Scotland Bill

Alan Reid Excerpts

Tuesday 21st June 2011 Commons Chamber

[Stewart Hosie]

I have already given way five or six times and I want to make progress. There will be plenty of opportunities for hon. Members to intervene later.

There is a very strong case for additional powers. Evidence shows that corporation tax can be a key element in a country’s overall economic strategy and it has the potential to promote economic growth by enhancing international competitiveness and encouraging innovation and investment. As the Minister said, we have long argued for devolution of corporation tax as a powerful means of addressing the economic challenges facing the Scottish economy. We believe that a centralised and uniform corporation tax structure disadvantages nations such as Scotland to the benefit of London and the south-east of England. To say that is not to be anti-London or anti-south-east; it is just to say that when businesses reach a certain size, they tend, other things being equal, to be attracted to the largest conurbations. In the UK, that of course means London.

The evidence base for devolving corporation tax powers to Scotland is pretty clear. Over the last 30 years, as I said at the beginning, Scotland’s economy has grown more slowly relative to both the UK and the average of other small EU countries. One reason for that relatively weaker economic performance has been the relatively smaller corporate sector in Scotland relative to other parts of the UK. Business birth rates are lower, the business base is smaller and Scottish companies typically engage in less research and development.

As I said, there is also evidence that Scottish headquarters drift south of the border once businesses have reached a certain size. Effective use of corporation tax could serve as a powerful tool to address those trends by improving competitiveness and encouraging investment and expansion. Evidence shows that, at the margin, corporation tax rates can be an important factor in international firms’ decisions about foreign direct investment, which is one of the key objectives of the Scottish Government and Scottish Development International.

At the same time, a number of key sectors in the Scottish economy face tough competition from abroad. Companies abroad receive attractive tax breaks as part of allowances in relation to corporate taxation. The computer games industry, for example, has received a very attractive proposition from Dublin, and receives tax breaks in Montreal that have been denied by our Government despite forceful representations to the Minister by members of all parties. Improvements in those areas will help to boost productivity and, ultimately, the competitiveness of the Scottish economy, which will benefit not just Scotland but the United Kingdom as a whole.

The devolution of corporation tax powers is not solely about making possible the creation of a more competitive environment within the Scottish economy; it also about increasing and promoting accountability. A greater devolution of economic policy levers and tax revenues means that the Scottish Government will have the levers that they need to increase sustainable economic growth, and an opportunity to reinvest the proceeds of that growth—higher long-run tax revenues—in Scotland’s public sector. Having control over corporation tax would also mean that the Scottish Government would bear the risk on the economic levers. We believe that positive reform must be about balancing the revenue and expenditure implications of policy choices, and about giving policy makers the levers to promote economic growth.

[Mr Alan Reid (Argyll and Bute) (LD)]

According to the hon. Gentleman's logic, if the power were devolved, the Scottish Government would reduce corporation tax. How would the gap in the Scottish Government’s revenue be plugged? Would that be done by means of higher taxes or a lower standard of services?

[Stewart Hosie]

The hon. Gentleman must have been asleep for the last 14 minutes, because that is precisely the question that the hon. Member for Edinburgh East (Sheila Gilmore) asked. I am surprised that he did not hear or understand my answer to her question, which was that the corporation tax yield would fill the gap caused by the reduction in block grant.

[Stewart Hosie]

I have two answers to that question. The first is that in the 40 years before the crisis, Scotland experienced a surplus on average. The second relates directly to the hon. Gentleman's question. I am fed up with the argument that runs “Scottish banks bad, English banks good.” There seems to be a failure of basic understanding. Northern Rock took £20 billion, as did the Lloyds banking group. No one seems to speak about Northern Rock. Bradford & Bingley required £37 billion. RBS required £45 billion, but a large chunk of that related to the asset protection scheme. It was not a question of Scottish banks’ being bad and needing to be bailed out while all other banks were fine.

I do not want to drift too far from the new clause, but the Office for Budget Responsibility made it clear in its assessment earlier this year that the net impact of the financial crisis measures would be a surplus of £3.5 billion for the taxpayer. It is interesting that the hon. Gentleman does not seem to know what the out-turn figure is likely to be.

