know, a central aspect of the challenges has been allegations of tax discrimination across borders. We do not know where it will come out and what the constraints may be, but since we might be doing something where borders would be relevant, we need to understand the legal ruling before we can construct a robust, devolved approach to this. It would be a ridiculous waste of our time and would make no sense to put up something if we thought that it would be immediately knocked down and that we would have to rewrite it in a year’s time.

[Lord Forsyth of Drumlean]

I have to say to my noble friend that at 7 pm on a Thursday night, after six hours of this Bill, to use an argument about wasting time is grave to say the least. The whole process that we are going through is in order to work out an appropriate Bill in terms of the Calman recommendations. If he is saying that if we make aggregates tax a devolved tax, although it might change as a result of changes arising from the legal challenge, I can just about get there, but when he says that it is about cross-border issues, presumably that refers to such issues between countries in the European Union and not within countries in the European Union. If we are now starting to say that we cannot devolve measures because of cross-border issues within the United Kingdom, are we not ceding a very important principle? He surely is not talking about the Scottish border in this context.

[Lord Sassoon]

I simply do not know where the courts will come out, but there are some constraints. As regards some of the amendments that my noble friend did not speak to, alcohol duties are one area where we are constrained by Europe, which says that there should be a uniform rate nationally. Therefore, there are other areas, although my noble friend might not like it. Alcohol duty is one area where there are precisely those constraints.

This illustrates why I do not think that it would be productive—there is a challenge, which is still not resolved and final—to base new legislation on an insecure foundation. In the mean time, as I have explained, we are operating the levy on a shadow basis, with the help of the Office for Budget Responsibility, so that we know what is attributable to Scotland from April 2012.

[Lord Forsyth of Drumlean]

That is to concede the point. If my noble friend is saying that the legal challenge might result in the Scottish Parliament not being able to have a higher or lower duty, should there have to be a uniform duty throughout the United Kingdom because of EU rules, that is not an argument for allowing the Scottish Parliament to have the revenue that arises from the aggregates levy. It is not just about setting the rate; it is also about having the revenue and broadening the tax base.

Perhaps the noble Lord is right. Who knows what the EU is capable of? The fact that we may end up with a uniform application, as in the case of alcohol duty, is not in itself a reason for not providing for this power in the Bill. If my noble friend’s concern is that the nature or the application of the tax may vary as a result of the legal case, and if he says to me, “Withdraw your amendment and I will come forward with a government amendment that provides for the aggregate levy but gives us the flexibility”, and my goodness, this Bill is bristling with examples, “for the Treasury to provide for it in secondary legislation”, that would be a much more desirable position—I know my noble friend hates it when we go back to this—than the general power to invent new taxes that is being justified on the basis of the Government’s inability, which I do not understand, to include in the Bill provisions that would allow for the aggregates levy and for air passenger duty. Can he help me with that?

[Lord Sassoon]

No, my Lords, I am afraid that I will not be able to help my noble friend. There is one subsidiary point on which perhaps I can do so. To be clear, I have said that it is a case against the Commission. For the avoidance of doubt, it is not that the UK is continuing to collect this levy on some inappropriate basis; it is just that the Commission is facing a case that may mean that the whole basis on which the levy system operates may have to change. I am afraid that I cannot give him any comfort on that. We shall draft the provisions as and when we have a safe basis on which to bring them forward.

[Lord Forsyth of Drumlean]

When my noble friend says that we will draft them when there is a safe basis on which they can come forward, I hope that by the time this Bill is given Royal Assent there will not be an open-ended power for him to come along and, by order, invent taxes that have not been subject to proper scrutiny as this aggregates tax would be, if he were to accept the amendment, by the House of Commons using the established procedures that we have always had for the consideration of tax.

There is one other question I want to ask my noble friend. Given the very strong line that he has taken on this matter—that it would be impossible to do so because of the legal challenge—and on the previous matter, the development land tax, which we have been told that it is not possible to put into the Bill, can I assume that this is no part of the negotiations that are going on with the Scottish Parliament to get legislative consent? I hope that the Government are not saying one thing to this House and another thing privately. Can he confirm that we are not going to be faced with this being delivered as the result of some deal, because of course that could not be done given the very firm line that my noble friend has taken on the impossibility of including those taxes in the Bill?

[Lord Sassoon]

My noble friend may have misunderstood me because I am sure that it would not be out of mischief, but I have never said that any of this is impossible. This Parliament can do whatever it wants in this area, but I have explained the practical and other reasons why it would be inappropriate at this time. I certainly do not want him to go away with the suggestion that any of this is impossible. It would just be wrong in the case of both of these taxes to proceed at this time for the reasons that I have set out at greater length than I thought I would have to, but I am happy to have had this debate.

[Lord Forsyth of Drumlean]

I am sorry that my noble friend is getting bored with this, but he has not actually answered my question. Let me put it in another way. Is he saying that if this House were minded to see the inclusion in the Bill of both these taxes—let us stick to the one we are on at the moment, the aggregates tax, although the development land tax had the support of those on both Benches—that whatever the strength of the arguments that are put, or even if this House were perhaps to vote in that direction, although that does not look particularly likely, he would resist it, but that it could be conceded as part of a negotiation with the Scottish Parliament in order to get its legislative consent, which is not required by statute? If he is saying that, that gives us considerable cause for concern, because what that says—and my noble friend talks about wasting time—is that it does not really matter what we say or do, or what arguments we advance.

In the end, what goes into the legislation will be determined by a backroom deal between Ministers and the First Minister on the basis of a legislative consent Motion that, right at the beginning of our debate, my noble friend refused to say would allow the Bill to go forward if it was accepted. It is a very simple question: will the line that my noble friend has given be held in the negotiations with the Scottish Parliament? It is a relevant question, because the committee that has looked at this wants it included in the Bill.

[Lord Sassoon]

I am struggling to see where this is going. The Government have said all along that we intend to devolve the aggregates levy. I think there was a slip somewhere, and perhaps I misheard, but the aggregates levy and the APD are the two taxes that we are talking about, for which it is inappropriate to bring forward measures at the moment. On the aggregates levy, we have been completely clear all along, so there is no question of any negotiation on this.

[Lord Forsyth of Drumlean]

Right. Well, on the basis of that undertaking, I am happy to beg leave to withdraw my amendment.

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[Lord Sassoon]

My Lords, first, it is a pity that the noble Lord, Lord Barnett, has not been able to join us this evening to discuss his eponymous formula. Nevertheless, we have had an interesting debate. I am afraid that, in the words of the noble Lord, Lord O’Neill of Clackmannan, I am probably going to take the feeble-argument way out of this, although he has given it a degree of respectability. I fully share the concerns about the formula that have been expressed in this House and in another place, but I think that this is the wrong time and place to be dealing with it. Perhaps I may explain a little more fully why I say that.

What is the Bill about? It is about increasing the accountability of the Scottish Parliament to its people by devolving fiscal powers from Whitehall to Holyrood. In this debate we have heard a number of Peers say that they would like much more to be devolved. I suppose that at the extreme end the noble Lord, Lord Foulkes of Cumnock, my noble friend Lord Caithness and others have pointed out the limits to the amount of devolution of tax powers and accountability that can take place. Nevertheless, I still contend that an important and significant step in the right direction is contained in the Bill and we should not minimise that.

Future decisions taken by Scottish Ministers will affect the overall level of funding for Scotland’s public services as they decide whether to increase or decrease devolved taxes relative to the UK. That happens whether or not there are any changes to the Barnett formula in the future. I think it is quite appropriate to link considerations of the Barnett formula with what we are discussing in the Bill. On the other hand, I argue that it is not necessary to reform the Barnett formula for the Bill that we are discussing to have real impact. I would not go as far as saying that reforming the Barnett formula is an entirely separate issue but I do not think that it is necessary in order to let the Bill have full effect. Incidentally, the Calman commission remarked on the Barnett formula but it made no recommendations in relation to it.

[Lord Forsyth of Drumlean]

I have been listening quite carefully to my noble friend’s argument and I see the logic of where he is coming from. It is this wretched Augustinian argument—the time is not right. My noble friend may not want to say this but if he thinks that the Barnett formula is unfair and will need to be dealt with at some stage in the future, would it not be much harder to deal with it then? At the moment, if you dealt with Barnett you could phase in the reduction in the grant that would follow. In circumstances when the Scottish Parliament has the power to raise income tax to make up the gap, it would be politically very much more difficult to deal with Barnett because people would be able to translate the reduction in Barnett into huge and geared increases in income tax. I wonder whether my noble friend will think about that and indicate whether he thinks that that may be a reason why it is better to proceed with funding and tax-varying powers in parallel.

