Public Finances: Scotland

John Redwood Excerpts

Wednesday 3rd February 2016 Commons Chamber

[Ian Murray (Edinburgh South) (Lab)]

I beg to move,

That this House notes the ongoing negotiations between the Scottish and UK Governments in the Joint Exchequer Committee on a revised fiscal framework to accompany the Scotland Bill; regrets that, despite both Governments repeatedly stating that the negotiation of a revised fiscal framework would be concluded by autumn last year, no agreement has been reached; further regrets the complete lack of transparency with which negotiations have been conducted; notes that, until agreement is reached, the measures in the Scotland Bill will not be implemented and the substantial new powers it contains will not be deployed for the benefit of the Scottish people; believes that both the UK and Scottish Governments have a duty to ensure that the negotiation of a revised fiscal framework which is fair to Scotland is completed in time for the Scotland Bill to be approved by the Scottish Parliament prior to its dissolution, so that it can use its current and future powers for the benefit of the people of Scotland; and calls on the UK Government to publish all minutes and papers from the Joint Exchequer Committee negotiations, and to assure the House that every effort is being made to ensure that agreement on a revised fiscal framework is reached, and the Scotland Bill is passed, prior to the Scottish Parliament elections.

I am sorry that you do not want an oratorical flourish, Madam Deputy Speaker, because that is what I was preparing to give—but never mind; we will continue with the debate. I appreciate that this debate has been curtailed because of the previous debate, which was on an incredibly important issue, and because of the Prime Minister’s statement. We have to accept how the House works in such circumstances.

It is a pleasure to open this debate for the Opposition. At its core, this debate is about the transfer of new powers to Scotland under the Scotland Bill, which completed its passage through the House in November and is currently in the other place. It is worth briefly reflecting on the Bill, to put this debate about Scotland’s public finances and the fiscal framework into context. The Bill had its genesis in the vow and the Smith commission, the recommendations of which were agreed by all five major Scottish political parties. When passed, the Bill will transform the Scottish Parliament into one of the most powerful devolved Parliaments in the world.

Scotland will have control over all income tax, apart from non-savings and non-dividends income, which generated almost £11 billion in revenues in 2013-14. The Scottish Parliament will have the power to vary the rates and bands of income tax, to increase or decrease those revenues. This greatly enhances the powers devolved under the Scotland Act 2012, under which the Scottish Parliament controls just 10p in the pound. On that note, the Scottish Labour leader, Kezia Dugdale, announced yesterday that, faced with a choice of cutting into Scotland’s future or using the powers of the Scottish Parliament, we would use the latter to set the Scottish rate of income tax at 11p, rather than the 10p in the SNP Budget, to invest in that very future for Scotland and to protect the low-paid. We made that point in the debate in the Scottish Parliament today.

These new revenue-raising powers are accompanied by new spending powers, such as control over £2.5 billion of welfare spending. The Scottish Parliament will be able to top up existing UK benefits and, thanks to concerted pressure from Labour and our amendments, will have total autonomy to create new benefits in devolved areas. When these new powers are enacted, the Scottish Parliament will be able to make different choices to create a better Scotland.

[John Redwood (Wokingham) (Con)]

Who in the hon. Gentleman’s party speaks for England to make sure that the settlement is fair to England as well as to Scotland?

[Ian Murray]

The settlement has to be fair to the rest of the UK as well, including England, but I will come to that later.

--- Later in debate ---

[David Mundell]

I am sure that the hon. Lady could find a lot more detail if she studied the Scottish press and looked through the various debates that have been conducted on the issue. We will report what happened in full. I do not recall important negotiations being reported in detail and on a daily basis in the House of Commons or elsewhere when Labour were in government. We do not intend to do that. We intend to reach an agreement that is fair for Scotland and fair for the rest of the United Kingdom. That is where our efforts are focused.

I remain an optimist. We are making progress, and I believe that we will reach an agreement. A deal can and will be reached if both sides want it. I know that the UK Government want a deal, and I believe the Scottish Government when they say that they want one too. The two Governments have agreed to speak again in the coming days. Although there are still some difficult issues to resolve, we remain confident that a deal can be reached that is fair to Scotland and fair to the rest of the UK, now and in the future.

