Scotland Bill

Ian Davidson Excerpts

Tuesday 21st June 2011 Commons Chamber

[Mr Gauke]

Let me be clear: I am not making the case against lower corporation tax per se; I am saying that if Scotland had a lower rate of corporation tax, that would have an impact on the Exchequer, and Scotland and the Scottish Government would have to pick up that cost. I do not believe that that is a matter of dispute or that the hon. Gentleman disagrees with that. Indeed, we are not even talking about something that we could pursue under European law—I am sure that he will be aware of the details of the Azores judgment. [Interruption.] That point is clear, so I am surprised that there are so many mystified faces on the Opposition Benches.

[Mr Ian Davidson (Glasgow South West) (Lab/Co-op)]

This relates to the Minister’s point about the Azores judgment—people in my constituency speak of little else. I want to clarify the important question of transparency. Have the Government provided the Scottish Government with the figures that the Minister has quoted, in order that they can challenge them or produce any additional information? It is important that this debate is conducted not just at the level of rhetoric, but that firm proposals are made with numbers attached. Will the Minister therefore clarify whether there has been an inter-governmental dialogue on these matters?

[Mr Gauke]

We are talking about preliminary numbers, which I have put forward on the basis of early estimates produced by the Treasury this week. We are keen to engage with the Scottish Government, just as we have with the Northern Ireland Executive. I am sure that there will be exchanges of correspondence, meetings, discussions and a full examination of both the numbers and the methodology used in producing them. We are more than willing to engage in that process, but we are also waiting for the Scottish Government to offer their analysis of the impact of devolving corporation tax, of what the costs would be, and of the economic advantages and disadvantages. We know that the Scottish Government take a great interest in this—they make this point on a regular basis—but we await their analysis.

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[Mr Gauke]

It was about five minutes ago when we last set out the reasons that corporation tax remains a reserved matter. The Bill provides for a substantial devolution of tax powers to the Scottish Government, but corporation tax has always been a matter for the United Kingdom. We are exploring this matter in the context of Northern Ireland, but if there is a case to be made for a radical change in this area, we would like to hear it and we look forward to doing so soon.

[Mr Davidson]

Did not the Minister say earlier that the Government had produced their latest estimates only about seven days ago? In the circumstances, this criticism seems a trifle unfair, even though the Scottish Government have had a long time to produce theirs. Surely they would benefit from this Government sharing their figures. If the Treasury undertook to pass on its figures to the Scottish Government, I am sure that a response would soon be forthcoming, enabling us to conduct this debate properly and not simply on the level of transitional demands.

[Mr Gauke]

The hon. Gentleman is clearly anxious to move the debate on, and he makes a perfectly reasonable point. The Treasury and the Government would be quite happy to share our analysis with the Scottish Government, and if that would assist them in their work, we would be pleased to be of assistance.

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[Iain Stewart]

I am happy to come to some agreement with the hon. Gentleman. My solution is to provide a detailed breakdown on a territorial basis of actual spending and receipts—what is spent and received by each part of the United Kingdom.

[Mr Davidson]

I understand the point that the hon. Gentleman is making, but with reference to the different parts of the United Kingdom, does he accept that there are enormous divergences among different parts of England, and that that is fuelling much of the sense of grievance felt by many of our English colleagues? Much of this is a within-England problem of unfair distribution, particularly to the north-east and the north-west of England, which ought to be addressed by his Government.

[Iain Stewart]

The hon. Gentleman anticipates my next point exactly. It is too crude to look at the four constituent nations of the United Kingdom. In Scotland and in England we need to break that down further and look, as he says, at the different needs in the different parts of the kingdom. I will give a constituency example. My constituency, Milton Keynes South, is in the affluent south-east of England, yet I have very deprived wards in my constituency. Taking health spending as an example, what Milton Keynes is allocated as its formula share of health spending in England is capped because there is a transfer to other parts of England. I contend that that is not fair and it disregards some of the areas of need in my constituency, but it illustrates the problem that arises if the formula for analysing spending is too crude.

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[Iain Stewart]

I have great respect for the hon. Gentleman in many matters, but this is not one of them. The argument that defence spending in Scotland would somehow be enhanced through independence is not one I agree with. I am not sure whether the Scottish National party’s policy is still to withdraw from NATO, but it used to be many years ago. I see Scottish defence assets only being decimated in the event of independence, so I agree to disagree with him on that point.

