Scotland Bill

Lord Sewel Excerpts

Thursday 15th March 2012 Lords Chamber

[The Earl of Mar and Kellie]

My Lords, my noble friend Lord Forsyth is suggesting that we need another referendum on the use of tax powers. It is my memory that, 12 years ago, the second question in the referendum was along the lines of, “This Parliament should/should not have tax-varying powers”. Do tax-varying powers not strike a lot wider than the Scottish variable rate, which was enacted? Consent has already been given for any form of variation in existing taxes.

[Lord Sewel]

My Lords, I refer to the earlier discussion about groupings. Do I take it that the authoritative groupings list that we are working to is the one that is still being distributed by the Printed Paper Office?

[Lord Wallace of Tankerness]

I hope I can be helpful. My understanding is that my noble friend Lord Forsyth has spoken to a grouping of Amendments 53, 55, 56 and 57. He indicates that that is right. If there is some confusion it is because it was thought that the amendments in the name of the noble Lord, Lord Foulkes, which start with Amendment 66, had been regrouped. However, he indicated that that was not the case and that he will speak to them when we come to them. Therefore, the groupings of the amendments on referendums that we have here are definitive.

[Lord Sewel]

I am grateful for that. Have any amendments been degrouped?

[Lord Wallace of Tankerness]

I am not aware of any other degroupings.

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[Lord Sassoon]

The words were carefully considered. I have put them on the record twice and my noble friend knows perfectly well that I am not going to go any further, whether I have a script or not. The Ministry of Defence will do just what I said it will do in these circumstances, if and when they arise.

[Lord Sewel]

My Lords, I think we all appreciate that the Minister cannot go further today than he has gone. However, we have Report stage. Is he prepared to come forward with something more specific on Report—or does that remain at least a possibility?

[Lord Sassoon]

I am not sure what it is that the noble Lord wants me to come forward with. There are two things here: the basic test, where the Government’s position is that the close-connection test should apply; and the question of what the compensation arrangements might be in the hypothetical circumstances, which are quite possible, of a higher rate of Scottish tax being imposed. I cannot give a commitment to come back with anything more on either point, although I am taken in particular with the very practical points that might arise if, for example, there are security reasons for not disclosing the address of a main residence. These are the sorts of important and practical issues that need to be taken account of in the guidance which serving personnel clearly need to be given, as and when they have to apply the test.

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[Lord Forsyth of Drumlean]

My Lords, I want to touch on this briefly. It was a point alluded to by the noble and learned Lord, Lord Davidson of Glen Clova. This is about fairness and I hope that my noble friend the Minister is not going to tell me that there is a principle involved here. I see a principle, which is that you should not be taxed for something that you have not received.

As drafted, the Bill provides that if at any time in the tax year someone is defined as a Scottish taxpayer but then changes his status, my noble friend says that he will have to pay the tax. Perhaps he is one of those members of the armed services, who is stationed in Edinburgh from April to May and then goes somewhere else for the rest of the year. He will have to pay the Scottish rate of income tax for the full year, not only for the period when he was defined as a Scottish taxpayer. That cannot be right. I can see why it is administratively convenient for the Revenue and the Treasury. They have thought up the idea of having different tax rates in the United Kingdom but I do not see why taxpayers should have to bear the burden. It is unfair and my amendment provides that liability to pay the Scottish tax should arise only for the time when someone is getting the benefits of the services and political representation that the Scottish Parliament provides. I hope that my noble friend will accept this as a matter of principle and on grounds of fairness. I beg to move.

[Lord Sewel]

My Lords, I do not want to keep on going back to 1997-98, but this was the sort of problem that arose then. I shall take the argument slightly further forward, because we now hear that the Welsh Assembly wants to have tax-varying powers. That is very understandable. If the same test is applied in Wales as has been applied in Scotland, it would be possible for a person to be a national taxpayer in Scotland and a national taxpayer in Wales for the whole of a tax year.