Amendment 25 provides for powers to charge a tax charged on the profits of companies—

[Mr Reid]

Will the hon. Gentleman give way?

[Stewart Hosie]

Not at this point.

New clause 9 would allow for the introduction of an additional devolved tax charged on the profits of companies, and would require such a proposal to be placed before both Houses of Parliament.

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[Stewart Hosie]

Evidence that I have seen in a significant number of companies suggests that the reductions in block grant would be phased in. We see a trend increase in business tax yield as business tax rates are reduced. I am sure that the Minister has seen similar figures, which may have driven some of his own policy decisions. I suspect that Scotland would be unique if we did not follow a pattern that has been seen time after time in other countries.

[Mr Reid]

rose—

[Mr Gauke]

rose—

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[Mark Lazarowicz]

rose—

[Mr Reid]

rose—

[Stewart Hosie]

I will give way to the hon. Member for Argyll and Bute (Mr Reid), but then I shall try to move on to excise duty.

[Mr Reid]

If the hon. Gentleman's argument is correct and reducing corporation tax results in an increased tax yield, that will apply in England and Northern Ireland as much as it will in Scotland. If there are different corporation tax rates in different parts of the United Kingdom and if the hon. Gentleman's argument is correct, surely every part of the United Kingdom will enter into a competition to reduce corporation tax, and we will end up with a race to the bottom to the detriment of all parts of the UK.

[Stewart Hosie]

I do not want a race to the bottom, but I do believe in tax competition. It is a pity that the hon. Gentleman and his new-found friends do not.

I must now move on from corporation tax to excise duty. Amendment 37 would ensure that provisions relating to alcohol excise came into force two months after the enactment of the Bill. New clause 19 would amend the Scotland Act 1998 so that alcohol duties became an exception to the general reservation in that regard.

All excise duties are currently levied by the UK Government. Alcohol duty is one of the most important excise duties levied in the UK. It is estimated to raise approximately £800 million a year in Scotland, less than 2% of the total tax yield in and on behalf of Scotland. In addition to raising revenues for the Exchequer, one of the key aims of the duty is to reduce excessive consumption of alcohol, which has been proved to lead to a variety of health and social problems. In the current devolution framework, the Scottish budget typically picks up the cost of addressing those problems through police, health and some social welfare costs expenditures. That is done entirely within the Scottish block. Devolving responsibility for excise duty to Scotland would help to ensure that the tax system for alcohol consumption was consistent with the alcohol policy of the Scottish Government and equipped to tackle one of the greatest health and social challenges facing Scotland.

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[Stewart Hosie]

It is no such thing, as I am sure the hon. Gentleman’s contacts in the Scotch whisky industry will confirm.

There is a strong social case for the devolution of alcohol duty, not least because there is clear evidence that, for alcohol, price is a driver of consumption. There is strong evidence from numerous surveys in Europe, America, Canada, New Zealand and elsewhere that levels of alcohol consumption in the population are closely linked to the retail price of alcohol. As it becomes more affordable, consumption increases, and as the relative price increases, consumption falls.

We, and the Scottish Government, are committed to introducing a minimum price for alcohol, and gaining control over the excise duties would provide an additional mechanism to address excessive alcohol consumption. That would help to reduce the annual cost of alcohol misuse in Scotland. Devolving excise duty would enable a future minimum price per unit to be established within the excise system. Under the current system, the introduction of a minimum price is estimated to generate additional revenue for retailers, not the UK or Scottish Government. That was the argument the Labour party made in the Scottish Parliament. Devolving excise duty for alcohol would therefore result in all the additional revenue from increasing the price of low-cost alcohol products accruing to the Scottish Government, and those revenues could then be reinvested in public services in Scotland. The case for devolving alcohol duties is very strong indeed.

[Mr Reid]

I agree with one of the hon. Gentleman’s points: alcoholic drinks should be taxed on alcohol content. There is a practical problem with his amendment, however. It is my understanding that he wants to increase taxes on alcohol in Scotland, but if alcohol is then priced cheaper just across the border in Berwick or Carlisle, surely a lot of revenue will be lost by people nipping across the border to buy their drink?