[John Redwood]

I am grateful to the Secretary of State, who is doing a difficult task with great skill. Has a recent model been produced for how the income tax might work, because we have seen in previous debates that the forecasts for oil revenue were grossly exaggerated, and there is an unfortunate danger that with the collapse of the oil price will come the collapse of oil-related incomes in Scotland, which would have a bad impact on income tax receipts?

[David Mundell]

My right hon. Friend makes an important point, which speaks against those who argued just a few short months ago for full fiscal autonomy. It is quite interesting to look back at the amendment launched by the SNP in November to bring about full fiscal autonomy, which the Institute for Fiscal Studies predicted would create a £10 billion gap in Scotland’s finances. When the SNP asked for that full fiscal autonomy, it did not ask for what they now claim are the levers it needs to grow the Scottish population and offset the risk it is being asked to take on in relation to the Smith commission proposals.

The Government have been as open and transparent as possible in these negotiations, and each meeting has been notified to the House. Just this afternoon, the Chief Secretary appeared before the Scottish Affairs Committee. Last month, we responded in detail to the Economic Affairs Committee in the other place on fiscal devolution, having previously submitted written evidence to that Committee.

--- Later in debate ---

[Stewart Hosie]

Not at the moment.

What is remarkable is that the motion does not talk about public finances or the impact of getting the fiscal agreement wrong. It is almost exclusively focused on the process of negotiating a formula—a formula that, of course, must deliver no detriment, which was one of the key principles identified by Lord Smith. Although fairness for Scotland is recognised in the motion, many other drivers of Scotland’s public finances are not.

[John Redwood]

rose—

[Stewart Hosie]

Not at the moment.

There was a cursory passing reference to Labour’s plan, which was announced yesterday, to make Scotland the highest-tax part of the UK. That has a bearing on the public finances. It is a Labour plan to add to the tax burden of half a million Scottish pensioners. It is a plan to add to the tax burden of 2.2 million taxpayers. In essence, it is a plan to change the public finances by taxing Scots more to pay for Tory cuts. That is the weakness in Labour’s plan.

[David Mowat]

rose—

[John Redwood]

rose—

[Stewart Hosie]

No, I am conscious of time and it would not be fair to give way.

It is absolutely right that the negotiations are done privately. Imagine if there was a running commentary and slight snippets of information, out of context, became the fodder for a new “project fear” campaign run by Labour. We do not want that. We want a Labour party that, instead of sniping from the sidelines, is determined to support fair play, and a fair settlement that delivers on the principle of “no detriment”. Instead, we have this thin motion, combined with Labour MSPs who last week backed the Tories and refused to back the per capita index deduction block grant adjustment mechanism, which would deliver the “no detriment” principles that Labour signed up to in the Smith agreement.

In my view, that is economic and political madness from Labour, but it is not a surprise. After all, in advance of the fiscal agreement, before agreement is reached on an LCM, and before powers are transferred, the Labour party has spent many times over the modest cost of a reduction in air passenger duty—a policy that will create 4,000 jobs and put £200 million of economic activity into the economy—by committing to spend £650 million of Scotland’s public finances from a pot that does not yet even exist. No wonder Labour Members are more interested in talking about process than policy.

As the First Minister has said, the Scottish Government are negotiating the fiscal agreement in good faith, but they will not sign up to a deal that systematically cuts Scotland’s budget, regardless of anything that they, or any future Scottish Government, might do. That message has been reiterated many times by the Deputy First Minister, who said a few moments ago that the reason why we do not have a fiscal agreement right now is that there is no basis to be agreed that is consistent with the Smith commission, and we will not sign up to any document that is not consistent with the Smith commission report.

Let me conclude by being even clearer on behalf of my party: we will not agree to a fiscal agreement that abandons the principle of “no detriment” and embeds unfairness into the Scotland Bill. We will not support Labour tonight. This is a silly motion about publishing minutes that does not address the core substance of the fiscal agreement. We have tabled an amendment to that motion, and I commend it to the House.

--- Later in debate ---

[John Redwood (Wokingham) (Con)]

I wish to speak for England. The current settlement between Scotland and England, as the constituents of many of my right hon. and hon. Friends know, is not fair. It is very important that the Government take full account of the needs of England, as well as being scrupulously careful to meet the promises they and the other leading parties made to each other during the Scottish referendum. Please do not make the settlement even less fair to England as a result of the changes going through with the transfer of tax revenues, particularly income tax, to the Scottish Parliament and Government.

