Scotland Bill

David Mowat Excerpts

Monday 14th March 2011 Commons Chamber

[Ann McKechin]

Indeed, and the fact that we now have converts to the cause shows what a difference the passage of time makes. As I said earlier, I am pleased that even the SNP has agreed to the LCM motion.

Our present approach is consistent with the approach that the Labour party has always taken to constitutional reform, which is to seek political consensus before introducing legislation in the House of Commons. The reason we have such a degree of consensus this evening is that we have spent a good deal of time examining details of the legislation. I congratulate the Holyrood Committee, which has done an excellent and thorough job in examining many of the issues in great detail. We all benefit from its work and from last week’s debate in the Scottish Parliament, which showed that the Scottish Parliament and its Committees are more than capable of doing a thorough job in scrutinising legislation.

I should be interested to know whether the Government agree that the retrospective application of an order could adversely affect the budget of the Scottish Parliament. For example, if the Budget is set in March and the Treasury lays an order in October to apply a relief clause retrospectively, that could have grave implications for the Scottish Government’s budget. That is another reason why I seek some reassurance about the Government’s intentions for the use of this clause.

How do the Government propose to deal with avoidance of the Scottish tax rate? Unlike other jurisdictions that have devolved taxes, and where there are different forms of collection and reporting, many people self-assess or are in pay-as-you-earn schemes, and they are not currently specifically called on to declare their residence to the tax authorities in the way required by the Bill. The Bill’s provisions only apply to income; they do not apply to dividends or to interest on savings, and we would want appropriate measures to be taken to ensure that people do not end up transferring income into another route, to try to avoid the income tax provisions made by the Scottish Parliament.

What provisions have the Government put in place for the self-employed? Will, as anticipated, the self-assessment tax return have to be altered, with additional questions on residency for example, particularly for those who work in a different part of the UK? I realise there are specific measures dealing with Members of Parliament and we are automatically included, but it has been pointed out that Scottish judges serving at the Supreme Court are not covered by the Bill’s provisions. Similarly, other senior Government officials travel from different parts of the country for their work. It is important that they are aware of what may be expected of them in terms of self-assessment claims.

[David Mowat (Warrington South) (Con)]

Many of the hon. Lady’s comments imply that she is unhappy with residency being the method for working out where people pay tax, but it seems to me that there is no alternative. Is her position that she would like everybody to fill out a tax return?

[Ann McKechin]

No, I can assure the hon. Gentleman that I do not want to burden the taxpayer unnecessarily with additional questions and pieces of paper and that I think the residency basis is the simplest way to deal with this issue. The problem is that we have a floating definition of a UK resident taxpayer, and from that we are trying to define in very exact terms a Scottish resident taxpayer. That is the point at which there could be challenges, and sometimes mischief in that people might try to change their declaration of where they believe they are resident.

This situation is unlikely to arise for the vast majority of taxpayers in Scotland; most of them will be faced with a very simple exercise. Nevertheless, as I have pointed out, in other jurisdictions with devolved income tax there are ways in which people have to declare where their residence is that we currently do not have in the UK. I want the Minister to say whether the Government are aware of any potential problems, and what measures they intend to put in place to avoid them, so that the maximum level of tax that is due is collected and returned to the Scottish Government, and so that administration is kept to a minimum. All hon. Members will be concerned about the cost to the Exchequer, and also about the costs to individual businesses. That is why I am asking these questions, but I agree that residency is the easiest way to define who should be liable to tax.

I also appreciate that a decision has been taken not to include interest on dividends and on savings. People will comment that that perhaps creates a degree of unfairness because some individuals get the majority of their income from those sources, but I acknowledge that there are complex and expensive practical difficulties in applying a residency test for those types of revenue, and that ultimately the benefit may not be great. We therefore understand why the Government have phrased the clauses in this way, but the devil is in the detail of defining exactly what they will mean in practice.

