Scotland Act 2016

Debate between Lord Purvis of Tweed and Lord Dunlop

Wednesday 20th April 2016 Lords Chamber

[Lord Dunlop]

I very much agree with my noble friend. The people of Scotland voted very clearly and decisively in 2014 to remain part of the United Kingdom, and at the time Nicola Sturgeon, now First Minister of Scotland, said that this was a “once in a generation” issue. It is incumbent on the SNP to respect the decision that the people of Scotland took and to focus on jobs, prosperity and high-quality public services in Scotland.

[Lord Purvis of Tweed (LD)]

The Scotland Act transfers very considerable income tax powers across all bands to the Scottish Parliament. Is the noble Lord aware that the Scottish National Party has now abandoned its long-held policy to restore the 50p additional rate because it anticipates that 7% of additional ratepayers in Scotland would configure their tax affairs to avoid paying taxation in Scotland? What are the Government doing to ensure that there is no prospect of tax avoidance within the UK?

[Lord Dunlop]

HMRC is very focused on tax avoidance. The passage of the Scotland Act 2016 has meant that the debate that is going on for the Holyrood elections is about not what new powers should come to Scotland but how those powers are used. Tax is absolutely central to that, and that is a good and healthy development of the debate in Scotland.

Scotland Bill

Debate between Lord Purvis of Tweed and Lord Dunlop

Monday 22nd February 2016 Lords Chamber

[Lord Purvis of Tweed (LD)]

My Lords, I add support to my noble and learned friend Lord Wallace of Tankerness’s amendment in this regard. It was Baldwin who said that democracy was government by explanation but, as we discussed in the previous debate, there has not been much explanation of the development of the fiscal agreement. We need to ensure that when it comes to two broadly competing interests—the Scottish Government and the UK Treasury—there are mechanisms for the agreements and their operation to be reviewed in future.

I was a member of the finance committee in Holyrood for five years when it did not have the role of scrutinising the revenue powers of the Scottish Parliament, and I think it will be a positive thing for it to have those powers. In many regards, though, the processes that exist in Holyrood are not fit for the purpose of the powers that are coming its way. The operation of this power, especially and most importantly in the first five years of operation, will therefore be critical. That is why the amendment is of value.

Of course, I agree with the noble Earl about the benefit of building longer-term structures; my party has proposed one potential option for that, which is what the Canadians would recognise as a federal fiscal commission. When there has been a protracted process of discussions between the Scottish Government and the Treasury, not wholly because of a difference in fiscal policy or a different approach to budgetary discipline but because of a political imperative, that is not going to disappear once agreement has been reached. Indeed, it may be compounded once it is in operation, given the difficult situations that may arise.

This afternoon we have all been reading at pace from the Chief Secretary’s letter, and I think we have all registered with the Minister our complaint that we should not be having to do that as well as discussing the relevant legislation. However, the recommendation to take forward the Scottish Fiscal Commission into a more independent body is worth while, and I would be interested to hear what the Scottish Government’s position is. The problem is that it has already been legislated for in Holyrood, and we will be asking the Scottish Parliament to go back on what it has just agreed to establish a structure that this Parliament will perhaps argue is not fit for purpose. It makes for an interesting dynamic that the SNP chair of the Scottish Affairs Select Committee is proposing this to the SNP chair of the Holyrood committee, which has a different view on this, but that is for them to resolve and we will be interested in their conclusion. Ultimately, as has been referred to before, the experience of the referendum is that the people are asked to believe figures and facts that are put forward by one Government and those that are put forward by a competing one. That puts civil society and the public in an invidious position. If we are locking this into a long-term approach, that does not bode well for the future.

My final comment is that I know it has been hard to separate the politics from the constitutional practice in this. It has been very hard for those who argue for independence, because this is the final aspect of their arguments. They have lost their argument through the people of Scotland voting for Scotland to stay part of the UK, and in many respects they have lost the argument for full fiscal autonomy. The only argument that is left on the table is the long-term form of devo-plus that we have with this Bill. It is quite hard for those who are passionately in favour of independence to recognise that there are structures that could be long-term and stable and could work for the union, because if they accept it then they are undermining their own fundamental approach, so we are asking them to do something that is exceptionally hard for them. So I am not surprised that, to some extent, there has been this to-and-fro.

However, do we want that to be a permanent feature of our constitution and of the relationship with the Scottish Parliament, of which taxpayers on both sides of the border will be the victim? In common with all colleagues in this House who are resident in Scotland, I have received my letter from the Inland Revenue saying that we are now designated Scottish taxpayers and that this is now a real process that is under way. If we want to move away from the situation where the two blocs perpetuate this interest, then we need a regular review mechanism, combined with joint working between the Parliaments, not the Governments—the critical part of my noble and learned friend’s amendment. In addition, by taking out the only bodies that are responsible for making the forecasts for revenue and population growth being the two respective Governments, we will be locking in the kind of difficulties that we have been seeing over the past nine months. I hope that the House endorses my noble and learned friend’s amendment.