I will return to what I propose as a solution. Before we start recalibrating the Barnett formula or developing some other formula or mechanism, we need hard facts on the fiscal relationship between each part of the kingdom. Once we have that, we can move forward on a sensible basis towards having a stable and fair system in the UK. However, I will end on a note of caution. In a previous exercise I looked at other countries that operate some form of fiscal transfers between different parts of the country, such as Australia, Canada and Germany. There are different models in each country, but in all of them the spending relationship between the constituent parts is still a big political issue. I fear that we will never get to a point where everyone is completely happy with the relationship, but I believe that we can arrive at a stable solution.

[Mr Davidson]

It is important to put on the record that even under devolution Glasgow clearly gets far less than its fair share from a Scottish Government based in Edinburgh. I have just been to the Shetlands with the Scottish Affairs Committee, and people there feel that they are equally badly treated by Edinburgh. We also need a needs-based assessment within Scotland to stop money disappearing and being sucked down into the black hole that is Edinburgh.

[Iain Stewart]

Having been born and brought up in Hamilton, which is between Glasgow and Edinburgh, I am in something of a no man’s land on that point and wary of intruding on private grief. The hon. Gentleman’s point is an important one. The analysis should be not only among Scotland, England, Wales and Northern Ireland, but among the regions and cities in each nation. I do not intend to press my amendment to a vote, but I would be grateful if the Minister could suggest some alternative working or make some statement.

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[Mr Field]

I might accept that there is an argument; my plea is that the information should be set out clearly for us, so that we can understand if there are differences and, if there are, establish a basis on which they can be defended. If I manage to conclude fairly quickly, I know that there are Members on the Government Benches who have written and spoken about the need for us to move expeditiously to a needs-based formula, although we all understand that if we did that the period in which we phased in the new formula would be crucial. I am not in favour of doing things that rough people up unnecessarily; timing is important.

[Mr Davidson]

Like the hon. Member for Na h-Eileanan an Iar (Mr MacNeil), who spoke earlier, I think that these are important points. May I suggest to my right hon. Friend that there are two different aspects that he ought to be picking up? One concerns the allocation of money—to some extent I tried to address that when speaking to the hon. Member for Milton Keynes South (Iain Stewart), because there are divisions in England as well—but the second is the choices made by different jurisdictions. The devolved Parliament in Scotland has clearly made decisions that are different and better than some of the things done in England. However, when it comes to waiting lists, services and education, it is also true that some things in England are better than in Scotland. Does my right hon. Friend, like me, welcome the fact that the Select Committee on Scottish Affairs and the National Audit Office are undertaking an evaluation of

“the progress made in various policy areas, comparing devolved Scotland to other jurisdictions”?

[Mr Field]

The answer to that, briefly, is yes.

Reference has been made to the incredibly interesting debate held in the other place last week. I was struck not only by the unanimity on the view that the status quo cannot hold but by the fact that the Minister replying to the debate found it terribly difficult to marshal a case against all those contributions.

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[Mr Davidson]

I would like to speak to the amendments but also to refer to some sections of the Scottish Affairs Committee report. Like other hon. Members, I have attended many of these debates and I recognise that this is not the end of the process. We are just mid-way through it.

My first point follows on from my intervention on the Minister about making more information available. It is essential that we try to raise the tone in these debates rather than lower it. Our debates should be based on argument and figures rather than on the yah-boo politics that we see too often in the Chamber between Scottish Members on these issues.

Some Members may remember the “magic bullet” theory. Professors Hughes Hallett and Scott—all three of them—[Laughter]—suggested that simply devolving financial powers to Scotland would result in an automatic boost. That was seen as a panacea and a deal-breaker. Only after a substantial amount of debate did they reach a conclusion. The Select Committee report states:

“when questioned on the relationship between the devolution of fiscal powers and economic growth, Professor Hughes Hallett said that: ‘the empirical evidence is inconclusive on the question of whether it does or doesn’t lead to an increase in the growth rate systematically. Some studies say yes, and some studies say no’… Professor Scott stated clearly, however, that ‘the actual act of giving power does not in itself create a bonus’.”

The exchanges that resulted in that conclusion advanced the debate considerably, and I think that many other matters that we have discussed, such as corporation tax and excise tax, ought to be dealt with in the same degree of detail.

When our Committee produced its report, we said that we were conscious that the misuse of figures resulted in a sense of manufactured grievance which suited some participants in the debate. The way in which to defeat manufactured grievances is to produce accurate figures, and I think that the Government have been slow in producing the full details and slow in producing the facts.

One of the main issues identified by the Committee, which is relevant to some of the new clauses and amendments, is the key principle of transparency. Another is evolution. We need to recognise that the Scotland Bill, and the relationship between Scotland and the rest of the United Kingdom, will constantly evolve. Most people in Scotland believe that an obsession with constitutional detail has diverted attention from real issues on which there is not nearly as much division as many suggest. On a number of issues there is substantial common ground between the nationalists, Labour and the Liberals—the Tories, of course, are beyond the pale—but that is often masked by the obsession with small difference.