[Lord Sassoon]

My Lords, I do not know whether it was an Augustinian argument but I was going to start by saying that the pace is not right rather than that the time is not right. However, we might come on to the time as well. I appreciate that the two things are much of a muchness. Let me continue with the reasoning.

First, as my noble friend knows full well, the current formula is an administrative procedure. It does not appear in legislation so it is not itself something that requires to be dealt with in legislation. More importantly —something that has been alluded to by one or two noble Lords—we need to have in the centre of our thinking that it is not specific to Scotland; it is a mechanism for allocating funding across all four countries of the UK. It would not be appropriate to legislate to alter the formula—a formula that is not in legislation anyway. If we were to legislate for something else, we could not do it in isolation for Scotland.

To reiterate, the Government understand the concerns that have been expressed in both Houses about the devolved funding arrangements. I say that loud and clear, I hope, to my noble friend Lord Lyell in particular. He gave examples of how other countries do it and sought reassurance that we have the matter under consideration. I certainly believe that it is a matter that will not and should not go away. My noble friend Lord Maclennan of Rogart also stressed the importance of this. Unlike some other noble Lords, he made the point that this is a United Kingdom and four-country matter. I agree with the noble Lord, Lord O’Neill of Clackmannan, that while we recognise the difficulties, the Government’s position—Augustinian or otherwise—is that at this time the priority has to be to reduce the deficit. I hear my noble friend loud and clear, and he would not expect to hear anything else from me. Any change to the current system and to the formula must await the stabilisation of the public finances.

Let us remember that the Bill does nothing to rule out or rule in reform of the formula in future, so we are doing nothing through this Bill to make it any more difficult to do it. I understand the logic of much of what my noble friend says but, as he would expect, I conclude that the Barnett formula is not the purpose of this Bill. It would not be appropriate to legislate for it in this more targeted piece of legislation, so I ask my noble friend to withdraw the amendment in his name and that of the noble Lord, Lord Barnett.

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[Lord Sassoon]

I am very glad that we have that clearly on the record. I did think at one point at the beginning of the remarks by the noble Lords, Lord O’Neill and Lord Foulkes, that I would be able to say that I agreed with everything they said. I agree with their conclusion that this amendment should be opposed or, I hope, withdrawn, but I certainly accept that we are probably not in full agreement.

While I am on my feet, it gives me the opportunity to say that the Calman report said that the Barnett formula should continue to be used as the basis for calculating the block grant so, for the avoidance of doubt, when I said there were no recommendations, there were no recommendations to deal with it along the lines proposed in the amendment. The report went on to say quite a lot of things because this was only recommendation 3.4, but perhaps I can end by asking my noble friend to withdraw his amendment.

[Lord Forsyth of Drumlean]

I am most grateful to my noble friend. The only sadness I have about this debate is that we did not have the noble Lord, Lord Barnett. We will clearly have to have another go at this when he can attend at a later stage in the Bill. My noble and learned friend Lord Wallace has lost his sense of humour—I was joking.

As I said, it is a shame that the noble Lord, Lord Barnett, was not here. We have had some interesting speeches. I have to say that I am not an authority on Calman. The report certainly says that, but I think it goes on to say that it should be reviewed. I think it was important to have this debate. I entirely accept that it does not have to be included in the Bill, but given that the Government are bringing forward this Bill, it was an opportunity to raise the important question of Barnett and the consequences of not addressing the issue now.

I thought that what my noble friend Lord Maclennan had to say was entirely sensible both because this is a United Kingdom issue, not a Scottish issue, and because there should be a commission. I think it was the noble Lord, Lord O’Neill—or was it someone else? I cannot remember—who said that there are endless commissions, that we had the Barnett commission that did not make much difference and that commissions come and go.

I think there is a misunderstanding. The Select Committee on Barnett recommended that a statutory commission along the lines of that in Australia should be set up with the job of working out the formula on a fair basis for the United Kingdom as a whole. I do not know, because he is not here, but I suspect that that is what the noble Lord, Lord Barnett, is referring to in his amendment. I agree with my noble friend Lord Maclennan that it would be sensible to get that work under way because the tax-raising powers are not going to happen until 2015.

I also agree with the noble Lord, Lord O’Neill, that this is probably not the moment to start unwinding the Barnett formula, but we would need to have a commission of that kind in order to move to a fairer system, and that work will take four or five years. The Select Committee of this House on the Barnett formula recommended that any changes, and they would be considerable, should be phased in over a very long period of 10 to 12 years. My anxiety is that as we move down this track and as it generates heat and anxiety in parts of the United Kingdom, it may be very much more difficult to do this in an orderly way that produces the minimum stress for the union and for our public services in Scotland. That is where I am coming from on this issue.

I have to say to my noble friend Lord Caithness, who seems to have joined the devo-max party of the noble Lord, Lord Foulkes, and wants to have more taxes, I have not seen his name on any of the amendments that have argued for an extension of the tax-raising powers of the Scottish Parliament: the aggregates levy, the air passenger duty and so on. Of course, this whole Bill as it is currently constituted in respect of the income tax powers is very narrow. It is only the product of 10p.

The noble Lord, Lord Foulkes, is trying to get me into his camp because I said that I was beginning to see the merits of the argument for fiscal autonomy. However, that was only in the context of what my noble friend was saying, which was that the Scottish Parliament will be compensated for any changes that are made in the tax base south of the border.

--- Later in debate ---

[Lord Forsyth of Drumlean]

I was going to say that I was once given the advice, which I believe is part of the Whips’ Office mantra among all parties: namely, that whatever you do, you should not listen to the debate because it might make you inclined not to take the Whip. The great thing about this House is that that does not work in quite this way here, so one carries on in the hope that the arguments move Ministers a little. However, my complete failure to persuade the Minister that it is necessary to change speed limits to cover HGV vehicles as well as cars makes me think that perhaps one is trying to push water uphill. Nevertheless, I will have another go on this amendment, which I think is rather important.

The amendment would help Scottish Ministers in the Scottish Parliament to carry over expenditure which they have not spent in any financial year. I could keep going for about half an hour with stories of local authorities that rush out and buy street furniture in February and sleeping policemen in March. We are all familiar with that practice. It is an old saw. Anybody who has been a Member of Parliament can recount endless examples of constituents who have pointed out how ridiculous it is. I believe that this amendment would be welcomed by Ministers in the Scottish Parliament. The arguments are well understood so I will not dwell on them. I live in hope that my noble friend might be listening and might offer me some comfort that on this occasion he can see the sense in allowing surpluses to be carried forward from one financial year to the next. That seems to me to encourage good planning, good use of resources and proper stewardship of public money. I beg to move.

[Lord Sassoon]

We might get through this one tonight.

[Lord Sassoon]

As I say, we might get through this one tonight. I well understand what my noble friend wants to achieve with this amendment. There are two aspects to this question: first, whether the amendment would achieve what he wants it to achieve; and, secondly, whether it would be a good thing to achieve it. If the intention is to allow the Scottish Government to carry forward unspent funds and spend them in the next year, this is not the mechanism with which to do it. The amendment would accumulate funds in the Scottish Consolidated Fund but would not permit the expenditure of those funds since they are controlled by departmental expenditure limits which would remain controlled as they are now. Therefore, the amendment would not achieve that objective. Furthermore, it would deprive the Exchequer of revenue. The direct cost to the Exchequer of this proposal is around £100 million per annum. If the principle was extended to the other devolved Administrations, it would cost a lot more.

I shall not debate the effect of the amendment further, unless my noble friend would like me to. However, I suggest that, whatever the merits of the case, this amendment would not achieve them because it does not get round the expenditure controls which are agreed on a departmental basis. It would merely lock up funds and worsen the borrowing and fiscal position of the UK, which I know my noble friend thinks we are probably too lax about already. Therefore, I ask him to withdraw the amendment.

[Lord Forsyth of Drumlean]

My Lords, I am perfectly content to accept that the amendment may not have been perfectly drafted, but I am not content with that response, because I was clearly advancing the principle that the Scottish Parliament should be able to carry forward surpluses. If my noble friend can perhaps deal with the issue of whether it is able to do that, and whether he favours it in principle, I should be very grateful.