[Stewart Hosie]

There are always borders. The hon. Gentleman was presumably one of the 28 Lib Dems who backed us in 2009. I am pretty sure some of the Lib Dems in the Scottish Parliament now back minimum pricing. I ask for a wee bit of constituency in terms of the policy therefore, and given there are only five Lib Dem MSPs, it should not be too difficult to do a quick phone around.

I turn to the topic of capital borrowing and amendments 26 to 29. We all know that infrastructure investment is an essential contributor to productivity and economic growth. That is presumably why the Chancellor of the Exchequer made great play of spending £2 billion more on capital projects in the comprehensive spending review period than the previous Labour Administration had planned to spend. In the short term, such expenditure can boost economic growth, total output and employment. Over the long term, capital investment, both public and private, is a key driver of productivity, competitiveness and long-term economic growth.

Public sector investment that enhances a country’s physical, technological and digital infrastructure can increase the productive capacity of the economy and drive private sector growth and investment. Indeed, we know that direct capital investment would save or create twice as many jobs as the same amount of investment used for a VAT cut, such is the scale of the economic multipliers of direct capital investment.

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[Mr Field]

I shall answer that intervention and finish on that very point. We do not have the information that we require to argue these points, and the sourness could ensue when the Scottish Government hold their referendum on independence. I believe that a large force in this House will insist on other parts of the United Kingdom having a say in that referendum. Given the sourness that will result if we continue the debate in the way we have tonight and certainly before now, the irony would be that the SNP could well fail to carry the Scottish electorate with it on independence, while the English electorate would vote for it.

[Mr Reid]

The Bill and the Government’s new clauses will bring about a substantial increase in the taxation and borrowing powers available to the Scottish Parliament, taking the Scottish Parliament and the process of devolution substantial steps further forward. Since the Scottish Parliament was established in 1999, it has been held back by the fact that it has had very few tax-varying powers and that its role has been largely to spend money rather than to raise it. By giving it these extra powers, we will increase its democratic accountability.

[Mr MacNeil]

Surely there is more to it than that. I often hear politicians and certain sectors of the media talking about democratic accountability, but is not the bigger issue the need to ensure that we have Governments, in whatever country, who are capable of influencing the economy so that it can grow? More important than politicians being accountable are people having jobs and the economy growing, so that we can live in a more prosperous society.

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[Mr Reid]

Yes, that is certainly very important, and the Scottish Government already have economic development powers. Giving them these tax-varying powers will allow them to choose to use the proceeds of taxation for economic development.

[Mr MacNeil]

Is not that argument similar to a golfer being told, “Of course you can go and play a round of golf, but you’re only getting a putter to play with”?

[Mr Reid]

The Scottish Parliament already has more than a putter, and the Bill will give it a lot more clubs in its bag.

I support the Government’s new clauses. I listened to the hon. Member for Dundee East (Stewart Hosie), who appears to have left us, and I conclude that he has not made a case for his amendments. I want to compare the SNP’s approach to that of the other parties in Scotland. The other parties all worked together within the Calman commission and, through deliberation and working towards consensus, came up with a package of measures to give more powers to the Scottish Parliament. The Government are implementing those measures through the Bill. The SNP, however, refused to take part in that process. It has come along tonight with amendments that have no back-up papers, and it cannot make a case to back them up.

When I questioned the hon. Member for Dundee East, I understood his case to be that if corporation tax is cut, more revenue will come in. As I pointed out in my intervention, however, assuming his case to be correct, if one part of the UK were to cut corporation tax, the other parts would be forced to follow suit and there would simply be a race to the bottom, in which businesses would not be paying their fair share of taxes. That would mean either personal taxes going up or services being cut.

Equally, the hon. Member for Dundee East did not convince me on alcohol duties. All the practical problems were put to him and he was not able to answer them. I understand that he thinks the Scottish Government should increase alcohol duties, but if such duties were lower in England, people who lived near the border would simply travel across it to buy alcohol. No doubt when they were in the supermarkets there, they would buy other things as well, which would be a loss to the Scottish economy.

