Scotland Bill

Lord Lang of Monkton Excerpts

Wednesday 28th March 2012 Lords Chamber

[Lord Forsyth of Drumlean]

My Lords, the noble Lord, Lord Browne, can probably rest easy as far as Amendment 16 is concerned. We have been around this course a number of times. I find it very difficult to understand, especially given the announcement just made by my noble and learned friend. He has just told us that there is a recommendation for legislative consent. We have heard repeatedly during the course of the deliberations on this Bill that it implements the recommendations of the Calman commission. Nowhere does the Calman report suggest that there should be an open-ended power to create new taxes of any kind, to be introduced by order in both Houses.

I have two objections to that. First, the taxes which are intended to be given to the Scottish Parliament, like the aggregates tax—we have a later amendment on that, which I do not propose to move because I know that the Government will say, “We are not ready to do that”—are not in the Bill. We have this open-ended power. My objection to this open-ended power is constitutional. It cannot be right that we have an order-making power for the imposition of taxes through the House of Commons and the House of Lords. I know that the Minister will say, “Oh, but this will be discussed in the Scottish Parliament”. This is the sovereign Parliament and the House of Commons is the sovereign body. Its history is one of voting means of supply. To create a procedure that enables taxes to be imposed without going through the requisite finance Bill and Committee stages in the House of Commons is a huge step which is in no way justified by the manifesto commitment or by anything that the Calman commission said.

I urge my noble friend to think again about this. It is an enormous change to our constitutional processes. I cannot think of any example where it has been possible to impose a tax by Order in Council. The very early history, with the arguments over ship money and everything else—I do want to repeat arguments that I used in Committee—was about this very principle. It is a dangerous precedent to create. One of the things that worries me about this Government and the previous Government is that there does not seem to be an understanding that we have no written constitution in our country. Our constitution, in so far as it exists, exists in the procedures and conventions of the House of Commons and of this place. To ride roughshod over them in this way for the sake of convenience is a very retrograde step, which has certainly not sprung from any commitments or recommendations that have been made externally. I can see how it is for the convenience of Ministers and the Executive, but it is utterly wrong in principle. Even at this stage, I ask my noble friend to think again and find some other method of achieving his objectives which does not ride across the very nature and existence of our parliamentary procedures. I beg to move.

[Lord Lang of Monkton]

My Lords, I support the amendment of my noble friend Lord Forsyth. Like him, I am concerned about the constitutional aspect of it. Here is part of a structure to set out a tax-levying power within the Scotland Bill which represents an abrogation by the United Kingdom Government of their obligation to promote financial stability, efficiency and good government across the whole of the United Kingdom.

Of course, it is one thing to devolve a tax-raising power to a specific area, as is contained in the Bill; I have my own views about that, which I will say a little about in this context. However, it is also the duty of the United Kingdom Government to ensure that the policies which they espouse and the priorities that they hold for the good financial and economic government of the kingdom should be as capable of implementation in Scotland as in the rest of the United Kingdom. The capacity of any Government of any complexion to fulfil other, broader financial and economic obligations against the background of the impact of the tax provisions specifically contained in the Bill is seriously jeopardised.

I see the whole Bill as a Trojan horse. I think that the commission and those who prepared the Bill and brought it forward were, perhaps, not fully aware of the potential damaging impact on the Scottish economy. It will create major challenges. I raised a couple earlier in the passage of the Bill, at Second Reading and again in Committee. The first is the situation affecting the tax base. The Scottish tax base will be smaller and weaker than the tax base on which provision for Scottish expenditure is currently based. Scotland’s economy has a higher proportion of company failures and a lower proportion of company formation. It has a smaller and weaker entrepreneurial class. It has a higher proportion of public sector employment. All these points have been made already, but they have to be made again because they feed into this problem of lower growth and expansion and a weakening private sector. However, it is on that weakening and small private sector, relative to the rest of the United Kingdom, that the impost of the 10 per cent tax rises will fall.

The study to which I referred earlier showed that the United Kingdom public expenditure base had expanded by 94 per cent in the previous 10 years, while the Scottish tax base, which will form the basis of this 10 per cent tax, had expanded by only 48 per cent. That may not be continued at the present time when the Government’s public expenditure programme is much more disciplined, but what will happen in a future Parliament, in future circumstances, when the economy nationally—by which I mean across the United Kingdom and, indeed, in the world at large—is expanding and once more on an efficient growth track? That is when the divergence will reappear. At that stage, of course, if Scotland were separate from the United Kingdom, the added burdens of dependency on a volatile oil price and reducing oil production, which are now generally agreed to be likely for the next few years, would come to bear.

The 10 per cent tax rate would have to take a massive degree of strain. This is where the gearing feature comes into it, just as we have seen with local government taxation where the bulk of funding comes from the United Kingdom Exchequer and only a small proportion is raised locally by local councils. So, if a local council wants to make a 2 per cent increase in spending, it would have to increase taxation by a multiple of that, perhaps a large multiple.

I remember the referendum that took place in Quebec about 10 years ago. When I was in Toronto last year, it was pointed out to me that, although the referendum to separate Quebec from the rest of Canada failed, the economy of Quebec went into a grey, dismal period from which it has not yet emerged. I was even told that the Bank of Montreal had moved its headquarters to Toronto in Ontario. That is an example of the kind of problem that we may face.