[Lord Sassoon]

My Lords, we need to make sure that UK expenditure, including Scottish expenditure, continues to be controlled in a way that imposes appropriate disciplines. The purpose of the Bill is of course to give the Scottish Government more responsibility for a proportion of their tax-raising powers, and that is linked to the expenditure. However, the expenditure having been agreed, it is appropriate that money from taxation should continue to flow as it does now into the Consolidated Fund, subject to the current regime under the Scotland Act 1998, which permits the Treasury, after consultation with Scottish Ministers, to designate receipts that go to the Consolidated Fund.

The devolved Administration in Scotland is currently required to surrender receipts from fines, forfeitures, fixed penalties, dividends on public dividend capital and most interest collected by Scottish Ministers. So there is currently a provision to recognise the flow of funds between Scotland and the UK Consolidated Fund. At the moment, the vast majority of the income in question is derived from fines and fixed penalties, which the Office for National Statistics defines as analogous to taxes. That arrangement is consistent with the Government’s view that taxes that are not devolved should be collected centrally and then redistributed across the UK. We continue to believe that, with the exception of what is explicitly devolved, the revenue should flow into the Consolidated Fund and that expenditure controls should otherwise continue to be exercised on the current basis.

There are much wider questions to be asked about end-year flexibility in individual departmental expenditure in the rest of the UK, and there is certainly a debate to be had—it is well outside the scope of the Bill—on the appropriateness for all government departments across the UK to carry forward expenditure from one year to another. The Treasury rules on this have changed over the years. I cannot remember in which year it was, but health expenditure got out of hand in the latter stages of the previous Government. I cannot remember if it was when the noble Lord, Lord Browne, was Chief Secretary. The noble Lord is indicating that it was, so he will know very well the difficulties of any regime under which expenditure is carried forward.

I do not want to be dismissive of my noble friend’s point, because there is a real issue here.

--- Later in debate ---

[Lord Forsyth of Drumlean]

Again, I struggle to see the logic of the Government’s position. Throughout the course of today, we have heard how this is about increasing accountability and ensuring that the Scottish Government raise more of the resources that they need for the financial commitments they make.

I find it odd to compare the position of the Scottish Government after the Bill is fully implemented with a government department. We are not talking about a government department, although the Treasury appears to be treating them as if they were. If the Scottish Government decide to increase income tax by 5 per cent to fulfil some commitment to increase nursery education, or whatever, and if at the end of the financial year they find that they have been able to implement that policy in an efficient and effective way, I do not see why the Treasury should be able to claw back some of that money and why they should not be able to carry it forward to use in subsequent years. Why does the Treasury need to keep control of that matter? It already has control over the general macroeconomic position. It is controlling the borrowing. I do not see the issue. I can see how the high priests in the Treasury have brought down their tablets of stone and said, “We have always done it this way. Therefore we have to do that”, but it is the Minister and his colleagues who are proposing that revolutionary change to the financing of the Scottish Parliament.

My noble friend is absolutely right: the Treasury has thought about this and resisted it for years. That is why every year we see money being squandered and wasted at the end of the financial year to spend the budget because it gets clawed back otherwise. I fully accept that my amendment may not be the best way to achieve the right result, but I ask my noble friend to consider bringing forward his own amendment, which would be technically effective and allow for carryover from one financial year to another. I do not really understand why that should be a problem, given the model and how he has described the responsibilities of the Scottish Parliament.

There is a separate issue, which relates to revenues which go into the Consolidated Fund in Scotland and the issue of assigned revenues for particular things such as fines. It is too late to start a debate on that, but my noble friend has given me some ideas for later stages of the Bill. It does not seem such a foolish idea to me, if the purpose of the exercise is to make the Scottish Parliament more accountable for its actions by making more of its revenue arise from its policies in Scotland, to assign some of those revenues and reduce the block grant accordingly.

I can see that there might be difficulties. It might encourage people to impose fines more enthusiastically than would otherwise be the case, but in terms of the general philosophy—I am trying to tune into the Government's approach to devolution—it seems a bit of a contradiction that my noble friend is so resistant to provision for carryover. Entirely accepting that my amendment may not be well drafted, is my noble friend prepared to bring forward his own amendment allowing for some carryover by the Scottish Government if they wish it? That would encourage proper fiscal behaviour, which I should have thought that the Treasury would welcome.

Of course, what the Treasury cannot bear is losing control. You can see that throughout the Bill. The rhetoric is all about how we are making them accountable, but everywhere we read, “You cannot do this until the Treasury has agreed this, that and the other”. I appreciate that when he goes back to his department, my noble friend will be surrounded by the high priests of the orthodoxy of the Treasury telling him that this could not happen, but this is a great opportunity to set a new style of government in Scotland, and I should have thought that carryover would be widely welcomed. This practice certainly leads to the most common complaint made about all public bodies, not just in Scotland but throughout the United Kingdom, so perhaps I could have one more go at asking my noble friend whether he will go away and think about this. If nothing else, it would be an amusing discussion for him to have back in his department.

[Lord Sassoon]

As I have already explained to my noble friend, the Treasury—we have one former Chief Secretary here—has looked at and experimented with giving flexibility to departments and devolved Administrations, so it is a topic that comes and goes and will continue to be live. However, I cannot give my noble friend any particular cause for hope that some new orthodoxy will be handed down in relation to this Bill. Even if it were, as I said, I do not think that the mechanism that he suggests of tying up cash in a Scottish Consolidated Fund is the right one. It is a broader question about the flexibility that the Treasury allows departments. The Treasury is not closed in its thinking, because it has allowed carry-forwards on different conditions in the past and will continue to think about that.

[Lord Forsyth of Drumlean]

I shall not pursue this matter ad nauseam but I have to say to my noble friend, very politely, that Ministers are there to instruct their departments, not to reflect what their departments think and say. If my noble friend thinks that carryover for the Scottish Parliament is a bad idea, that is fair enough, but one would like to know why it is a bad idea and how it does not fit into the Government’s overall view of their approach to devolution. We have heard the argument that the Treasury has been innovative and has allowed this and that, but this Bill is supposed to be about freeing people from those constraints and making them accountable to their voters. I am a bit disappointed that my noble friend is simply telling me what the Treasury thinks. I want him to go back and change the thinking in the Treasury in order to ensure that I, as a taxpayer living in Scotland, now and in the future get better value from my money which is spent by the Scottish Parliament.

I can see that if I press on with this, my noble friend will just get up and say, “As I have already told you”. Therefore, if I may, I shall return to this at a later stage with an amendment that is more carefully drafted. I beg leave to withdraw the amendment.

Finance: Credit Rating Agencies

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 14th March 2012 Lords Chamber

[Lord Sassoon]

The noble Lord, Lord Giddens, has gone absolutely to the heart of the matter. Certainly your Lordships’ Committee, the Government and most commentators would like to see competition introduced, but that is extremely difficult, as the noble Lord knows. It is a highly concentrated industry and entry is difficult because it takes time to build up a track record. A number of steps need to be taken. As I have already said, the hardwiring of credit ratings needs to be taken out wherever possible from investor mandates and from legislation and regulation in many countries.

We need to improve the transparency and comparability of the ratings of the agencies and generally lower the regulatory barriers to entry. I believe that Europe has taken some steps, but it needs to take more. For example, under the new registration processes, 16 credit rating agencies are already registered in Europe and another 15 more have applied to be registered, so there are a lot more out there already than the three that get all the focus. As to rotation, it is actually part of one of the two rounds of European directives that have come in since the financial crisis that analysts need to be rotated within firms, which is probably the proportionate response.

[Lord Forsyth of Drumlean]

My Lords, will my noble friend indicate what view he thinks the credit agencies will take of the Government’s proposal to issue 100-year bonds. If these bonds are bought by the Bank of England as part of a quantitative easing process, what will be done to avoid the problem of the value of the bonds falling as interest rates rise and being eliminated by inflation over that period of time?

[Lord Sassoon]

My Lords, my noble friend conflates a number of interesting questions. The key point is that the UK is in a very strong position to look at ultra-long or perpetual bonds. We have historically very low rates of interest and significant investor demand, particularly from the domestic funds, for very long-dated gilts. In response to that situation, we think that it is right to consult the market, as my right honourable friend the Chancellor of the Exchequer has indicated we will do, and to see what it has to say, but we will not make any issue unless it represents good value for the taxpayer.