[Mike Crockart (Edinburgh West) (LD)]

My hon. Friend makes a fine case, but it is not just the people living close to the border who would do that. A large black market would undoubtedly be created in exactly this type of goods and it would grow across Scotland and contribute to the difficulties that we have already mentioned about the country’s dependence on alcohol.

[Mr Reid]

My hon. Friend is correct. There would be an incentive for a white van man to drive south, fill up his white van, come up to Scotland and sell the alcohol at a profit. When I intervened on the hon. Member for Dundee East, we heard a sedentary intervention from the hon. Member for Angus (Mr Weir) to the effect that Argyll was not close to the border. However, I would point out to him that for a whole variety of reasons people from Argyll regularly visit England and, if they could buy alcohol cheaper there, there would be an incentive for them to fill up their car with it. That would mean a further loss of income to the Scottish economy.

[Mr Weir]

The hon. Gentleman is making a case, but for many years people have been going on holiday to other jurisdictions and bringing back alcohol with them; there is nothing unusual in that. The suggestion that all of a sudden there is going to be a massive influx seems to me ridiculous, especially given the cost of fuel in Argyll.

[Mr Reid]

But they would also fill up their cars with fuel when they were outside Argyll. The hon. Gentleman makes a point. We have heard about booze cruises to Calais, but despite the high price of fuel, it is cheaper for someone in Scotland to drive to England than to go to France. Britain has a certain degree of flexibility over its excise duties because it is surrounded by water. The one land border we have is between Northern Ireland and the Irish Republic and we have all heard the allegations of fuel smuggling. That shows it is more difficult for a country to set its own excise duties where there is a land border than it is when there is only a sea border. With a land border, setting a separate rate of alcohol duties would be difficult.

The hon. Member for Paisley and Renfrewshire North (Jim Sheridan) mentioned that people working regularly in England would be able to take alcohol back to Scotland on the train. That led me to think about what would happen on the train itself—I can imagine the announcement on the tannoy as the train leaves Carlisle: “Get your drink now because in five minutes the price goes up”!

To summarise, the SNP did not make the case for their amendments. Through their new clauses, the Government are giving substantial extra powers to the Scottish Parliament, so I will support the Government tonight.

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[Mr Reid]

The Bill brings about a substantial increase in the powers that are devolved to the Scottish Parliament, especially those relating to taxation and borrowing. As such, it represents a substantial event in the process of devolution. I congratulate Professor Calman and his commission on bringing forward the proposals after detailed consultation, and on achieving consensus among three political parties. His proposals were subject to detailed scrutiny in the Scottish Parliament Bill Committee and by the Scottish Affairs Committee here. I also congratulate the Secretary of State and the Under-Secretary on their hard work in putting the Bill together and taking it through the House.

It is an old saying that devolution is a process, not an event. This is an important process; there will no doubt be further processes to come, but it is important that the subsequent devolution processes follow the same process as the Calman Commission and the Bill. There must be widespread consultation, detailed evidence should be produced and examined and then the Bill should be taken through after detailed scrutiny. The amendments rejected earlier this evening did not have the detailed evidence behind them.

[Mr Davidson]

I want to pick up on the issue of process. Amendments have been defeated tonight, but they will probably reappear in the Scottish Parliament. Does the hon. Gentleman agree that before they are debated further in this House, the Scottish Affairs Committee and others must examine them forensically to make sure that the gaps in the evidence that were identified earlier this evening can be exposed so that we can have a proper discussion and debate about the choices to be made?

[Mr Reid]

I certainly agree with the Chairman of the Scottish Affairs Committee and hope that his Select Committee will subject these proposals to detailed scrutiny.

Two of Scotland’s political parties took part in the original constitutional convention, which went up to three in the Calman commission. The party that has not taken part in any of these processes is the Scottish National party. I accept that it has a mandate for a referendum on independence and I look forward to that campaign. Where I think the SNP goes wrong is that it makes no attempt to bring about consensus within Scotland. Its referendum will fail and I suggest that in future it works with other parties so that detailed proposals can be subjected to scrutiny and we can take the process of devolution further forward. This Bill represents an important step. I hope that the House of Lords will pass it speedily so that all the important extra powers given to the Scottish Parliament can be put into effect.