At the last moment, points about such matters as excise duty have been produced like rabbits out of a hat. There may not be much division between us in terms of the objectives that we wish to achieve, but there may be much more when it comes to method, and more still when it comes to the interpretation of what are only partial statistics. The Committee stated:

“Progress should not be measured solely by the extent by which powers are sucked into Edinburgh and we will wish to look at how reserved responsibilities can be exercised closer to the people they serve.”

All bar one of its members agreed with the point that I made earlier about Edinburgh being a black hole into which powers are sucked. All who were not nationalists shared that perspective and that of the report. The issue of whether we are philosophically committed to devolution involves decentralisation beyond Edinburgh. Edinburgh is not an end in itself, except for people who happen to live there. The vast majority of people in Scotland want powers to be transferred closer to them, which does not necessarily involve Edinburgh. As people in many parts of Scotland will recognise—

[Mark Lazarowicz]

Will my hon. Friend give way?

[Mr Davidson]

Will my hon. Friend allow me to finish my point, for the avoidance of doubt? Edinburgh as a centre of government is as distant from many people in Scotland as is Westminster—or, indeed, Brussels—as a centre of government. Having said that, I shall happily give way to an Edinburgh Member.

[Mark Lazarowicz]

I am grateful to my hon. Friend for giving way, and I am glad that he made it clear that when he speaks of “Edinburgh” he actually means the Scottish Government and Parliament based in Edinburgh. Perhaps he should use that longer form in future, rather than give the impression that Edinburgh is benefiting from some largesse from the Scottish Government and Parliament, because we certainly are not.

[Mr Davidson]

If my hon. Friend is saying that the sucking of powers into Edinburgh has not benefited Edinburgh, things are even worse than I thought, and I will certainly take that into account in future.

The Committee dealt in detail with corporation tax, and we also welcomed the Scottish Parliament Committee’s points on the subject. Professor Muscatelli summarised the main reason why, on balance, we came down against the devolution of corporation tax, saying:

“tax competition was the main reason why our group recommended that corporation tax should not be devolved.”

He made the point that it was very likely that a reduction in corporation tax in one UK jurisdiction would result in the cannibalisation of tax from other parts of the UK.

[Dr Whiteford]

The hon. Gentleman and I sat through some very long evidence sessions with any number of erudite professors of economics, none of whom seemed to agree with each other, but who nevertheless managed to find agreement on some pretty simple principles in respect of corporation tax, one of which was that if we lower it too far we will harm revenue, and if we raise it too high we will harm growth. Those very learned people disagreed because there are so many contingencies and uncertainties at any given point in time, and because the interlinking of the economies of various parts of not just the UK, but the European Union and beyond nowadays, makes it very difficult to pin matters down with any certainty, and therefore they become highly theoretical. Does the hon. Gentleman agree that—

[Dr Whiteford]

Does the hon. Gentleman agree that the way to secure the Scottish economy is to create jobs?

[Mr Davidson]

Well, that is a hard one, isn’t it! Yes, clearly the way to improve the Scottish economy is to create jobs, and as far as I am aware not even the Conservatives are against that. The arguments to which the hon. Lady refers were so complex that it seemed at some points that even Hughes and Hallett were disagreeing. [Laughter.]

We did reach conclusions, however. I think everyone agreed that there were risks in devolving corporation tax, and, as we said,

“not least in that this could lead to competition which could result in the ‘cannibalisation’ of the UK’s tax base.”

There was a political difference there, because we went on to say:

“We recognise that this is not necessarily a concern for those who wish to consider the financial position of Scotland in isolation.”

I understand why a nationalist would not be concerned about the cannibalisation of UK taxes if there were a minor gain to Scotland, but for those of us who take a wider perspective across the whole of the UK, that is a valid point to take into account.

It is generally agreed that a reduction in corporation tax in Scotland would result in some drawing in of business from the rest of the UK; I have heard no serious opinion suggesting anything else. If we accept that, we can do no other than recognise that that is not likely to improve relations between the jurisdictions, and as we would hope that in the event of an independent, or further devolved, Scotland there would be an ongoing relationship, beggar-my-neighbour politics on corporation tax is not helpful. The risk of driving that divide between England and Scotland by achieving a marginal gain in corporation tax revenue in the short term is not worth the candle.

[Mike Freer]

I am grateful to the hon. Gentleman for giving way and I pay tribute to his chairmanship of the Scottish Affairs Committee. Does he also recall the evidence we got from the editor and the business editor of The Scotsman? The issue was not the cannibalisation of corporation tax but the fact that the business community did not trust the SNP not to drive business out of Scotland with a high tax policy.