Scotland Bill

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Tuesday 28th February 2012 Lords Chamber

[Lord Sassoon]

My Lords, I will certainly not be drawn into speculation. I have already said that it must be in the Scottish Parliament’s interest to pass the legislative consent Motion in time for the Government and this House to consider possible amendments in response to anything it comes forward with, and, as I said, it could pass the Motion any day. However, beyond that there is nothing more useful that I can add.

[Lord Forsyth of Drumlean]

On the point of legislative consent, could my noble friend help me by explaining why we are proceeding with a Bill in the absence of a legislative consent Motion? If the Scottish Parliament decided not to pass it, we would all have been wasting our time.

[Lord Sassoon]

We have a Bill; it is important that we press on, and the legislative consent Motion could come at any time. This is idle speculation. It is important that the Motion gets passed, and we look forward to it, but it is in the hands of the Scottish Parliament. There is really nothing more I can usefully say. I certainly do not believe for one minute that we are wasting our time considering the important provisions in this Bill.

Let me move on to the question asked by the noble Baroness, Lady Liddell of Coatdyke, about the cost of all of this. The major cost will be to the systems that would support the tax changes and the possible new tax rate in Scotland. It is all set out in the impact assessment that is published alongside the Bill. However, for the Scottish rate of income tax, HMRC’s initial estimate is of £40 million to £45 million over a period of years up to the introduction in 2016-17. Clearly the final cost will be dependent on a number of decisions to be made at the implementation stage; and HMRC, HM Treasury, the Scotland Office, with the Scottish Government, will continue to work to determine the optimal implementation approach. The costs may vary in some way as those decisions are taken, but the indicative estimate at the moment is £40 million to £45 million.

--- Later in debate ---

[Lord Sassoon]

My Lords, we need the legislative consent Motion. I am not sure I can help my noble friend much further on this. As I have said, it is in the interests of the Scottish Government to get on with the legislative consent Motion if they want consideration of any possible amendments to be taken in this House. I am repeating myself, but that really is as far as it goes. I do not think that these are questions of precedence so much as of practicality. As I said just now, there are a number of matters on which the Scottish Government would wish the provisions of the Bill to go further, so it is in their interests to bring forward the Motion.

[Lord Forsyth of Drumlean]

I am grateful to my noble friend. So that we are clear about this, am I not right in saying that we do not need a legislative consent Motion? It may be that the courteous convention is that we take account of legislative consent, but that is a courtesy. This House is sovereign, and that is one of the reasons I asked my noble friend whether we were wasting our time. I was hoping that he would say that we are committed to this policy and that whether the Scottish Parliament passes the legislative consent Motion is not relevant. It would still become law and that is where we are or, alternatively, as part of our respect agenda we would not proceed without a legislative consent Motion. We seem to be in a rather fuzzy position where we are not really saying what our position is in respect of legislative consent, but when my noble friend said that we need a legislative consent Motion, that is clearly not correct.

[Lord Sassoon]

I am grateful to my noble friend for picking me up on that because the technical position is just as he states. However, in substance I stand by the remarks I made because just as we respect the conventions here, I would expect the Scottish Parliament and the Scottish Government to respect them as well, and we look forward to receiving the legislative consent Motion in due course and ahead of Third Reading. However, my noble friend has set out the constitutional position perfectly correctly.

[Lord Forsyth of Drumlean]

Perhaps I may add to that one other point that we will come to at a later stage in the Bill. There are clauses that deal with the issue of the referendum. The Scottish Parliament has set a date on its consultation period that falls after the likely date when Parliament will be prorogued, so it will not be possible to take account of the consultation process because of the timetable it has chosen.

[Lord Sassoon]

My Lords, I really cannot comment on the date for Prorogation. We will see it when it comes, so that is pure speculation. Perhaps I may get back to the clause, albeit that that is an important matter. I want to finish my response to the questions about implementation put by the noble Lord, Lord Browne of Ladyton. Earlier I touched briefly on his questions about the joint Exchequer committee, but to complete the picture in the context of this discussion, as I said, the committee met on 27 September. It was a useful first meeting, which agreed the principles relating to the mechanism for the block grant adjustment, as I think the noble Lord knows. It is important to stress again that discussions continue, outside the meetings of the joint Exchequer committee, on a bilateral basis on a range of issues across the Bill including the block grant. I repeat again that, although there are certain aspects on which we would like more progress and more focus, we are making good progress and I remain confident that we will agree on the measures set out in the Bill.

In conclusion, I believe that the provisions in Clause 29 are necessary and sensible as part of further tax devolution. I move that this clause stand part of the Bill.

Scotland Bill

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Tuesday 28th February 2012 Lords Chamber

[Lord Browne of Ladyton]

I am not saying that this is devo-max; I am saying that this is the Bill. The Bill is a very significant piece of legislation and a remarkable advance in the potential devolution in Scotland. However, as the noble Lord has pointed out, it is misunderstood and has not been properly explained. Broadly, it is not supported or championed in the observations of those who have brought it to this Parliament. More specifically, it has not been championed by the Prime Minister, who has suggested in fact that it is just a small step and that greater steps can be taken in future.

The people who drafted the Bill and are responsible for it may not have intended to do this, but they have given us the answer to the challenge for the future post the referendum on the issue of separation. They may not know that they have given us the answer but they have. Now they need to build the other part of the mechanism that allows this Parliament—the sovereign Parliament—to play its proper role in deciding what the criteria are in advance of specific proposals of the sort of devolution that can take place. In other ways, they should spell out, as Michael Moore did in his evidence to the Select Committee, the criteria that need to be applied and would need to be met before a tax—either a new one or a part of the United Kingdom’s existing taxation—could be devolved.

We need to amend the Bill to provide that mechanism. I believe that it can be provided by regulation, which is why the amendment has been drafted in the way that it has. At the risk of boring noble Lords, particularly the noble Lord, Lord Forsyth, I do not think it is an issue of principle, once we establish the principle, as we will by passing the Bill, that taxation can be devolved in this way to the Scottish Parliament. It is a mechanism to make sure that that is done properly and in a way in which the various parts of this deal take their proper responsibilities. That is the bit that we are missing because this Parliament is entitled to be confident that any devolved taxes will be used for the benefit of the Scottish people and the union. It is for this reason that we believe the Government have a duty to enshrine conditions to this effect in some form of legislation—regulations would be quite sufficient. This would provide a clear regulatory framework that can be approved by this Parliament and then used flexibly in the future in the context of a changing settlement between the United Kingdom Parliament and the Scottish Parliament —between the United Kingdom and the people of Scotland.

I say to the noble Lord, Lord Sassoon, whom I welcome to our Committee’s deliberations—I do not know how much previous experience he has had of Scottish political matters, but over the next few hours he is in for a crash course—that the Scottish Affairs Select Committee raised these issues in its report on the Bill almost a year ago today. I therefore hope that having had the benefit of a year to consider the matter further—and I am sure the noble Lord has been thinking of nothing else—at the very least he will be able to provide this House with some sort of detailed explanation of the mechanism and criteria to be applied on the use of this power. If he cannot do so, it would be helpful if he provided us with at least some hypothetical examples of taxes that could meet such criteria.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, one thing on which I think we are all agreed is that we are getting to the heart of the Bill. There is a range of views about how significant the changes are in Clause 28, but we all recognise the importance of what we are discussing.

The Government are quite clear that the Bill delivers substantial new powers to the Scottish Parliament—powers that have been included as a result of careful and detailed consideration. I want to focus on what is in the Bill, not on what hypothetically might be in it. The Government have been clear that any consideration of further powers to be devolved is for after a referendum on independence. Let us therefore concentrate for now on what we have in front of us.

I should also say at the outset that as an intruder from outside Scotland and a Briton from elsewhere, as the noble Lord, Lord Browne of Ladyton, suggested, my observation is that to date devolution in Scotland, of which the Bill is part of a continuing process, has been delivered as a result of lengthy discussion, analysis of evidence and cross-party consensus. That was how the settlement was delivered in 1997 and that is how the measures in the Bill have been developed. I am grateful for the noble Lord’s confirmation at the outset that he believes that the tax-raising powers granted in this clause are appropriate.

[Lord Forsyth of Drumlean]

The tax-creating powers in the Bill, as the noble Lord acknowledged, were not recommended by Calman. A phrase, “specified taxes”, was put in there to deal with the uncertainties over an aggregates tax. No one has been consulted or is aware—as far as I can see, and that is what my amendment relates to—that the Bill provides for the creation of completely new taxes. I do not know where that came from. It is certainly not part of the Calman recommendations and has not been subject to any extensive discussion or consultation. Indeed, my noble friend Lord Lang, the former Secretary of State for Scotland, said that he was not aware of the issue until he looked at the Bill in detail—and he is one of the best-informed people in Scotland on this matter.