--- Later in debate ---

[Fiona Bruce]

The hon. Lady makes a valid point and that is why I prefaced my remarks with the phrase, “What needs to be communicated more effectively is how the Scottish Government can prioritise their funding.” By that, I meant that checks and balances are involved and that that needs to be communicated nationwide. A greater understanding of that needs to be gained.

[David Mowat]

My hon. Friend’s answer to that intervention was very generous. It is right that the Scottish Parliament should make decisions about priorities in Scotland—about free tuition, prescriptions and whatever else—but the question that remains and needs to be answered is whether the baseline of the block grant, as it is set up, is fair on Scotland, England and Wales.

[Fiona Bruce]

My hon. Friend makes a valid point.

Let me turn now to the proposals in the Bill. It is only right that I should explain why complete financial independence would not, in my view, be beneficial for the Scottish or wider UK economy. Members of the Scottish National party might say that the Bill’s financial provisions do not go far enough but devolving full economic responsibility while retaining various regulatory and other competences would create a two-tier system that would serve to weaken our economy. Devotees of the two-tier system argue, I believe, on the basis of a fiction, if not a fantasy, that such a fragmented system could exist without disastrous consequences. The Calman commission and the Scottish Parliament’s report on the Bill both rule out financial independence on the grounds that it would create havoc for taxpayers and break up the Union.

In its final report, the Calman commission gave its reasons why income tax should not be fully devolved, including that it would not, in the commission’s view,

“be consistent with the social Union”.

We can add a further reason. There are certain areas of government that a responsible country will retain at a national level, such as defence and national security. They should remain UK-wide in the interests of the shared public good, and fragmenting them would be both inefficient and dangerous for national security. The same basic principles apply to immigration and trade. Unco-ordinated approaches in those areas could lead to potentially disastrous consequences so it is important that we act responsibly and in the whole country’s interest.

Such protections can be afforded only under a single economic framework and any moves to meddle in that area unnecessarily will create more damage than good. It is therefore refreshing that the Scottish Parliament recognises the merits of the Bill’s provisions and, rather than running before attempting to crawl, its report on the Bill does not go so far as to recommend full financial responsibility.

The Bill is about improving the devolution settlement and promoting economic growth. The income tax proposals in the Bill retain the reservation of overall fiscal management within the UK Government, which will ensure that the needs of Scotland are supported alongside a UK-wide strategy of promoting growth and economic stability. I welcome the Scottish Parliament’s Committee’s report on the Bill, which states in paragraphs 36 and 39, with reference to fiscal decentralisation:

“The evidential base was, in our view, remarkably weak, and the claims made did not stand up to challenge or scrutiny…the overwhelming balance of expert economic opinion in Scotland and internationally was that the existing evidence base supports neither any clear link between fiscal decentralisation and an economy’s long-run rate of growth, nor…a precise numerical link between fiscal decentralisation and an increase in GDP.”

It goes on:

“The Scotland Bill is about good government. It is intended to improve how Scotland is governed and align decisions on spending and taxation more closely so that the Scottish Parliament will be more accountable and, in the long run, take better decisions. Better decisions will, in the longer term, mean improvements to many aspects of Scottish public life.”

In true political fashion, I have a favourite section of the Scottish Parliament’s Committee’s report, which was mentioned earlier. In paragraphs 43 and 44, the report states:

“Full Financial Responsibility was the Scottish Government’s alternative to the plans in the Scotland Bill. The Committee did not examine this in detail, as there was no detail to examine. We received no costings for these plans, no material explaining the practical implications for taxpayers, employers, Scotland’s financial sector or collection plans. However, we were able to come to several obvious conclusions. Firstly, as was made clear in evidence to us, fiscal systems serve constitutional ends. Full Financial Responsibility is no exception. The constitutional aim it serves, however, is not the preservation of the UK. Secondly, it is plain that under fiscal responsibility, Scotland would run a substantial deficit…Finally, it is clear that no thought has been given to the effect of these plans on the economy of the UK, to which Scotland will inevitably remain linked…The Committee is clear that the evidence shows that full financial responsibility or autonomy is not a serious alternative to the fully worked out plans in the Scotland Bill.”