[Lord Sassoon]

My Lords, my noble friend’s amendment would introduce the concept of split-year treatment for those who move between the UK and Scotland during the tax year. I quite accept that a more accurate split of tax payments based on the time an individual spends in Scotland and the rest of the UK might in theory be desirable, but it would add very considerable cost and complexity to the system. As I took pains to point out in the previous discussion, in the Bill, we have been trying to keep the overlay of the application of the Scottish rate as simple as possible. My noble friend continually postulates circumstances in which there is a higher rate of income tax in Scotland and he puts the case of somebody who is disadvantaged by spending a relatively small amount of the year in Scotland but being caught by the definition for the whole year. I could equally well give cases that might apply the other way round. I accept that, in theory, the system should more closely be related to the amount of time an individual actually spends in Scotland. Theoretically, one cannot argue about that, but it would introduce cost and complexity into the system without the advantage or disadvantage going in one particular direction. What should rule here when we come to the practical application—

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[Lord Forsyth of Drumlean]

I would guess that that must be because electoral registration offices have far more staff than HMRC, so it is probably easier for them to cope with these matters. This is an important principle. The idea is that it is just too difficult and too complicated. When we raise the issue of how employers are going to deal with a payroll where people are constantly changing from being liable for Scottish or English tax, we are told by Ministers and the Treasury, “It is very simple. It is just a matter of changing the tax code, so it is not a problem”. But when it comes to the Treasury having to take account of liability, if it is about collecting the tax, then it is far too difficult and complicated. I think we are getting a bit of doublespeak here. I do not say that that applies to the Minister—

[Lord Sewel]

Before the noble Lord reaches his peroration, as I am sure he will shortly, does he not accept the point I tried to illustrate somewhat earlier that although it may be unfair for a person to move from Scotland to England and still pay a Scottish tax, it would be totally iniquitous for a person to move from Scotland to Wales, if Wales gets tax-raising powers, and finish up paying two lots of extra tax?

[Lord Forsyth of Drumlean]

I have considerable respect for the noble Lord, who of course was the architect of the whole devolution thing and of the Scotland Act.

[Lord Sewel]

Not in the way the present lot are trying to define it.

[Lord Forsyth of Drumlean]

I was about to go on to say that I am not sure that this problem would have arisen under the definition which applied in the 1998 Act. When I asked my noble friend why he had abandoned the definition in that Act, he told me that he had done so in order to achieve clarity and to make it simpler. It is not simpler, as the amendment we are discussing illustrates. If the noble Lord says that the anomaly he speaks of would not arise under his definition, which was certainly shorter, perhaps we should go back to the drawing board. However, my noble friend does not look as if he wants to do that.

We have had a good debate on this—

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[Lord Davidson of Glen Clova]

My Lords, it is always a danger to generalise from the particular. In this instance, one sees that we on this side are content that the tax be devolved in due course—but where the people in Scotland, as expressed through their Bill Committee, seem to see virtue in waiting, we would agree with them.

[Lord Sewel]

My noble and learned friend talks about being content for the tax to be devolved in due course. That would be the route that the noble Lord, Lord Forsyth, identified, in which the only parliamentary control is an order. Will my noble and learned friend tell me where he draws the line between those taxes that should be devolved through primary legislation and those that should be devolved through secondary legislation?

[Lord Davidson of Glen Clova]

I am obliged to my noble friend. There is considerable difficulty in identifying where that line should be drawn. However, where there is a significant tax, the view from this side is certainly that there would be virtue in its being found in primary legislation. If one were using a power under new Section 80B, it would be primary legislation in the context of the Scottish Parliament. I hope that helps.

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[Lord Sassoon]

I merely refer my noble friend to the arguments that I made on this point in our previous Committee session two weeks ago. I will not repeat them because it would take up too much of the Committee’s time to refute those points. It is important, as other noble Lords, including my noble friend, have said, to remind ourselves of the context in which specific taxes are referred to in the Bill. I certainly agree that, as the noble and learned Lord, Lord Davidson of Glen Clova, said, the reason not to take the issue of air passenger duty further at this time rests partly on the existence of the powers in Clause 28.