[Lord Sassoon]

If my noble friend would bear with me, we will get to this point and to other points he has made. If he wishes to repeat the points he has made previously, he can do so ad nauseam. However, I say to him respectfully that we have got the point loud and clear, and I will come on to it. As the noble Lord, Lord Browne, pointed out, the genesis of this power is in Calman. It is a power that has been debated and approved of by committees in another place in this Parliament, as well as in the Scottish Parliament—but I will come back to that. My noble friend completely mischaracterises the debate so far over this power to create new taxes.

We are discussing a number of amendments to an important clause, and I should therefore make sure that we are clear about the architecture of it before I come back to the heart of the arguments. Clause 28 inserts new Sections 80A and 80B into the Scotland Act. New Section 80A provides an overview of the new taxation provisions. New Section 80B introduces a power to add new devolved taxes to those devolved by Clauses 33 and 35, and makes certain consequential provisions applicable to devolved taxes.

Amendment 51A, tabled by the noble Lord, Lord Sewel, would remove new Section 80B. The amendment of my noble friend Lord Forsyth of Drumlean seeks to remove devolved taxes altogether from the legislative competence of the Scottish Parliament, thereby preventing it from legislating on all tax matters besides local taxes. The amendment tabled by the noble Lord, Lord Browne of Ladyton, and the noble and learned Lord, Lord Davidson of Glen Clova, would provide approval of the criteria and procedures under which new taxes will be considered for devolution by this Parliament before the power could be used.

I propose to outline briefly why the financial aspects of the Bill introduced in new Section 80A, and which I stress my noble friend Lord Forsyth’s amendment seeks to remove, will raise the accountability of the Scottish Parliament and benefit both Scotland and the UK as a result. I very much note what my noble friend Lord Steel of Aikwood said about the importance of accountability. After I have dealt with those issues, I shall address in more detail new Section 80B, the subject of the amendment of the noble Lord, Lord Sewel, and the arrangements that we propose for the approval of new taxes—the subject of the amendment in the name of the noble Lord, Lord Browne, and on which he seeks assurances. That is a critical element of the construct to which other speakers in this debate did not give proper weight.

New Section 80A introduces the finance clauses in the Bill. It grants significant positive new powers to Scotland, and I should outline the measures in the clauses and why they represent such an important and beneficial step for both Scotland and the UK as a whole. The Scotland Act 1998 specifies that tax policy, aside from local taxes, is outside the Scottish Parliament’s legislative competence. The changes made by the Bill that are introduced in new Section 80A will amend the Scotland Act to enable the Scottish Parliament to legislate on certain devolved areas of tax policy. The changes will give the Scottish Parliament a real stake in Scottish economic performance because a significant proportion of the budget for public services in Scotland will come directly from taxes set and raised in Scotland. Some speakers have suggested that it would be appropriate to go much further, but we are taking a significant step here. It will enable the full devolution of stamp duty, land tax and landfill tax and enable the Scottish Parliament to legislate for a Scottish rate of income tax.

[Lord Sassoon]

If the noble Lord will forgive me, we are coming to income tax under the next clause. I am sure that we will come back to that extensively and properly later. This is the enabling clause that enables the setting of the Scottish rate as well as the focus of the amendment on the power of the Scottish Parliament, with the agreement of this Parliament, and subject to safeguards—to which I shall come—to introduce new taxes.

I hope that the Committee will agree with me and the Government that these changes will enable the Scottish Parliament and the Scottish Government to respond better to the evolving needs of Scottish society and the Scottish economy; and that they will increase the Scottish Parliament’s accountability, as its decisions on public services will be directly related to decisions on Scottish taxes.

I see that the noble Lord, Lord Foulkes of Cumnock, is nodding in agreement; I hope that that will continue right through this section of the Bill. No, he is saying that it will not; no doubt we will come back to football clubs and other matters later, but we agree so far.

Thirdly, these changes will bring decision-making over the issues that affect them closer to the Scottish people, which we believe is appropriate. New Section 80B will create the power for the Scottish Parliament to introduce new taxes, subject to the agreement of both Houses in this Parliament. The noble Lord, Lord Sewel, was quite right to draw attention to the approval process. He seems to want to draw it even more tightly but, on the other hand, he points out—partially in answer to my noble friend Lord Forsyth, who seems to think the approval process to be woefully inadequate—that the clause states that it must have the agreement of both Houses in Parliament, which is not necessarily the case with all taxes as it stands at the moment.

[Lord Forsyth of Drumlean]

On that point, perhaps my noble friend could deal with the argument here. If I may say so, he has put it as if it is not a major constitutional point. As a Member of the House of Commons, I was taught that the main purpose of the House of Commons was to vote means of supply; that is its main function. Therefore, the creation of new taxes is a matter which is dealt with thoroughly by primary legislation through a Finance Bill, which enjoys certain privileges. Those matters do not come to this House because this House has no part to play in matters of taxation, following the efforts of the previous Liberal Administration.

It seems to me to be a hugely novel concept that the House of Lords should be involved in approving the creation of a new tax. Can my noble friend explain why that is included in the Bill?

[Lord Sassoon]

My Lords, again, I will get there in the logical flow of the argument, if my noble friend will permit me. He does not make new points; I have them on board; I will try to address them, but I think we should go through the logical steps of exactly what the construct will be, because this is a critical question. I do not dismiss it.

Why is it so important? The power will enable the whole of an existing tax to be devolved and allows for the creation of a completely new devolved tax. That is clear. It is a power recommended by Calman but which the Government are not in a position to devolve at this time so, to that extent, it is necessary to implement Calman.

[Lord Sassoon]

Again, perhaps I may be permitted to go through the complete steps needed to introduce any new tax.

The Government believe that we have a proportionate and appropriate package. We need to take all the measures in the round. In this case, to address the specific question of the role of your Lordships' House—I will not be drawn into taking all the points out of order, but the question of the role of the House of Lords is important—it is because the power addresses the constitutional question of who should be able to set a tax, not the rate of the tax nor the structure. The question of the introduction of the new tax is indeed one in which this House should have a role, which is included in the Bill and the clause.

[Lord Forsyth of Drumlean]

I apologise for interrupting my noble friend again, but this is central. For the sake of argument, let us say that this power is used by the Scottish Parliament to introduce a mansion tax or a wealth tax. Is my noble friend saying that this House could consider and reject it and that that is practical politics? It seems to me that part of the 1911 settlement was that this House did not get involved in those matters. In a sense, I am here arguing for more power for the Scottish Parliament, not less, because I think that this has not been thought through.

[Lord Sassoon]

The answer is yes and yes to my noble friend. The introduction of new taxes is a constitutional change to the United Kingdom and a power which will be introduced. I will go through the steps one by one, because we have not debated them all fully so far this evening. One of the steps is for the order to be approved by both Houses of Parliament; the Government believe that to be appropriate. So that is a yes. There may be questions about whether orders can be amended and other questions, but emphatically it is our intention that the order to implement a new tax has to be approved in both Houses. That is clear. My noble friend may look surprised, but that is the case. I hope that that gives him significant comfort.

--- Later in debate ---

[Lord Forsyth of Drumlean]

Perhaps I may ask my noble friend to consider the politics of this, as opposed to what the rule book says. I suggest that we look at the difficulty that the Government have at the moment in deciding whether to legislate on a referendum. That is clearly a matter for Westminster and not for the Scottish Parliament but the Government are doing cartwheels trying to find a way to use Section 30 because they do not want to be seen to be dictating to Scotland. If the Scottish Parliament, with this power, decides to create completely new taxes—perhaps putting up the top rate of tax to 60 per cent or removing the exemption for unearned income or whatever—does my noble friend really think that it will be practical politics for this House or even the other place to say that that is not going to happen because under criterion 4C it will influence macroeconomic policy? That is not real politics. A genie is being let out of the bottle here and we should not deceive ourselves about how radical this is as a proposal. I hope that my noble friend will address this for what it is and not for how it is presented.

