Scotland Bill

Lord Kerr of Kinlochard Excerpts

Thursday 15th March 2012 Lords Chamber

[Lord Steel of Aikwood]

My Lords, I suspect that there is nobody listed in the category in the Bill who does not live in Scotland, but the Minister is right in one respect: it was not always so. My predecessor as MP for Roxburgh, Selkirk and Peebles lived in London—I do not say that critically; that was a fact. He did not come from Scotland but he had a Scottish constituency. He came to visit the constituency dutifully from time to time, but he certainly would not have been regarded as having a close connection with Scotland, nor would he have spent the majority of days in Scotland. So, although I cannot think of anyone who would be excluded by taking this out, as my noble friend Lord Forsyth suggests, it could happen.

It reminds me of a story that Jo Grimond used to tell about coming across one of the knights of the shires at King’s Cross station at the start of the Summer Recess. He was putting his trunk into the guard’s van on the train and he was in a very bad mood. Jo Grimond said to him, “Why are you so upset?”. He said, “It is not the thought that I am going to my constituency; it is the thought that I shall have to go next year as well”. Fortunately those days have gone and I do not think that that would apply now. None the less, it is a reasonable safeguard to have this clause in the Bill.

[Lord Kerr of Kinlochard]

The noble Lord, Lord Forsyth, has drawn attention to a point of principle here. Creating special categories is, by definition, undesirable. It is probably the case that every single person who meets the three categories listed here would qualify as having a close connection under the other tests of what a close connection is. It is very unlikely that any of them would not meet the test of residence and the number of days resident, so why create this special category? I cannot see a practical argument for it but I see an argument of principle against it.

[Lord Forsyth of Drumlean]

My Lords, I do not think the Minister made the case for having this in the Bill when he was trying to give an example of someone who might be caught, notwithstanding the reminiscences of former Liberal MPs for Scotland, or whichever party they were from. This does not exist nowadays. If you were an elected Member and there was an idea that you were avoiding Scottish income tax, the practicalities would be death and destruction. The measure is completely unnecessary. As the noble Lord, Lord Kerr of Kinlochard, who was advertised on the annunciator as the noble Lord, Lord Norton of Louth—I say this in case Hansard gets it wrong—said, this is a bad principle.

On the earlier amendment, I referred to there being a real injustice in respect of the armed services and I was arguing for a specific provision for them. My noble friend responded by saying, “We think that the existing tests cover it and therefore I am not going to do it”. I cannot reconcile these two competing bits of logic. If his position is that the criteria provide a clear view as to whether or not you are caught, why single out Members of Parliaments? I suspect its origins can be found back in the debates about the impact of a Scottish income tax and whether Scottish MPs would be caught, and that has been written into the Bill.

The provision is completely unnecessary and I hope that my noble friend will think about taking it out. Apart from anything else, it would reduce the number of column inches of legislation which a Government committed to it would produce. I beg leave to withdraw the amendment.

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[Lord Kerr of Kinlochard]

My Lords, I follow exactly what the noble Lord, Lord Forsyth, is doing but it gets worse and worse. The best answer would be to remove these special categories altogether. Other countries have gone down the road of having special treatment for the public sector nomenklatura and singling it out in legislation. It is not a good road to go down.

[Lord Davidson of Glen Clova]

My Lords, might I also perhaps encourage the noble Lord, Lord Forsyth of Drumlean, to consider the position of judges. One of the great strengths of the United Kingdom is that Scotland has access to the whole Supreme Court, and therefore some of the finest minds and judiciary in the world. All those members of the Supreme Court have responsibilities for Scotland and it would perhaps be unfortunate if all 12 members of the court were to suddenly find themselves subject to the Scottish rate of income tax. I know he is looking for suggestions for his list, but possibly that one should be removed.

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[Lord Sassoon]

My Lords, that was not a tax issue, and I do not know the detail of that case, but we are talking about changes to the structure of the UK income tax system, which is something that is done by the UK Government. We are talking about circumstances that are rather far away from a Scottish spending matter that the noble Lord described.

[Lord Kerr of Kinlochard]

I am lost. I fear that I do not understand this no-detriment principle. I may be showing my ignorance coming late to this subject. I thought that I understood the rationale for the Scottish rate: the UK system would remain the same but there would be this variable—take 10 per cent off and top it up. I assume that the allowances, thresholds and system would be the same over the UK. If, for example, a Government believed that more growth could be obtained by going for a lower rate of tax, or higher allowances, and thus lower revenue, that would be the case across the United Kingdom, including in Scotland. The only thing that would move would be the variable rate if the Scots chose to move it. What is this detriment? Are we saying that the Scots could enjoy the advantages of the greater growth in the United Kingdom but that the detriment to their revenue would be compensated through a block grant system? That would be winning twice. That cannot be what is intended. Will the Minister explain how the no-detriment principle works?

[Lord Sassoon]

The noble Lord has explained the construct absolutely correctly, so I have no problem with that at all. However, if the UK Government decide to raise personal allowances to take more people out of tax, that will flow through to a reduction in the receipts to the Scottish Government under the construct that he has described. The UK will compensate the Scottish budget through the block grant for such a reduction of the tax base for Scotland, based on forecasts by the independent Office for Budget Responsibility.