[Lord Sewel]

I thank the noble Lord for giving way. I have had a reply to my question from my noble and learned friend on the Front Bench; perhaps the Minister could also reply. Where does he draw the line between those taxes that can be transferred or created through primary legislation and those that should be created or transferred through orders?

[Lord Sassoon]

I think that the line is drawn as the Bill stands in its present form, as we debated at considerable length on a previous Committee day.

[Lord Sewel]

Will the Minister outline the principled argument on which the division is based?

[Lord Sassoon]

No, my Lords; I do not propose to repeat the arguments and debates—interesting, important and lengthy though they were—because we should turn to the specifics of air passenger duty, which is the subject of the proposed new clause. Air passenger duty is an important issue on its own account, but it is not an easy one, for reasons to which my noble friend and others have referred. It is precisely because air passenger duty is so important that the Government have specifically sought views on the merits of devolution from a UK and a devolved perspective in their recent consultation. The responses provided arguments both for and against. Several respondents argued that devolution was necessary to reflect the distinct economic and social conditions in Scotland, and the impact that this has on flights to and from Scotland, in support of the Calman recommendations. Others opposed any devolution of air passenger duty, arguing that it would complicate the APD system and create potential distortions in the market for flights. There was no clear view either way. The Government’s response to the consultation was published on 6 December 2011.

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I am moving the amendment regardless of whether I withdraw or press it. I have been trying to explain to some people outside this House, particularly one or two of the cybernats—with whom I have had a dialogue, believe it or not—that the purpose of the Committee stage is to explore issues, to listen to debate and, if necessary modify your view in relation to the arguments that have been put forward. We have not had any Divisions; we will, perhaps, on Report. I have listened to what my noble friend Lord Browne has said. If it is confirmed that this gives us the mandate, I would seriously consider withdrawing the amendment and not even moving it at a later stage.

[Lord Sewel]

My Lords, it is inevitable that this bit of our proceedings will be dominated by an argument not so much about a referendum but about fiscal autonomy and fiscal responsibility. I follow my noble friend only in the sense that I speak after him, not in the sense of following his arguments. He is a great and genuine supporter and exponent of fiscal autonomy. I am afraid that I am a total opponent of fiscal autonomy. A unitary system like ours has the great benefit of being able to move resources—public expenditure—around from richer areas to poorer areas. It so happens that that is a political objective, a political process that I am more than happy with. That is what we ought to be about: reducing inequalities.

The difficulty with fiscal autonomy is, in fact, that you lose that ability. It is not so much that you freeze inequalities; you are most likely going to make them worse. The rich areas will have a strong tax base, a relatively high tax take and very few deep-seated problems to deal with. The reverse will be the case for poorer areas. Their tax base will be fragile and they will have a low tax take, but they are faced with enormous social and economic problems. Only through a unitary system does—let us say it—the state have the power to move resources around to enable those inequalities to be lessened. That is an agenda that I wish to support. Fiscal autonomy leads us in completely the opposite direction.

[Lord Maclennan of Rogart]

My Lords, I thought that I was going to agree with the noble Lord, Lord Sewel, but I find that I take a third and different position from those advocated by the two noble Lords who preceded me. Like the noble Lord, Lord Foulkes of Cumnock, I am a federalist and I do not believe that federalism is to be identified with the unitary model that the noble Lord, Lord Sewel, recommended. However, we should look at different levels of taxation and at giving greater fiscal responsibility for the matters that have been devolved.

I hope, however, that we will not confuse the issue at this stage, before the federal option has been properly explored and ways of dividing tax-raising powers between the different levels of government adequately set out, so that people not only in Scotland but in Wales, Northern Ireland and England can grasp what this is about. We should include in our explanation details of the provision for the redistribution of the wealth of the United Kingdom to its constituent parts—not only to the four nations but to some of the regions of England, which seem to be doing rather badly out of the Barnett formula.