[Lord Sassoon]

My Lords, my noble friend’s examples concern changing the rates of existing taxes rather than new taxes. However, I think that it will work fine. With the process that has led up to these clauses in the Bill, Calman has looked at potential taxes for devolution. There has already been considerable discussion in Scotland and between Scotland and the UK Government. When it comes to the potential for new taxes to be added, I have explained the criteria which the UK Government have set down. On procedure, we are working closely with the Scottish Government to clarify the process that requests for new taxes will go through before they are brought before both Houses of Parliament. We have an administrative process to be agreed by the Joint Exchequer Committee, which brings together Ministers from both Governments. Therefore, I see a process here—

[Lord Sassoon]

Of course we await legislative consent, but there have been many detailed discussions; there have been the reports of committees in both Parliaments and the noble Lord knows perfectly well—better than I—where things stand. As to the question of what fits the criteria, I am not going to speculate about what future taxes might come forward, but one has the useful case study about the Scottish land transaction tax which fits the criteria very well. That points out precisely how other measures could come forward in future.

[Lord Forsyth of Drumlean]

The Minister said this is following Calman: it is not following Calman at all. As the noble Lord, Lord Browne, pointed out, Calman recommended a power to deal with specified taxes. Why is the Bill completely open-ended on the subject of new taxes? If there are particular taxes that would fall within the criteria, why not say what they are rather than leave it open-ended? My noble friend criticised me for giving an example of existing taxes; I could think of other examples. Suppose Mr Salmond invents a new tax on oil and gas landed in Scotland, for example. One could think of all kinds of taxes, but to present this as arising from Calman is completely wrong. Calman suggested a limited ability in respect of those taxes which it was not appropriate to do at the moment for various technical reasons. The two I would think of are air passenger duty, which is actually not included in the Bill, and the aggregates tax. This, however, is much, much broader and more far-reaching. Why are we going for such an open-ended position?

[Lord Sassoon]

My Lords, recommendation 3.3 of the Calman report states:

“The Scottish Parliament should be given a power to legislate with the agreement of the UK Parliament to introduce specified new taxes that apply across Scotland”.

In Calman, certain taxes were specified. In this Bill, we are building on that and building in a procedure which is proportionate and would require the agreement of both Parliaments in future to deal with specified taxes—taxes that might be specified in future. I have explained to the Committee what the criteria are. We have an amendment that sought to tease out what they are and I explained them. The critical one relates to the macroeconomic effect. It is entirely right that we take the Calman recommendation and think about how there might be new taxes to be specified in future. It is not some open-ended invitation for the Scottish Parliament to introduce things. There are very clear safeguards, including an appropriate parliamentary procedure in London.

--- Later in debate ---

[Lord Forsyth of Drumlean]

Will my noble friend allow me one more go, at the risk of tedious repetition? Would my noble friend be happy if he thought that this power to invent new taxes was not circumscribed by the criteria, which, as he says, are set out in a Command Paper, which of course can be altered, and which is not part of the legislation? If there were no criteria there at all, would he be happy? If I suspect that the answer to that question is no, does he not see that the political reality is that those criteria will matter not a jot in circumstances where this power is conferred on the Scottish Parliament? That is the nub of what is exercising people on both sides of the House.

I do not mean this in any patronising way, but my noble friend has had a very distinguished career in the Civil Service and in banking. All of us have got battle scars from Scottish politics and know how it operates. He should take the fact that we all agree on this as a clear signal that these criteria that he is hanging on to will not exist in real politics if he proceeds in the way that he plans.

[Lord Sassoon]

My Lords, while I am not steeped in as many years of Scottish politics, maybe the benefit of being a bit of an outsider and coming at this with fresh eyes means that I am able to observe a little of the history of this. Notwithstanding the attempt to say that tax proposals have not been brought forward in any way that has had discussion and consensus to date, including the ones that are the subject of this Bill, the history gives me confidence that this is a construct that will work. This is based on what we have seen in the devolution of powers to Scotland to date, and in the process that has led up to where we are with this Bill—which is not perfect and so other critical steps must be gone through. I do not see this obstacle that my noble friend is putting up. However, we will have to agree to differ on that.

Budget Deficit

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 15th February 2012 Lords Chamber

[Lord Sassoon]

My Lords, these are very difficult economic circumstances, in this country and globally. However, to give one example of where growth policies are coming through, there are 60,000 more people in employment than there were one quarter ago. That takes the total number in employment in this country to 29.13 million—a rise of more than 250,000 in the past 18 months. We must not play down the strength of the private sector in the UK economy.

[Lord Forsyth of Drumlean]

My Lords, will my noble friend confirm that the reason why we have a problem with growth is the huge level of public expenditure that the previous Government incurred at the height of the boom? Will he give the noble Lord a reality check and tell us how much more than our income we are spending this year, and by how much the debt will have increased by the end of this Parliament?

[Lord Sassoon]

I completely agree with my noble friend. The point is that we will balance the books only because doing so over the five-year period is a prudent way of doing it. By that point the debt will also have started to come down. That is the way that the Government will continue to do it.

Individual Savings Accounts: AIM Shares

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Tuesday 31st January 2012 Lords Chamber

[Lord Sassoon]

My Lords, the AIM market has been very successful, and I do not want to say anything to suggest that it is not. However, it is true that the number of shares on that market has come down from a peak of about 1,700 to the current figure of about 1,140, and of course there has been a similar decline in the value of the market. Therefore, it is a successful market but one that has a range of much smaller shares within it.

[Lord Forsyth of Drumlean]

My Lords, I should declare my interest as a director of an AIM-listed company. Is not the cost the real reason that my noble friend is not prepared to agree to this proposal? How is that consistent with the Government’s declared policy of wanting to encourage investment in small businesses and start-up companies in order to get the growth in our economy which is desperately needed?

[Lord Sassoon]

My Lords, first, I explained the reasons why the Government decided—as the previous Government rightly did—not to make AIM shares eligible. On the other hand, I am happy to summarise some of the measures to support small businesses that the Government are taking—for instance, credit easing, with up to £20 billion of lower-cost lending; £1 billion through the business finance partnership for mid-sized companies through non-bank lending channels; greater tax relief for EIS and VCT schemes; more than £500 million going into venture capital funds, including through business angel co-investment funds; and the extension of the enterprise finance guarantee. I could go on.

Eurozone Crisis

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Tuesday 17th January 2012 Lords Chamber

[Lord Sassoon]

My Lords, of course the FSA, in the course of its normal work, continually examines the exposure of the financial sector to a whole range of issues, including to the eurozone. The Europe-wide stress tests which were done, and done again, and finally done on a much better basis, looked at that matter last year.

[Lord Forsyth of Drumlean]

Will my noble friend confirm that in these contingency plans there is no question of the Government providing money for eurozone states to bail them out while the underlying problem of lack of competitiveness within the euro remains unresolved and unaddressed?

[Lord Sassoon]

My Lords, of course I can confirm to my noble friend that we work extremely hard to make sure that the competitiveness of the EU and the eurozone is not lost in the discussions. It is encouraging—they are only early signs, but they are encouraging—that in the Merkel-Sarkozy discussions on 10 January there was specific reference to growth-enhancing policies for prioritising EU spend towards growth and competitiveness. We look forward to the letter which I think they are likely to write to President Van Rompuy ahead of the next Council meeting.

EU: Member States’ Budgets

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Tuesday 29th November 2011 Lords Chamber

[Lord Sassoon]

My Lords, this is a fast-evolving set of proposals. Indeed, the euro area’s Finance Ministers are meeting later this afternoon. One of the issues on the table is that the Commission and the euro group are exploring the possibility of limited treaty changes, and Mr Van Rompuy is due to present the outcome of that work to the December European Council. When we see any proposals—if there are any—we will consider what we should do about them.

[Lord Forsyth of Drumlean]

My Lords, when looking at what is happening in Italy and Greece, is my noble friend not concerned that adding to a fiscal deficit problem a democratic deficit problem could result in considerable difficulties?

Economy: Monetary and Fiscal Policy

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Tuesday 8th November 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am sorry that the noble Lord, Lord Barnett, is not here, because we have not had anything from his quote book for quite a time. I offer the noble Lord, Lord Myners, this from another place on 23 November 1978, when the noble Lord, Lord Barnett, was asking for cross-party support on inflation. He said:

“I had hoped to have the support of the Opposition instead of the carping criticism that we receive constantly … We intend to make our counter-inflation policy work”.—[Official Report, Commons, 23/11/78; col. 1468.]

Well, as it was in 1978, it is now. We should let the Bank of England get on with it.

[Lord Forsyth of Drumlean]

My Lords, will my noble friend confirm that opinion polls show that a vast majority of voters believe that the deficit is the same as the debt? Can I suggest to him that, in order to get across the difficulties which the Government are facing because of the size of the debt, which is still growing, he should consider putting on the Treasury building a large screen that shows how the deficit is going up every day?

