Scotland Bill

Michael Moore Excerpts

Monday 14th March 2011 Commons Chamber

[Ann McKechin]

The hon. Gentleman did not refer to any of that evidence in support of his amendments. He also did not refer—why would he; it would be too embarrassing—to the purpose of the national conversation, which the Scottish Government instructed, and the many position papers that civil servants were struggling to produce and make sense of, at considerable cost to the Scottish taxpayer at a time when the resources could have been much better used.

The hon. Gentleman provided us with no independent evidence or statistics showing how, if fuel duty is devolved to the Scottish Parliament, it will result in a benefit to the taxpayer. The matter is urgent and we require immediate action. That is why we have called on the Chancellor to reverse the Tory-led Government’s VAT rise immediately and to suspend the fuel duty rise due in April. That would provide immediate relief to taxpayers and to drivers right across Scotland. That is the best way we can help people with motoring costs now.

The Calman commission recommended that the power on aggregates be devolved. We support that principle. The Government have indicated their intention to devolve it, presumably on the assumption that the court case will be decided in the Government’s favour. I would welcome the Minister’s comments when he replies, to confirm that that is still the Government’s intention.

It would be helpful to the Committee to understand what progress has been made on the Government’s review of air passenger duty, when they think that review will be complete, when they expect to be able to devolve the tax and whether they still wish to maintain the scheduled date of 2015.

New clause 17 relates to corporation tax, which the Scottish Government have been talking about for a considerable time. The pertinent questions that we all must consider carefully are what exactly does the SNP wish to do with the proposed power, where does it see the revenue gain coming from, and on what evidence is that based. Do we follow the Irish example of having a super-low rate, or do we follow the view of the SNP in Edinburgh and have retail business levy proposals, which were very badly thought out and arbitrarily proposed without consultation? Are we a high-tax or low-tax nation? Do we believe in high-quality, good value public services, or do we want to have a lower public expenditure base?

Some people believe that Ireland is an exact example for Scotland, but I argue that it certainly is not. Sadly, we no longer have the arc of prosperity argument from the Scottish Government. Nevertheless, it is important to note that when Ireland introduced its policy it was in a very weak economic position and the loss of revenue was relatively small, but that would not be the case for Scotland, which has a well-developed economy. If corporation tax is devolved, EU state rules require that the devolved Administration must not be protected from the revenue consequences of their decision.

It is clear that cutting corporation tax rates will cut revenue, at a minimum for some years, as suggested in the Exchequer evidence to the Holyrood Committee:

“A 10% cut in corporation tax in Scotland might cost about £600 million per year for an indeterminate period.”

The hon. Member for Dundee East (Stewart Hosie) has not specified what figure his party proposes for corporation tax, what loss to the Exchequer will result and when his party believes it will recoup the loss. No one in Scotland will want us to vote on the issue until we have the pertinent answers.

The CBI and other business organisations have firmly stated that they are against differential rates within the UK. Many of the experts who gave evidence to the Committee in Holyrood noted that it would create economic distortions—the brass-plating of booking profits through Scotland by manipulating transfer pricing. I refer Members to paragraph 54 of the Holyrood Committee’s report, which states:

“The Committee does not believe that Scotland should seek to maximise its tax income by becoming a tax haven for companies operating elsewhere in the UK.”

I entirely agree with that approach.

Some evidence was given regarding the example of Switzerland, which has a highly federalised and separate tax system in its various cantons, but the Swiss example points out that that would tend to lead to lower public expenditure. Is this what the SNP proposes for Scotland? The people of Scotland need to know whether the answer is yes or no. Paragraph 494 of the Committee’s report states that Professor Anton Muscatelli noted that the Swiss example is one where there has been

“a shift from corporate taxation to personal income taxation.”

He also pointed out that that is a volatile tax.

Hon. Members will be aware of that volatility, which occurred after the 2007 fiscal crisis. The major payers of corporation tax in this country are our banks and financial institutions. They took a huge hit in 2007-08 and onwards. The cost for the Scottish public amounted to £10,000 for every man, women and child in Scotland. Where would those funds have come from if the Scottish Government had had to bear the entire cost? Is the SNP willing to allow Scottish public finances to take that level of risk? Is it saying that it wishes to see a cut in taxes on banks? Yes or no? We have had no answer to that either. Labour has argued that the banks are not paying an appropriate share towards deficit reduction in this country and has again called today for the bank levy to be increased in the Budget.