[The Parliamentary Under-Secretary of State, Scotland Office (Lord Dunlop) (Con)]

My Lords, we have had a detailed debate with many authoritative contributions, and I welcome the contributions from all parts of the House. We have covered a lot of ground. I will try to do justice to all the issues that have been raised. No detriment, block grant indexation, borrowing, review, scrutiny, commencement—there is a plethora of them, and I hope that the House will bear with me as I try to cover each one. I shall pick up on the points that individual Peers have made on each of those issues.

To start off, I shall remind us of what we are trying to achieve here. We are trying to rebalance the devolution settlement and to give the Scottish Parliament greater responsibility for raising more of what it spends. Currently that is around 10% of the Scottish budget and, once the Bill is in operation, it will be over 50%. That will lead to a Scottish Parliament that is more financially accountable to the people who elect it. The Scottish Government should be able to reap the rewards, and bear the risks and costs, of the policy choices that they make. That is something that the UK Government think is important, and something that John Swinney, the Deputy First Minister of the Scottish Government, has publicly accepted. The noble Lord, Lord McFall, talked about grievance politics. This is an opportunity to move Scottish politics on from the familiar blame game.

Why does the fiscal framework matter? A lot of noble Lords have said that this is central. I certainly agree with the House of Lords Economic Affairs Committee, which said:

“The fiscal framework will be central to future devolution arrangements”.

It is the fiscal framework that provides the financial tools and controls to support the operation of the Scottish Government’s new powers. As with the Smith agreement as a whole, this is about striking the right balance: giving the flexibility to the Scottish Government to take their own decisions, while retaining those fundamental UK strengths. That is what the people in Scotland voted for in September 2014 by a clear and decisive majority. Therefore, it is our duty to deliver a Scottish fiscal framework that is sustainable and consistent, as the Smith agreement says, with the overall UK fiscal framework.

I am sure that noble Lords are on the edge of their seats because we have talked a lot about my next topic: the no-detriment principles. The noble and learned Lord, Lord Wallace, said that he had no idea of what the UK Government’s view was of no detriment. Other Peers—the noble and learned Lord, Lord McCluskey, and my noble friend Lord Forsyth—raised the no-detriment principles. The House of Lords Economic Affairs Committee highlights the importance of principles, and the Smith agreement sets out a range of principles against which the fiscal framework must deliver. I would be the first to recognise that these principles set out in the Smith agreement are high level, and it is for the two Governments to agree on how to apply them in practice. Central to the negotiations that have been taking place is how the Scottish block grant adjusts to account for new tax and welfare powers and meets these no-detriment principles.

The first no-detriment principle is that the Scottish Government and the UK Government budgets should be no larger or smaller simply as a result of the initial transfer of tax and spending powers. As the noble Lord, Lord Darling, said, in many ways this is a very straightforward calculation. We have the data, use actual figures for the final year prior to devolution and apply whatever indexation method is finally chosen.

The second no-detriment principle is that there should be no detriment as a result of Scottish Government and UK Government policy decisions post-devolution. There are two legs to this no-detriment principle. The first is that decisions by one Government that directly affect the revenues or spending of the other should be compensated. What does that mean in practice? It means direct effects: so if the UK Government were to increase the personal allowance, that would obviously have an impact on the tax revenues of the Scottish Government that was totally outwith their control. Looking at it in another perspective, if the Scottish Government used their welfare powers in a way that automatically and in a direct way affected benefit passporting in the reserved welfare system, that would be a direct effect. However, the principle is explicitly not to compensate the Scottish Government for the economic consequences of the policy choices that they make: so, for example, if higher tax rates lead to an increase in net migration from Scotland, that would be a consequence of the decisions that the Scottish Government had taken.

The Smith report is very clear about economic responsibility, saying that,

“the revised funding framework should result in the devolved Scottish budget benefiting in full from policy decisions by the Scottish Government—”

--- Later in debate ---

[Lord Dunlop]

No; it is the responsibility of the two Governments to work out this package of powers and how the fiscal framework will work in practice, which is what we are doing.

[Lord Purvis of Tweed]

I am anxious to make time before the Minister moves on from this specific aspect of indirect detriment—I know that he will come on to behavioural aspects soon. Will there be one body which will define what these indirect impacts are, with choices north and south of the border, or will we see a perpetual process of two Governments having disputes about how they will define what the indirect consequences are of policy choices north and south of the border?

[Lord Dunlop]

No; we will not see disputes, because that is the process we are involved in at the moment, which is to reach an agreement on how all these aspects operate. That is what we are doing. When I say that I am optimistic that we will reach an agreement, that is on the basis of the discussions we have had so far and the issues that remain outstanding.