[Lord Sassoon]

The debt is going up. Far be it from me to criticise my noble friend, who quite rightly makes this point. If the deficit was running at the level that we inherited from the previous Government, of 11.1 per cent a year—the highest deficit level in our history—it would not take very many years before our debt got up to the level of the Italian and the Greek debt. That is why we will continue to keep our deficit policy on track and keep our interest rates low. I entirely agree with my noble friend that we must be reminded about the level of debt as well.

Economy: Capital Expenditure

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Tuesday 4th October 2011 Lords Chamber

[Lord Sassoon]

I very much agree with the noble Lord. That is why in the spending review last autumn we increased the amount of capital spend every year, up to £2.3 billion extra in the final year of the period. That is why we are spending £30 billion on transport—one of the most economically enhancing areas of spend and more than was spent in the previous four years. In the private sector, we are ruthlessly attacking the planning system that is so costly and so time-consuming when people want to put infrastructure in. That is why we are making sure that all the market structures, such as in energy, are conducive to the new infrastructure spend we need. That is why we are looking at the whole area of regulation around infrastructure, because I completely agree with him—70 per cent of the economic infrastructure is going to come from the private sector and we are working to make sure that that money flows.

[Lord Forsyth of Drumlean]

My Lords, would my noble friend like to think about terminology? Given that the deficit and the debt are two different things, should we not be talking more about the debt and less about the deficit? The deficit is simply the rate at which the debt is growing and I believe many people in the country think when we talk about cutting the deficit that we are reducing the country’s indebtedness, whereas all we are doing is reducing the rate at which it is growing. If people understood that, perhaps we would have fewer people arguing for additional public expenditure when we simply cannot afford the commitments we already have.

[Lord Sassoon]

I am grateful to my noble friend because the second of our two fiscal targets—namely, to put public sector net debt on a falling trajectory by 2015-16—is extremely important. He is quite right that we have to look at the total stock of debt and its trajectory as well as the deficit.

Independent Commission on Banking

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Monday 12th September 2011 Lords Chamber

[Lord Sassoon]

My Lords, I regret that I may fail to satisfy my noble friend Lord Higgins in my answers. On his first point about the design of the ring-fence, and whether there are loopholes, the commission has been quite clear in relation to one or two major structural elements of the ring-fence. It has recommended that discretion should be allowed to the banks as to whether the lending business to large industrial companies should be on one side of it or the other. That will be the first of a number of detailed issues that need to be looked at in the design work. I would not wish to pre-empt that work, other than noting that my noble friend’s question of loopholes and how they might come about will be, I am sure, very much in the minds of those doing the detailed work.

On the speed of implementation, I do think it is important—as it was with the Basel III work, and the European directive that flows with it—that the banking industry, taxpayers and all those who deal with the banks have a clear understanding of what the end position will be. There is a separate question as to what the appropriate implementation timetable will be. I am sure that the commissioners thought very carefully about this when they put forward the date of 2019. I repeat that—as my noble friend will know—it is the same date as the Basel implementation. I am sure they thought about that very hard.

[Lord Forsyth of Drumlean]

My Lords, I draw the House’s attention to my entry on the register as a director of MBNK, which is seeking to establish a new bank.

I congratulate my noble friend and the Chancellor on the way in which they have gripped this difficult subject, by appointing the Vickers commission, which has done an outstanding job. Some of us may not agree with all of the report, but it is a careful and sensible analysis. Some people have argued that this will damage the competitiveness of the City of London, but does my noble friend not agree that the City of London will benefit from having certainty? The fact that the Chancellor has the courage to take this on will help with the process and help our competitiveness.

I suggest that if my noble friend is thinking of giving a Christmas present to the noble Lord, Lord Davies of Oldham, he might buy him a copy of the right honourable Alistair Darling’s memoirs, in which he will find why it is not a good idea to look to the previous Government’s behaviour in this area. May I remind the House that it was the previous Government who gave Sir Fred Goodwin his knighthood for services to banking?

[Lord Sassoon]

I am very grateful to my noble friend Lord Forsyth for welcoming this report. It is a fine piece of work that has been done under a lot of time pressure. The commissioners have developed the analysis very considerably from their interim report, and I share my noble friend’s conclusion that by coming out now with these reforms to strengthen our banking system, we will place our banks and the City of London in an even better position to compete globally, as the Government want them to be able to do.

Monetary Policy Committee

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Monday 31st January 2011 Lords Chamber

[Lord Sassoon]

My Lords, I absolutely did not refer to the reduction in anyone’s living standards. Absolutely at the heart of the Government’s response to the situation that we inherited is the need to get growth back into the economy, and we need fairness as we do it. That is why the Government are taking steps to take almost 900,000 people out of the tax net this April; that is why, under the coalition Government’s plans, 23 million taxpayers will be up to £170 better off next year than they would otherwise be; that is why we are reducing corporation tax from 28 to 24 per cent with other measures to make sure that we get the economy growing again.

[Lord Forsyth of Drumlean]

My Lords, can the Minister confirm that the Government are nevertheless concerned about inflation? Does he recall the very wise words of the former Prime Minister the late Lord Callaghan, who reminded us in the 1970s that inflation is the father and mother of unemployment?

[Lord Sassoon]

My Lords, I absolutely agree with my noble friend that the Government are concerned about inflation. It eats into the savings of people who did all the right and prudent things through the last decade. We are concerned and are taking actions to make sure that the hard working and lower-income families in this country are protected in the current difficult economic circumstances.

Finance: Fiscal and Monetary Policy

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Tuesday 2nd November 2010 Lords Chamber

[Lord Sassoon]

My Lords, first, since the noble Lord, Lord Barnett, draws attention to the fact that we did have a strong third quarter of growth at 0.8 per cent, we should celebrate the fact that we have had a third consecutive quarter of growth. The recovery will no doubt be choppy, and I am sure that at certain points what happens will suddenly become our responsibility, not theirs. That aside, the responsibility of the Treasury official who attends the Monetary Policy Committee is essentially to bring to the attention of committee members matters of which they ought to be aware in coming to their independent conclusions on monetary policy judgments. That includes briefing them, for example, on the judgments that have been made in the Treasury’s Budget so that they can factor them into account in their deliberations.

[Lord Forsyth of Drumlean]

My Lords, has my noble friend seen the reports today on the mid-term elections in America, which state that President Obama's deficit reduction council is set to recommend that the best way to reduce the deficit is to cut the burden of taxation on the private sector in order to create wealth?

[Lord Sassoon]

My Lords, in the judgments that my right honourable friend the Chancellor of the Exchequer made about how to achieve the huge and very necessary consolidation of the fiscal position here, by the end of the consolidation period, 77 per cent of the burden will have been taken by expenditure cuts and only 23 per cent by taxation, because it is precisely by not raising taxes and choking off growth that we will get the economy growing again in a balanced way. I am grateful to my noble friend for bringing our attention to that matter.

Taxation: Deficit Reduction

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Thursday 28th October 2010 Lords Chamber

[Lord Sassoon]

My Lords, as compared with the Labour Government’s plans, an awful lot of things have changed. The first is that we have a credible deficit reduction plan. We have yet to hear the Opposition’s plans on that. There will be a reduction in public spending of £81 billion by 2014-15, but, critically, we need growth, and so 77 per cent of the deficit reduction plan will come out of a reduction in spending. We absolutely want to keep the pain of increased taxation to a minimum. That is why it is absolutely critical and right that our taxation plans aim for lower revenue than do the Opposition, because that is what is required to get growth in the economy going.

[Lord Forsyth of Drumlean]

My Lords, will my noble friend confirm—as I think the noble Lord, Lord Myners, did before the election—that the actual revenue from increasing the top marginal rate of tax to 50 per cent is very much less than was anticipated? Is that the case? Will he also confirm that the lesson of the 1980s, and of the experience of other countries around the world, is that if you want the rich to pay more in taxes, you do that by cutting rates, not increasing them?

[Lord Sassoon]

I am very grateful to my noble friend. I completely agree with his sentiments. This is not a Government who believe in medium and long-term high marginal rates of taxation. We have to incentivise the private sector to go out and generate wealth in order to deal, among other things, with the rebalancing of the economy which is now so necessary.

Public Expenditure: Value for Money

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Tuesday 26th October 2010 Lords Chamber

[Lord Forsyth of Drumlean]

My Lords, on the subject of value for money, can the Minister tell us what his or the Treasury’s estimate is of the difference in value for money obtained when an individual spends a pound according to their own judgment and when that pound is spent by Government when it has been taken from them in taxation?