[Mr Davidson]

That is true, but that is a slightly different point. The business community was absolutely clear that it was worried not only about uncertainty but that the SNP might end up having an anti-business or a business-unfriendly regime. For the purposes of this debate, however, I was not going to go down that particular route at the moment. It is fair to say that nobody who was raising arguments in favour of the devolution of corporation tax was suggesting that it should be raised, but there was an assumption that devolution was in order to reduce it. It was noticeable that even with the points that were made in the Committee and subsequently we have not heard an argument about how the initial gap between the moneys that were previously received from the UK Treasury and the reduced amount would be made up. Even if in the longer term corporation tax was going to result in a growth in business taxation, which I doubt, there would undoubtedly be a short-term shortfall, and we have not heard any solution as to how that would be bridged.

I have great reservations about committing, in the current economic difficulties and a time of recession, to a set of policies that give more money to the private sector and rich people and that cut services for ordinary people who depend on those public services. That is the choice we are being asked to make. If we are all in this together, as has been suggested, how reasonable is it at a time when Scotland has economic difficulties and faces cuts in its budget, to suggest that the budget should be cut further to give a gratuitous tax break to business? That has to be further explored.

As I said earlier, I do not think this is the end of the matter—it will run and run. That is why the Government have to make available as quickly as possible as much information as they can. I suspect that the Scottish Government produced their figures some time ago and sent them down and that they have either been misfiled in the Scotland Office or lost in the post. I simply find it impossible to believe that after all the huffing and puffing that was done, those figures have not been calculated and sent down here, and I urge the Minister to search at the very bottom of his filing tray just in case poor staff work has misfiled those important documents. We have to make sure that this issue is resolved as quickly as possible.

The point on which the shadow Scottish Secretary was howled down was a very fair one. The interventions from the nationalists managed to distract her from making the important point that in 1988—it is true that was some time ago—Alex Salmond, who was then an SNP MP, was suspended from the House of Commons for attacking the Tory Government’s reduction in corporation tax, calling the proposals an “obscenity”. He might have been right then, but the policies he is adopting now seem slightly different, whereas, if anything, the economic situation is the same. I remember seeing that particular pantomime and, if I remember correctly, Mr Salmond decided to have his intervention because he believed that at a time of economic difficulty cutting taxes for business and for those who had most, for the wealthiest, was an inappropriate use of resources. Exactly the same economic situation pertains now and I think we need an explanation as to why what was an obscenity then is not an obscenity now. I recognise that times move on, cultures change and people develop, so if it was a youthful indiscretion, all well and good. If he tells us that, we may forgive and we may forget, but I very much doubt it. It would be helpful to the debate if that was clarified.

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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.

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[Mr Davidson]

It is very difficult to summarise several months of work in three minutes. I commend the Scottish Affairs Committee report to the House, and I hope everyone will read it carefully.

A number of points are worth repeating at the conclusion of our debate. Although I recognise that this is not the end of the story and that discussion will continue, the question of transparency in the figures is vital; that cannot be over-emphasised. If amendments from the Scottish Parliament are to be debated, they must be scrutinised as the proposals from Professor Hughes Hallett and Professor Scott were scrutinised—and, of course, in the end those proposals fell by the wayside because they were found to be wanting.

We must also recognise that financial pressures on the Scottish Parliament are likely to result in pressures for decisions in areas that did not previously have to be addressed. Hard choices are going to have to be made, so it is therefore again essential that the necessary information and arguments are put forward.

We must also be clear about what the verdict of the Scottish people was. Some 50% of the people in Scotland did not vote in the election. [Interruption.] Of those who did vote, fewer than half voted for separation. [Interruption.] We must remember that more people voted for my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) to be Prime Minister than voted for Alex Salmond to be First Minister.

Not everything the Scottish National party proposes is accepted, therefore. We must remember that Alex Salmond called clearly for a yes vote in the alternative vote referendum and was roundly defeated. [Interruption.] I notice that efforts are being made to shout me down. That is what has traditionally happened in Scotland when people have challenged the nationalists, and those of us who want to challenge the narrow neo-fascism of the nationalists have got to be prepared to have discussions—

[Stewart Hosie]

On a point of order, Mr Speaker.

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[Mr Speaker]

My powers do not extend to the refutation of nonsense.

[Mr Davidson]

Is it not neo-fascist to attempt to shout down speakers with whom one disagrees? We have had robust debate in the House on several occasions, but it has frequently been the case in my constituency, after I won it from the nationalists, that they have attempted to shout me down.