Scotland Bill

Debate between Lord O'Neill of Clackmannan and Lord Sassoon

Thursday 15th March 2012 Lords Chamber

[Lord O'Neill of Clackmannan]

The Minister has not addressed the interface of tax and benefit. Tax credits perhaps give rise to some of the most complicated questions. Speaking as a former Member of Parliament, I am aware of the issues that arise when there is the slightest adjustment to the income of some of the poorest people in our community. It would be remiss of us not to address that aspect of taxation being imposed at different rates on different sides of the border.

[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 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.

--- Later in debate ---

[Lord O'Neill of Clackmannan]

If the Minister is discussing air passenger duty then it is surely incumbent on him to try to put it in another context apart from the rather narrow one of revenue-raising, namely its impact on the provision of transport. Transport is a devolved responsibility, but sometimes that devolved responsibility seems a moveable feast. We talk about a high-speed train and claims are made that it should start in either Edinburgh or Glasgow, or at least finish in one, but there is no clear indication of who will fund it. But let us face the fact that regardless of whether the funding comes out of a block grant or a form of increased air passenger duty, a fast train would largely eliminate the need for Edinburgh-to-London or Glasgow-to-London air journeys. However, that would be the case only within the United Kingdom. The paradox is that were we to have the power to reduce airport duty, we might well have a situation in which transatlantic travel from Edinburgh or Glasgow is a more attractive option than travelling from Manchester and London, which are currently the main—almost oligopolistic—providers of transport across the Atlantic.

It is therefore incumbent on the Minister to get away from this narrow tax-raising, shopkeeper approach. This is a matter of greater significance to Scotland, given the devolved powers. The Government must consider this issue rather more seriously than their current, somewhat blinkered approach would suggest. Although I realise that the noble Lord, Lord Forsyth, has framed the issue in the context of taxation, it has implications which make taxation itself not a sufficient context in which to consider it. It has to be done on a broader basis. I would therefore be grateful if the Minister considered it in his response.

[Lord Sassoon]

Before this stream of questions and interventions I made precisely the point that, in response to the consultation, arguments were raised pro and against the devolution of APD on grounds relating to distinct economic and social conditions—indeed, those were the points that I was addressing rather than revenue-raising points. I am slightly surprised at the noble Lord’s intervention on this. I completely agree with him that APD has all these potential effects. Some of the effects that he suggested go very wide, but I agree that this is complicated and the economic and social issues are relevant.

[Lord O'Neill of Clackmannan]

My Lords—

[Lord Sassoon]

Forgive me if I do not give way to the noble Lord immediately. His last intervention was rather long and I had already covered the point. May I carry on with the argument?

[Lord O'Neill of Clackmannan]

We have spent 30 minutes on this amendment, and that is not unduly long.

[Lord Sassoon]

I would suggest that it is really very long for this amendment. The previous intervention from the noble Lord asked me to address points that I had precisely addressed: the non-tax-raising issues indeed include important issues related to APD. Those were the issues that, among others, came up in response to the consultation. That is why, in the response to the consultation published last December, we continued to explore the feasibility and likely effects of devolution of APD to Scotland—for the very reasons, among others, that the noble Lord sets out. That is what we will do.

I should like to think that not only the noble Lord, Lord O’Neill, but other noble Lords would recognise that it would be inappropriate for the Government to devolve APD until we have considered the impact of the proposals fully from both the Scottish and the UK perspectives. In this connection, I say to the noble Lord, Lord Kilclooney, that a particular consideration applies in Northern Ireland because of the land connection in Ireland and competition on flights of a different nature, which is why a particular stance was taken on Northern Ireland.

--- Later in debate ---

[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.

[Lord O'Neill of Clackmannan]

I am a wee bit suspicious of Conservative government Ministers when they tell me that they agree with me. I want to make it perfectly clear that I do not criticise the Barnett formula in respect of any aspect of deficit reduction, because I consider that we have reduced too much too fast. I would be in favour of the reallocation of resource within the United Kingdom and the reallocation of resource within Scotland, because the priorities of the Scottish Government are wrong at this time. I may agree with the Minister on this Augustinian position, but not on any other aspect of his analysis of the economic situation.

Fraud: Staffing Levels

Debate between Lord O'Neill of Clackmannan and Lord Sassoon

Monday 9th May 2011 Lords Chamber

[Lord Sassoon]

My Lords, this is an extraordinarily difficult area. As my noble friend says, the level of tax fraud and uncollected tax receipts is extraordinarily large. That is precisely why, within a tight settlement for HMRC and every other department, HMRC has been allocated an additional £900 million over the spending review period. That will take up the number of full-time equivalent staff dealing with fraud and other tax avoidance matters from 20,000 at present to some 23,000 by 2014-15. That adjustment has already been planned for. As far as the SFO is concerned, we are clearly not talking about remotely the same order of magnitude of numbers of people, as that body has fewer than 400 people. The new management of the SFO has taken enormous strides since 2008, when the management changed. For example, the average time taken over its investigations has dropped from an average of five years on pre-2008 cases to some 15 months on newer cases, and the conviction rate has significantly increased, so the SFO is very much showing how it has become more effective with less resource.

[Lord O'Neill of Clackmannan]

Is the Minister satisfied by the resources that were made available for the investigation into the Phoenix four—the people involved in the so-called saving of Rover—which has resulted in no criminal charges being made, and literally a slap on the wrist being given to the directors who behaved so scandalously and betrayed the trust of so many people in Longbridge?

[Lord Sassoon]

My Lords, I will not be drawn into second-guessing decisions taken by the investigating authorities on any cases. However, I have heard absolutely no suggestion that the investigations in that case were in any way circumscribed by a lack of resource.