The timing of the referendum seems inappropriate. It turns not only on whether the earlier referendum gave the mandate to Parliament that the noble Lord, Lord Foulkes, has come round to thinking that it did. It seems to me that at the time—and I am basing my remarks entirely on memory—we were thinking about varying the rates of income tax and not about extending taxation. I was interested to listen to what the noble Lord, Lord Browne of Ladyton, said on that, and I dare say that he has done more historical research on the point than I have. It will be interesting to hear from the Minister, who I am sure will answer these questions, whether the noble Lord, Lord Browne, was right, and I hope that we can accept that there are more than two ways of imparting the responsibility for fiscal tax-raising. There is also a federal way. We should explore that, because it operates more fairly throughout the United Kingdom and will take care of the other countries, whose needs also need to be thought of in this context.

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[Lord Foulkes of Cumnock]

My Lords, as I said at the start, the purpose of my amendment was to have a debate on it. There are a number of amendments, as the Minister rightly said, but I am not sure that the one on Antarctica has anything to do with me. I cannot remember tabling one about Antarctica, but I certainly tabled one in relation to Calman or further fiscal responsibility. I will come back to the Minister’s point on that, because there is an inconsistency in what he says. That is the main point that needs to be made.

First, I totally understand what my noble friend Lord Sewel said. He is absolutely right about redistribution, whether it be redistribution within the whole United Kingdom, within England or within Europe. I am sure that my noble friend, who is a distinguished member of the Council of Europe delegation—

[Lord Sewel]

The NATO delegation.

[Lord Foulkes of Cumnock]

He is a member of the NATO delegation, but he understands the European issues and I am sure that he will know that redistribution within Europe to the poorer areas is as important as within the United Kingdom. I am not suggesting that there should not be some kind of arrangement or formula for that kind of redistribution. There is no reason why it could not be done, and I am sure that the noble Lord, Lord Lyell, who has extensive knowledge of Germany, will be able to indicate that there are arrangements within Germany to make sure that some of the poorer Länder are helped by some of the richer Länder.

That can be done in a federal context as well, which brings me to the noble Lord, Lord Maclennan. He and I ultimately favour a federal system; that is the one stable system that is desirable. We had a unitary system which created tremendous problems and inequalities. In Scotland, it created problems through a lack of political accountability. At the other end is total separation with the break-up of the United Kingdom, which would be disastrous. A federal system has all the advantages of working together but with local autonomy. What we have at the moment is a quasi-federal system, and we need to move towards a proper federal system. I know that he and I agree on that.

The noble Lord, Lord Forsyth, said that he was unsure whether the 1997 referendum gives us a mandate. This is the crucial thing; he thinks that it does not, as I did not when I tabled these amendments. The noble Lord, Lord Forsyth, is laughing but he has spent almost all of today trying to persuade the Minister to concede, to change his mind and to listen to argument. Both Ministers have of course refused to consider any of his arguments but when I take account of what other people say, he laughs and says that I am inconsistent or doing a U-turn. I am just trying to go through the arguments as to whether a further referendum on a major extension of tax-raising powers for the Scottish Parliament would be necessary.

What I understand the Minister to have said is that although his recollection is much the same as mine, when we got that big majority for tax-raising powers in the 1997 referendum, the understanding in the surrounding debate was that it was for plus or minus 3p.

However, he extrapolates, using the new legal concept that my noble friend Lord Browne has devised, that it gives the Government a partial mandate to introduce the new tax-raising powers in Calman. These go a long way, as the noble Lord, Lord Forsyth, pointed out. However, he has reservations and does not think it is enough of a mandate to go for full fiscal responsibility. I find that strange. It is very difficult to understand why, if the referendum was a mandate in the context of plus or minus 3p and is a mandate for Calman, which goes half way towards full fiscal responsibility, it is not a mandate for full fiscal responsibility. Does it go a quarter of the way? I presume that it does if it goes half way. Does it go three-quarters of the way? We do not know. It is a very difficult concept and we really need to think about this.