It is extremely difficult to know what factors lie behind an increase or a diminution in revenues. Some of us study it and we feel we get somewhere near the truth by looking at historical patterns, but it is clear that sometimes when the tax rate is put up we receive less, rather than more, revenue. Models have to reflect those perverse effects, particularly on higher levels of tax. Sometimes a tax increase may in itself, if it is one of the lower tax rates, produce some increase in revenue, but then something else happens that actually reduces the revenue. Conversely, there can be windfall effects through no particular action by the Government.

Scotland has had a very good windfall effect, not just from oil revenues proper, but from income tax revenues as a result of the very high price of oil in recent years and the way that drove up a large number of incomes in the oil and oil service sector. Unfortunately, from Scotland’s point of view, that may now be reversing. The model we use to assess what the revenues are now and what they are likely to be in the future has to be able to capture that complexity. I fear that a lot of the models used in the past by both Governments have not captured that because there are rather extreme effects when there is a big change in the price of oil. That needs to be used to inform the debate about how the grant should adjust to the changes in tax revenue.

It appears from what the Scottish nationalists have been saying that, while they want the power to vary income tax, there are absolutely no circumstances in which they would ever do so. They would always wish to keep the income tax rate in Scotland absolutely in line with England’s. That seems to be their very clear position. We have not been able to draw out of them any circumstances in which they would do so, but that makes the modelling a bit easier, because many of the changes in revenue are not going to come from changes in tax rates—as I say, they do not want to do that. They will come from the economic effects of their other policies.

--- Later in debate ---

[Mr Kevan Jones (North Durham) (Lab)]

This is an important debate not just because it proposes a fiscal framework for Scotland, but because of the huge impact on my electors in North Durham.

The Secretary of State said that he wanted no detriment to Scotland and a fair deal for the rest of the United Kingdom, but we do not know that there will be a fair deal for the rest of the United Kingdom. The Secretary of State said, strangely, that the negotiations required “a degree of privacy”, but what we actually have is secrecy. He then used what I considered to be new terminology, although it has clearly been well practised by this Government: he said that one of the roles of the press was to leak. At the end of the day, however, my constituents and I have no way of influencing or scrutinising what happens in the negotiations.

[John Redwood]

Does the hon. Gentleman think that the current distribution of grant and other money between England and Scotland is fair?

[Mr Jones]

No, I do not. Scottish Members were crying over Barnett, but my constituents would welcome the levels of expenditure that we see in Scotland. The main point is this, though. How can I, a Member of the House of Commons, scrutinise this deal if it is done behind closed doors, in a way that is clearly intended to satisfy the Scottish national party—[Interruption.] The point is that I will not have any opportunity to scrutinise that process.

The hon. Member for Dundee East (Stewart Hosie) trotted out, again, the argument about how badly Scotland had been treated. Let me gently say to him that he needs to look at the percentage of expenditure that the north-east of England has lost. The north-east is not a wealthy region; indeed, it is the poorest region in the United Kingdom, with the highest levels of unemployment, and its views should not be ignored.

The hon. Member for Christchurch (Mr Chope) asked who spoke for England, or the United Kingdom, in the negotiations. If the answer is the Conservatives, I have to say that they have been no friends of the north-east for many years, and we will get a very bad deal. The real test, however, relates to the powers that will be given to the Scottish Government. They already have the alternative of raising revenue, but they do not use it. Instead, they are aping the Conservatives with notions such as the freezing of council tax, which is not at all progressive in terms of redistribution.

The House should have the ability to look at how the deal will affect constituents in the rest of the UK. That said, I do not think we will need to bother, because it is quite clear what the Scottish nationalist party will do. It is going to string it out until May, cry foul and then use its victim mentality, which it has turned into an art form, to persuade the Scottish people that they are getting a raw deal from the rest of us. I do not think, therefore, that we will find ourselves in that position, which is sad, because it means we are not going to have a debate this May in Scotland about the use of the powers; instead, we are going to have the victim mentality. The SNP will blame the rest of us in the UK for the poor deal it has got, when, frankly, it does not give a damn about my constituents or any others in the UK.