I will move on to the second leg of the second no-detriment principle, which is to do with taxpayer fairness. Changes in devolved Scottish taxes—for example, income tax—should affect public spending only in Scotland, and vice versa for equivalent taxes in the rest of the UK. What does that mean in practice? It means that taxpayers in Newcastle and Liverpool will not fund even higher levels of public services in Scotland not available to them. The noble and learned Lord, Lord McCluskey, touched on some of these issues in his recent Herald article, which has already been referred to. The other aspect is that Scotland does not inadvertently gain a double benefit, via Barnett consequentials and a fixed proportion of any growth in tax revenues from the rest of the UK.

In conclusion, therefore, in this part of what I intend to say, some block grant adjustment mechanisms work better against different principles, and the UK Government’s approach is to find a mechanism that performs well against all of them. Each principle is not perfectly met in every respect, which is what we are trying to deal with in the negotiations that are going on at the moment.

--- Later in debate ---

[Lord Purvis of Tweed]

It is welcome to hear the Government’s view as regards potential amendments on Report. However, in light of the Minister’s remarks, how does Clause 68 sit with Clause 2 when it comes to areas where the Government may have the power to amend Acts of the Scottish Parliament and devolved legislation? Would a legislative consent Motion mechanism be required for that, and equally for the National Assembly for Wales?

[Lord Dunlop]

I am happy to take the noble Lord’s point away and reflect on it, and I shall either write to him or discuss it.

Scotland: Fiscal Framework

Debate between Lord Purvis of Tweed and Lord Dunlop

Wednesday 16th December 2015 Lords Chamber

[Lord Purvis of Tweed]

To ask Her Majesty’s Government, in the light of talks on 14 December between the First Minister and the Prime Minister, when the fiscal framework agreement between the Scottish and United Kingdom governments will be finalised and published, and how it will be ratified.

[The Parliamentary Under-Secretary of State, Scotland Office (Lord Dunlop) (Con)]

My Lords, the Prime Minister and the First Minister met on Monday 14 December to discuss a framework which is fair both to the taxpayers of Scotland and the rest of the UK. The Joint Exchequer Committee will meet again shortly to continue discussions, with the aim of reaching final agreement in the new year. Once agreed, a framework would be signed by both Governments.

[Lord Purvis of Tweed (LD)]

My Lords, the Government said in the summer that agreement would be reached in the autumn, and in the autumn they said it would be reached in the winter. In the communiqué from the Joint Exchequer Committee last week, reference was made to the new year, but the First Minister of Scotland said after the meeting with the Prime Minister that the target for reaching agreement would now be mid-February—long after the proposed scheduling of the Committee stage of the Scotland Bill. When will agreement be reached? Given that this is of such significance for taxpayers across the whole United Kingdom—not just for those of us who are resident taxpayers in Scotland—is it not appropriate that, before Christmas, the underlying data for these discussions be published to enable much wider debate across civic Scotland and the UK, and indeed in Parliament?

[Lord Dunlop]

The Government want an agreement as soon as we can achieve it. I cannot offer any guarantees as to the end date, because there are two parties to these negotiations. However, I was very encouraged by what the First Minister said on Monday after the meeting with the Prime Minister. She and the Scottish Government want to reach an agreement, and she is optimistic that a deal can be done and is very keen that we should get on with it. That is absolutely what the UK Government want as well. Clearly, the fiscal framework will be a very detailed public document when it is agreed, and obviously, it will be made available to this House. We welcome full scrutiny of that agreement.

Scotland Bill

Debate between Lord Purvis of Tweed and Lord Dunlop

Tuesday 24th November 2015 Lords Chamber

[Lord Dunlop]

I assure the noble Lord that these are ministerial meetings of the Joint Exchequer Committee. In between those meetings, very intensive work is going on to agree the fiscal framework. If, unlike me, you believe—

[Lord Purvis of Tweed]

I know that the hour is late and do not want to prolong the debate, but could the Minister address the question that I put in my speech? What standing will the agreement or framework have? Is it a revision of the statement of funding policy, which is a Treasury policy, or will it be a stand-alone agreement between the two Administrations? What standing will that have, as a document, and will it require ratification by the Scottish Parliament, which obviously involves a timetable entirely in its hands?

[Lord Dunlop]

The Deputy First Minister has made it clear that, for the Scottish Parliament to give its legislative consent to the Bill, it would have to be satisfied that there was an agreed fiscal framework in place.

I return to the argument that I was making. If, unlike me, you believe that the Scottish Government are not serious about reaching agreement, that is not a good reason to delay the Bill—far from it. Doing so would hand the Scottish Government a get-out-of-jail-free card, which is not right for the people of Scotland, who expect these powers to be implemented.