[Lord Sassoon]

My Lords, the assessment cannot be done exactly in that way—but when it comes to procuring large public projects and it costs more to cancel the project than it does to complete it, that is not the sort of behaviour that most people would indulge in when spending their own money. I absolutely take my noble friend’s point that there is far too much waste in procurement in government expenditure, inherited from the previous Government, and that is not the sort of thing that any of us would do when managing our own budgets.

Housing: Shared Ownership

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Monday 25th October 2010 Lords Chamber

[Lord Sassoon]

Well, my Lords, the FSA, and what my noble friend has reported it as saying, must stand for themselves. I cannot directly answer for the FSA. However, my clear understanding is that the source book offers guidance on the way that the FSA undertakes its regulation and does not consist of formal rules. Indeed, for those societies with advanced risk management systems, there is not even an indicative limit on the level of shared ownership in which they can engage. As I understand it, building societies can lend within their statutory limits. They can undertake any lending up to their statutory limits provided they have appropriate controls in place.

[Lord Forsyth of Drumlean]

My Lords, given that the sub-prime crisis in the United States was caused in the first place by government interference requiring lenders to lend money in an unsafe way, should we not be very wary about interfering in the lending decisions of building societies or others, however important the social issues are?

[Lord Sassoon]

My Lords, the Government want to have a sustainable mortgage market in this country, and that requires a balance in maintaining a flow of mortgages so that people can get on to the housing ladder. In that regard, the actions which the Government have taken to ensure that market interest rates are kept low are paramount. On the other hand, we want to ensure that mortgage providers lend responsibly. That is why the Financial Services Authority is conducting a mortgage market review and why in July it issued a responsible lending paper for consultation.

Comprehensive Spending Review

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 20th October 2010 Lords Chamber

[Lord Sassoon]

We need to look at it in the overall context of what the Government have done for elderly people, because this is important. The critical decision is that the Government, as announced before, will meet their commitment to uprate the basic state pension by whichever is the highest—earnings, prices or 2.5 per cent—from April 2011, as well as preserving other key pensioner benefits, which people have questioned, including the winter fuel payments, the free TV licences, the bus travel, the eye tests and the prescriptions. I am grateful for the question on the detail but I think that it gives me the opportunity to emphasise the overall deal for pensioners, which we think is important in this spending review.

[Lord Forsyth of Drumlean]

I congratulate my noble friend and the Chancellor on the excellent Statement, which shows great courage as well as great care in taking forward the mess that we inherited from the previous Government. The previous occupier of his office—the noble Lord, Lord Myners—was almost certainly correct when he assured this House that we would end up making a profit and getting our money back from the bank bailouts. Given that, should we not make it absolutely clear to the country that we have had to take these measures, which Members opposite are complaining about, because for years Mr Gordon Brown as Chancellor and Prime Minister made this country live beyond its means and was borrowing at the height of the boom; and that, despite these measures, our debt as a nation will increase? Could my noble friend tell me how much our national debt will have increased by, despite these measures, by the end of this Parliament? Given that number, how on earth can we take seriously Members opposite who are criticising what is a responsible programme from my noble friends and from our coalition partners?

[Lord Sassoon]

My Lords, I think I would probably faint at this moment if I even mentioned the debt number. The critical thing is that the debt will peak and we will bring it down, as we said we would, within this spending review. I am grateful to my noble friend for stressing that it has indeed been a courageous and careful exercise that is enabling us to make sure that the debt tops out and starts to come down within the spending review period. He reminds us that a twin failure of the previous Government caused the mess that we are in: first, as my noble friend points out, the great increase in public expenditure that we could not afford; and, secondly, the complete failure to regulate our banking system properly, which caused the whole house of cards to come down. I can give my noble friend the numbers on the public sector net debt, which will go up from 53.5 per cent of GDP in 2009-10 to a staggering 70.3 per cent in 2013-14 before we bring it down to 69.4 and 67.4 per cent by 2015-16 thanks to the measures that this Government have announced today.

Taxation: Avoidance

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 20th October 2010 Lords Chamber

[Lord Sassoon]

My Lords, it may be helpful if I make it clear that the £900 million of additional money that HMRC will have to use is principally to tackle tax evasion. We are talking about avoidance this afternoon, but the £7 billion will principally be from money that is not avoided but evaded.

[Lord Forsyth of Drumlean]

My Lords, would my noble friend not agree that how we use language is important? There is a big difference between tax evasion and tax avoidance. After all, everyone with an ISA is involved in tax avoidance. It is extremely important that we make clear the distinction between that which is legal and that which is illegal.

[Lord Sassoon]

My Lords, I am grateful to my noble friend, who has made the position absolutely clear. Minimising tax payments is perfectly reasonable. Where it gets into the avoidance on which HMRC needs to focus is where people have minimised their tax payments in a way that HMRC believes to be contrary to the way in which Parliament intended the tax laws to operate.

Taxation: Income Tax

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Monday 11th October 2010 Lords Chamber

[Lord Sassoon]

My Lords, it is worth reminding ourselves that the great majority of PAYE self-assessments are done online—by 75 per cent of people who are self-assessed. For that largest group of taxpayers, repayments are in the ordinary course made as soon as two to three working days from filing, although there may be a slight delay in the peak in the year around 31 January. For the sort of exercise we are talking about, repayments are normally made within seven working days. That is indeed the thing to focus on rather more than the precise rate of interest.

[Lord Forsyth of Drumlean]

My Lords, what is the total amount which is owed to the Inland Revenue in unpaid tax which is now due?

[Lord Sassoon]

The amount of tax which is now due under this reconciliation exercise is some £2 billion from 1.4 million taxpayers, although, as I said, all amounts under £300 individually, which is for about 900,000 taxpayers, will be written off.

Economy: Eurozone

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Monday 21st June 2010 Lords Chamber

[Lord Sassoon]

My Lords, I can give an assurance that any request to submit the UK Budget to Europe will not be completed until the Budget has been submitted to and approved by the UK Parliament.

[Lord Forsyth of Drumlean]

My Lords, does my noble friend agree that we want to see growth in Europe and businesses growing, expanding and being given the opportunity to borrow money from the banks? Is it therefore a sensible time to think about taxing the banks and reducing their ability to make that money available?

[Lord Sassoon]

My Lords, I think that we will probably come back to the question of bank levies tomorrow after my right honourable friend the Chancellor of the Exchequer’s Budget. He has made it completely clear that the UK supports bank levies. We will take unilateral action, but we want to seek international agreement to make sure that the bank levies are, as far as possible, introduced on a common basis.

Individual Savings Accounts

Debate between Lord Forsyth of Drumlean and Lord Sassoon

Wednesday 9th June 2010 Lords Chamber

[Lord Sassoon]

I thank the noble Lord for his question and I was wondering when we would get some more of the candour shown in yesterday’s remarks. I know that the question of capital gains tax is of interest to many noble Lords. The coalition Government believe that the tax system needs to be reformed to make it fairer and simpler, and that is why we will increase the personal allowance for income tax to help lower and middle income earners. To fund this, we are carefully considering the various options for taxing non-business capital gains at rates closer to those applied to income while ensuring that there are generous exemptions for entrepreneurial business activities. Reforming CGT will ensure that those seeking to avoid paying income tax by converting their income into a capital gain will pay their fair share of tax. Further details on the coalition Government’s proposals will be provided at the Budget.

[Lord Forsyth of Drumlean]

My Lords, in welcoming my noble friend to his new position, could I ask him to look at this again? The noble Lord, Lord Myners, indicated in the last Parliament that this issue was the subject of a review and that we might get a response in due course. How long is “in due course”? Does not my noble friend agree that small and medium-sized businesses are the key to expanding prosperity and jobs in our country? Making this small change—which as the noble Lord said is an anomaly—will open up the possibility of investors being able to invest, and being “all in this together”, to create a recovery in our country. Surely we need a response.

[Lord Sassoon]

First, I regret that I cannot say why the previous Government made no progress on their promised consultation. As I have said before, the new Government, who have not been in office for very long, are considering this question and we will set out their approach in due course. In the mean time, I stress that we welcome the views of interested parties. I should also stress that we are looking at a whole range of issues related to SME financing, which I agree is an extraordinarily important matter. The range of issues relates as much to bank lending and keeping the flow of credit going as it does to raising equity.