We talk about the importance of inward investment but, against this kind of background, in the future we will have to talk about the loss of existing companies from Scotland—outward investment. Where will the major Scottish companies choose to locate against the background of the economic troubles that will develop within Scotland? Where will the Royal Bank of Scotland choose to locate? Where will Standard Life go? These companies have 95 per cent or 98 per cent of their business outside Scotland, and they will be thinking very carefully about their future taxation residence.

Corporation tax, which the Scottish Administration at present claim they want to reduce, is already coming down very sharply. It is 24 per cent now and there is a plan to reduce it further. If the Scottish economy in a separate Scotland were to try not only to keep up with but to exceed that, it would find that the Laffer curve does not work as efficiently as might be hoped in an economy that is otherwise deeply strained, and that it faced a race to the bottom. It would be extremely difficult and very serious.

The danger there is that, against the background of this Bill and these tax provisions within it, people in Scotland would demand further taxation concessions, and so one more step down what we used to call the slippery slope but is now called the continuing process of devolution would take place. It is not devolution that is a continuing process—it is separation. The salami slicing of Scotland’s place as an equal partner in the United Kingdom is taking place.

The Government should give an answer as to why, against that background, they have put these tax provisions in the Bill without contemplating the effect they will have in reality. I have not had an answer to the questions I raised earlier; my noble friend Lord Forsyth also raised them. I see that we are privileged to have my noble friend Lord Sassoon from the Treasury in his place. I hope that he may be able to enlighten us or, if nothing else, admit that there is a problem and say, “We accept it and we regret it but we have abrogated our position as Her Majesty’s Treasury for the United Kingdom”. I support the amendment.

--- Later in debate ---

[Lord Richard]

My Lords, I apologise to my noble friend Lord Barnett for not being here at the beginning of this debate. I am afraid that I missed it on the Annunciator and I realised only after my noble friend had started speaking. I listened to what the noble Lord, Lord Steel, said. As I understand it, the object of my noble friend’s amendment is to get this House to declare quite firmly that the Barnett formula’s days are done. We went into it in great detail in the Select Committee. I do not want to refer to that in detail except to say that it was a unanimous report and that the membership of that committee included a former Chancellor of the Exchequer, two former Secretaries of State for Scotland, and two other Ministers, I think, who had served in Scottish departments. We went into it in considerable detail and all came to the conclusion that the so-called formula had been instituted by my noble friend Lord Barnett casually—I hesitate to use that word—or at least without any thought that it would subsist for generation after generation or would become enshrined with the term “formula”.

My noble friend is right. What is wrong with the so-called Barnett formula is the baseline, which is now about 40 years out of date. In those circumstances, how can one justify its continuation? We asked ourselves very firmly the question: could you have a formula which is based on needs? We came to the conclusion that you could. Indeed, we set out in some detail in the report the way in which you could arrive at a needs-based formula and the result of applying it. In those circumstances, how can the Government project an amendment which says that something that has been in existence for 40 years—it is clearly out of date and way past its sell-by date—and is designed only to preserve a situation, which, as I say, is 40 years gone? It is being done on spurious grounds when in reality we know exactly what is going on; namely, that the Government do not want to stir the pot in Scotland because they think that it may prove to be politically disadvantageous. I am sorry to say it but the pot should be stirred. After 40 or 50 years, it is time for this to be resolved.

I totally support my noble friend in what he is trying to do, which is to get this House to put a marker down that the days of the Barnett formula have gone and that we should look at a needs-based formula rather than the existing one. If my noble friend chooses to divide the House on this matter, I, for once—very rarely for me—would support him.

[Lord Lang of Monkton]

My Lords, I support the noble Lord, Lord Barnett, in his attempt to abolish the formula in his own name. Most of us would give our eye teeth to have a formula named after us. The noble Lord carries a great burden and I sympathise with him because it is a burden based on a complete misunderstanding, to which the noble Lord, Lord Richard, has just alluded. Although, over the years, Secretaries of State have taken advantage of it in the territorial departments to varying degrees, it is not something that we have done with particular pleasure because we have become increasingly conscious of the anomalies inherent in it, as those anomalies have expanded.

It has distorted the debate with colleagues, created resentment in the country and spilled over into antipathy towards Scotland, which could colour the debate and the future referendum on Scottish independence. Because it is indefensible it really should be got rid of and we need a clear statement from this House that that should happen. I disagree with the noble Lord, Lord Steel of Aikwood, whose formula for keeping it and allowing it to wither on the vine was peppered with “ifs” and “assuming thats”. I think that we need a clear statement on it.

The reason why I think that the noble Lord, Lord Barnett, has been unfairly treated in having the formula named after him is that it—the twist to the arrangements, as he called it—was not a formula at all. It was a change in the way in which the additions were made to the baseline. They used to be expressed as percentages and be applied evenly across the whole United Kingdom. As the Scottish baseline rose, those percentages delivered larger cash sums. So the ingenious scheme which the noble Lord hatched with Mr Bruce Millan, the Secretary of State for Scotland at the time, was that instead of Scotland getting a percentage transfer, it would get a cash transfer. They would get the same cash increase to baselines per year, which would represent a smaller percentage when applied to their own baseline.