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[Lord Kerr of Kinlochard]

That is marvellous news. I do not have a house in Scotland now but I need to get up there fast and get a close connection. If, on the Minister’s example, the allowances improve, that will suit me personally, but the Scottish Government and the First Minister will have more cash through compensation to make sure that the services I draw on in Scotland are in no way diminished.

[Lord Sassoon]

I would not want to get the hopes of the noble Lord or anyone else up too high. It will just bring Scotland back to where it was before we started this. It is not that Scotland will gain; it will just make sure that Scotland is brought back to where it was going to be before the change.

[Lord Kerr of Kinlochard]

May I ask the noble Lord about the economic benefits of the change and the reduction in the tax take, and to confirm that it would not suffer a reduction in its tax take?

[Lord Sassoon]

That is correct, and so it should be. If the UK Government decided to rebalance the taxes in some fundamental way, of course it would be wrong to take away the expected income tax take for Scotland that itself is reflected in all the calculations of the block grant. Again, I can attempt to see whether I can put down a worked example to show how the money flows will go, but this is not intended to give Scotland some great bonanza. It is a two-way balancing mechanism to make sure that neither Scotland nor the rest of the UK is disadvantaged by the way in which the effect of personal allowance changes will flow through the system.

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[Lord Kerr of Kinlochard]

My Lords, I thank the noble Lord for trying to cast light into my ignorance, but it is getting worse; the fog is getting thicker. Does the no-detriment principle have a reciprocal? If not, why not? Should there not be a reciprocal? Let us suppose there was a tax change that widened the tax base. Would that be no detriment just to the Scots, or no detriment to the UK? Before the Minister responds, perhaps I may make a second point. I see two little gleams of light from the lighthouse in the fog. One was the suggestion made by the noble Lord, Lord Browne, that it might be good if one could set out on paper how this is to work. I should have got there long ago, but I had not realised it. That is central to the issue of accountability, but I had not quite got it. I turn now to the noble Lord, Lord Stewartby, for the second light. Since it is so central to the issue of accountability, should it not be on the face of the Bill?

[Lord Sassoon]

First, I shall repeat what I believe I said earlier. This adjustment would go two ways. We have talked about so many things as being a form of one-way traffic this afternoon, but that is not the case. However, we want to make sure that the Scottish Government are accountable for what they are responsible for under the construct in this Bill, which is the effects of their powers to set a Scottish rate of income tax. They are not accountable either for a windfall gain or a windfall loss—if you can have a windfall loss—resulting from things that are done by the UK Government subsequent to the setting of the block grant adjustment. If we set out a worked example of how this will operate, I would like to think that it will be made clearer.

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[Lord Kerr of Kinlochard]

My position is diametrically opposed to that of the noble Lord, Lord Forsyth, on the general power. I agree with him that it would be good not to have the accountability element so heavily dependent simply on the extra tranche of income tax. However, it is up to the Scots to decide how or if they wish to move further, and on which taxes. The general power seems wholly reasonable, and for us to pick and choose air passengers or whatever seems a rather bad idea.

Mine is not a complete laissez-faire position. As I said in my debate with the noble Lord, Lord Sewel, on a previous day in Committee, a counterpart to a general power is a mechanism for neutralising the macroeconomic effect. You would be very rash to start to recreate the situation that we have seen in the eurozone with Greece and Germany. That is why I am very nervous about having devo-max or devo-plus, unless and until the monetary or borrowing consequences of greater fiscal autonomy are spelt out. When we come to the borrowing bit of the Bill, I will have something to say.

I do not know what the right rate is for air passenger duty, and I consider it irrelevant to the debate on the Bill. I doubt very much that Mr Salmond, with his green credentials, would follow the noble Lord, Lord Forsyth, in thinking that a lower rate would be the right one. There are many taxes other than this one that he might prefer to lower. But it is up to them, following the procedure that would require consultation with us. The lead should come from them.

[Lord Forsyth of Drumlean]

The noble Lord says that it is up to them. They want this power and Calman recommended it, and it is not in the Bill because the Government have not included it, even though they have been telling us that the Bill will implement the Calman recommendations. The legislative consent Motion that was considered by the committee of the Scottish Parliament specifically requests that it should be a condition of Scottish consent to the Bill that the air passenger tax should be included.

[Lord Kerr of Kinlochard]

As always, the noble Lord, Lord Forsyth, follows precisely the recommendations of the Scottish Parliament committee.

[Lord Kilclooney]

When discussing what should happen with Scotland, we should always also take into account not just England but Wales and Northern Ireland. In Scotland at the moment, as I understand it, there is already a variation in air passenger duty. Quite a few of the airports in the islands are already excluded, so the idea of having a different air passenger duty in Scotland is, in principle, accepted. If the power was devolved to a Scottish Parliament, would that lead to a reduction in the block grant to the Scottish Exchequer from the central Exchequer? Is there not something of a contradiction in government policy on the issue of air passenger duty, in that the Secretary of State for Northern Ireland is already recommending that air passenger duty should be transferred to the Stormont Executive?