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[Lord Sewel]

My Lords, normal service has roughly been resumed. Having spoken against the proposition put by my noble friend on the last amendment, I am now right with him. His contribution touches on two issues. One is the actual behaviour of civil servants in aligning themselves with a particular political agenda, and the other is the more nuanced issue of how civil servants should behave in a devolved structure. They are slightly different. On the first one, I would have thought it preferable that a civil servant, certainly a senior civil servant, should say nothing in public on any contentious political issue at all. They should say and do nothing that would make it impossible for that person to work with an incoming Administration. If we get that polarisation of politicians and civil servants divided on one side or the other, we would be moving towards an American system, which I think is to be avoided at all costs.

I want to say more about the role of civil servants in a devolved system. Of course one says immediately that their role is to support Ministers, engage in policy development and do all those things that, on the whole, we know they do extremely well. But devolution brings a unique and arcane issue to the fore. We have not faced it before because we have had a United Kingdom Government, but now with devolution the issue that comes into play is that of vires. The question is this: to what extent and how should any civil servant advise a Minister on a policy area that is outwith the vires that he enjoys? That is an important and sensitive issue to try to tease out.

I do not think that the amendment as it stands can work because the 1998 Act clearly indicates that there is a mechanism by which reserved powers can be devolved to the Scottish Parliament, and in that circumstance there would have to be discussions between Scottish Ministers and civil servants on a devolved matter, so it is not quite as simple as I and my noble friend thought initially. However, in Schedule 5 to the 1998 Act we find that the constitution is a reserved matter, as is,

“the Union of the Kingdoms of Scotland and England”.

It would seem that the senior civil servant in Scotland is giving policy advice and dealing with policy development in that area. So if it is good for that, is it good for other areas of the devolved agenda? I turn to just one, that of defence. The Act states:

“The following are reserved matters … international headquarters and defence organisations”.

One of the defence organisations is NATO. Would it be right and proper for a civil servant in Scotland to advise SNP Scottish Ministers on how they could secure their policy objective of Scotland no longer being a member of NATO? That is a question which I think ought to be asked, and for a whole number of other major issues in the reserved areas it has to be asked whether it is proper in any sense for a civil servant to give advice on how the policy of the Government and the Parliament that properly have responsibility in that area should be thwarted. Just think of what would happen the other way around. If it became known that civil servants in Whitehall departments were advising their Ministers on how they could undermine Ministers in Scotland, it would be a constitutional outrage.

I recognise that this is a difficult and sensitive subject, but it is one that we will have to face up to and, it is hoped, we will be able to secure a resolution that proper discussion should take place, but not something that is aimed at absolutely undermining the devolution settlement itself.

[Lord O'Neill of Clackmannan]

My Lords, I congratulate my noble friend on his amendment. Even if it is defective, it is important that this issue gets raised. I do not have experience of ministerial office, but for 10 years—and some years before that, even—I chaired a Select Committee in which we had civil servants being asked leading questions, difficult questions and sometimes very uncomfortable ones. By and large, however, we never had any attempt to hide behind some kind of political obfuscation. We at no time felt that they had assumed a role which involved the defence of their Minister beyond reasonable bounds or with a degree of loyalty that, frankly, the individual politicians did not merit.

Equally importantly, they were able to make quite clear that they represented continuity in government, which the viscidities of political change left in a number of respects unaltered. By that, I do not mean that they were standing in the way of change, but in the period after a Government are elected, when Minsters are finding their feet, or when new Ministers are appointed, it is to the decency and honesty of the Civil Service that you look for that degree of party-free continuity. If that is going to be endangered at a time of political uncertainty in Scotland, then, to my mind, it has to be spoken about.

We tend in this country not to hang civil servants out to dry in the way that my noble friend has done this evening, or repeat the stories which have appeared in the press. While I would not always necessarily regard the sources which my noble friend relied upon this evening as the most accurate, the fact is that there are remedies if misrepresentation is taking place. None of these remedies would appear to have been exercised, so we have to say that, to all intents and purposes, what has been said here this evening is true. Therefore, it raises quite serious problems. At the moment in Scotland, there is a sense in which we have a Civil Service which is apparently almost craven at the top, at least in part, in its willingness to assist the separatists in their enterprise. Not only that, but I am very sad that the composition of the Select Committees in the Scottish Parliament, which reflects the distribution of votes and seats—as is perfectly correct—seems to regard loyalty to the Government as more important than loyalty to the facts. So we are getting a succession of reports which reflect the political bias of the individuals rather than the weight of evidence which the committees have had presented before them. You get a degree of difficulty with the positions being adopted by senior civil servants, and at the same time a lack of effective criticism from the organs of Parliament which are supposed to be keeping them in line.

