Scotland: Smith Commission

Debate between Lord Wallace of Tankerness and Lord Higgins

Thursday 27th November 2014 Lords Chamber

[Lord Higgins (Con)]

My Lords, this important report brings forward further proposals implementing the three commitments made by the three main party leaders in the final days—some may think that they were somewhat chaotic or even rather panicky days—of the referendum campaign. Does my noble friend agree, though, that the crucial sentence in this report states that,

“rules will ensure that neither the Scottish nor UK Governments will lose or gain financially from the act of transferring a power”?

That is very important but, if that is so, where is the point in transferring some of the VAT revenue to Scotland if it will then be offset by a change in the block grant, which is the obvious implication of that sentence? The other important sentence states:

“The Barnett Formula will continue to be used to determine the remaining block grant”.

Lord Barnett himself said that that formula was defective. Indeed, if it continues in the way in which the report suggests, that will effectively solidify the situation embodied in the Barnett formula, which I believe is unfair for UK taxpayers. We ought not simply to solidify that position.

The Scots Parliament would be given power over income tax rates and allowances. Why should that be any different in Scotland from the UK if it has no implication for the allocation of resources? There is no real reason to believe that.

[Lord Wallace of Tankerness]

My Lords, my noble friend raises a number of important issues regarding the tax proposals in the heads of agreement. He is right to draw attention to the fact that there should be no detriment as a result of the decision to devolve further power. What is intended is that at the point of transfer, the value of the tax receipts that have been transferred will be deducted from the block grant. Thereafter, it is a matter for the Scottish Parliament to determine the tax rates and how the books are balanced. Under the Azores judgment in the European Court of Justice we cannot do anything other than that. With regard to VAT, it is obviously in the interest of the Scottish Government to propose policies that will raise the buoyancy of the Scottish economy so that VAT receipts would be greater. Likewise—depending on how well their policies go—the more economic activity, the greater the income tax receipts that they will receive. Of course, the counter is also the same: if they screw it up, the tax receipts are liable to be less and there will be consequences for that, which is an important point of accountability.