In paragraph 505 of the Holyrood report, Professor Iain McLean, whom the hon. Member for Dundee East quoted, points out that the Northern Ireland experience between 1920 and 1972, when corporation tax was devolved, was marked by widespread tax avoidance.

Many similar questions need to be asked, but at the end of the day the SNP has failed to say what it wants to do with the tax, what kind of tax regime it wants in Scotland and what it proposes in relation to bank taxes: is it for lower or higher taxes? Today, there has been the sound of deafening silence.

I have a number of questions to ask the Government about clause 24 itself. They have still to respond in detail to the Holyrood Committee’s report, and given the timing of next week’s Budget I am sure the Exchequer Secretary has many other things in his basket. Does he not agree that, given the considerable number of points that the report raises, we can anticipate at least some substantive amendments from the Government? If so, does he agree that, to ensure the maximum amount of democratic scrutiny, they should be tabled prior to Report, not simply left until the Bill arrives in the House of Lords?

Last week, the Government announced a consultation on the so-called Cadder clauses, which, as the Exchequer Secretary is aware, were not part of the original Calman commission. That consultation will continue until mid-May. Does he not agree again that it would be better to postpone Report until it is complete in order to allow us properly to scrutinise in the Commons this important legislative and constitutional reform?

[The Secretary of State for Scotland (Michael Moore)]

On the issue of section 57(2) of the 1998 Act and the new clause or amendment that we will table to it, the hon. Lady is aware and has rightly highlighted that we are undertaking a consultation. I am happy to say to her in public what I have said privately: she and members of other parties are very welcome to have discussions with officials to ensure that Members are aware of how that thinking is developed. Just to reassure her, anything that is introduced in another place will come back here for proper and thorough scrutiny in due course.

[Ann McKechin]

I am grateful to the Secretary of State for his remarks, but I would prefer to have the earliest possible scrutiny in the House of Commons, and I certainly hope that the House will be allowed at the very minimum a proper period in which to scrutinise properly any amendments or new clauses that are introduced in the House of Lords, because this is an important constitutional issue. It is technical, but it is important that this House has the time to debate and scrutinise it properly, and that the public and the electorate know that we have scrutinised it appropriately.

Do the Government agree with the Chartered Institute of Taxation that a mechanism might be required to ensure that any future Scottish provisions do not conflict, and to consider how future UK treaties and EU rules might affect the powers that we provide to Scotland in the Bill?

Proposed new section 80B of the 1998 Act appears to include the possibility of devolving aggregates levy and air passenger duty in future. Will the Government confirm that the Scottish Parliament has a formal standing in consenting to the Orders in Council referred to in that section? Air passenger duty might be considerably altered by the time the review is complete, and that could be of significance to the revenue that can be anticipated from Scotland. Air travel in Scotland has its own distinct features, particularly within Scotland itself and to the north and isles areas, so it is important that there is a full and proper discussion not only here in the Houses of Parliament, but in the Scottish Parliament, should there be any difference in the levy’s impact on the Exchequer.

On the calculation of the block grant, will the Government consider the Holyrood Committee’s proposals that the reduction in grant might be indexed to changes in the income tax base for the rest of the UK? Will they consider also the principle of a formal review of the grant reduction mechanism after 10 years, as the report recommends? If Ministers were able to give us an indication of the Government’s view, that would be helpful. What consideration have the Government given to the Holyrood Committee’s recommendation that the transition period for the income tax powers and the calculation of the block grant reduction be reduced or done away with in its entirety if, for example, the measures on the tax base are implemented? Finally, what consideration have the Government given to the recommendation that while a flat-rate structure should be adopted initially, this decision must be carefully evaluated as experience is gained of operating it? That simply follows from the experience of other devolved Administrations in dealing with income tax.

I would welcome the Minister’s comments. We will vote against any move by the SNP on fuel duty or corporation tax. Apart from that, we will support the Government’s clause.