In the other place, we have a reasonably effective Parliamentary Question system. It has to be said that there is a lot of grandstanding and theatre about it. If you want to rigorously interrogate Ministers or anybody else involved in the political system of our country, the Select Committee is far and away the most effective means of doing so.

In Scotland at the moment, we have a transition from a unified system of public service to one which is, to an extent at least, split off from the rest of the UK. I am not saying that, in technical terms, the wages, the conditions and the career opportunities are not still there, but it is fair to say that, prior to devolution, there were career development avenues which individual civil servants could take advantage of. They could have periods in the Treasury or in English, or sometimes British, departments where they were able to compare and contrast the manner of working. I am not certain that that is given quite the weight in the Scottish Executive that it once enjoyed in the old-style Civil Service. If it is not, as I suspect, it is creating a mood within Scotland whereby it does not need to think outside the Scottish box, either for solutions or for Civil Service priorities.

This debate is an opportunity to issue a wake-up call to the Scottish Civil Service and say, “You are still part of a United Kingdom. The leadership of your organisation should be thinking not just about what is happening within Scotland and the areas of responsibility”. There are areas of overlap, but that does not necessarily mean that the Scottish Civil Service has to say that what happens outside of Scotland does not matter. We have to give some weight to the degree of overlap, but no less weight to those areas of sensitivity. I have spoken previously about the apparent contradiction of having an energy policy for the United Kingdom which in Scotland precludes the prospect of nuclear power. If a Minister was to refuse a planning application, I presume that it would be on the basis of Civil Service advice—or perhaps it would not; we do not know. At the moment, I would be a wee bit worried about the balance of the evidence presented before the Minister if Scotland was so hell-bent on preventing nuclear weapons. Equally, on the further stages of the independent deterrent, if we are to have within the United Kingdom the capacity for the nuclear submarines to be docked in the west of Scotland, these facilities will need upgrading, planning changes and the like. If that is going to happen, can we be sure that the message that gets through is that the planning applications stand up quite clearly? That is if they do—if they do not, it is equally the obligation of the civil servant to be straight about it. But if we were to have the frustration of areas of national defence on the basis of spurious advice relating to planning applications and the like, we would have serious grounds for concern.

We might have seen fit this evening—or tonight, because we are nearly at 10 pm and there seems no enthusiasm to finish the proceedings, so I will continue for a minute or two more—to have counted the House, and the Government might have lost everything that they have got so far. While some of us have been talking and responding in dialogue with people on other sides of the Chamber, the power was in our hands if we had wanted to use it to have screwed up the whole proceedings. People seem to forget that in the rather cavalier manner in which they have allowed this evening’s proceedings to go on beyond reasonable bounds.

I return to the point that I want finally to make. The strength of our Civil Service has been in its independence and its continuity. Its independence from political interference on the one side and its reluctance to get involved in politics on the other have meant that, in times of political and constitutional uncertainty, the Civil Service, by and large, has been able to sustain continuity. Nearly two years ago, when we had that brief interregnum between the previous Labour Government and the coalition, it was to the civil servants that people looked for advice; it was to the Executive that the politicians looked for guidance and support. In a constitutional crisis of the kind that could arise in Scotland, either as a consequence of a referendum or a change of Government, I am not sure that there would necessarily be a seamless transition from one set of conditions to another that political change of a radical kind might bring about. Many of us are uncertain about that and about the quality of the advice that would be made available to politicians of all political parties in Scotland given the present irresponsible attitude that is being adopted by people who should know better and whose training should have provided them with an understanding of the sensitivities that they sadly seem to have ignored at this stage.