Scotland Bill

Nigel Mills Excerpts

Monday 29th June 2015 Commons Chamber

[Sir Edward Leigh]

That is a good point, and I agree entirely. It does not make sense. One Parliament might be trying to manage its own affairs by setting bands responsibly, but another Parliament could cut the ground from beneath its feet by changing the threshold. I do not know why the power has been reserved, but no doubt the Minister will tell us.

[Nigel Mills (Amber Valley) (Con)]

Does it not go even further? Without the Scottish Parliament having control over the rules and the tax base, the UK Parliament could create a load of new reliefs that would cost it a fortune. If we are going to devolve income tax, we ought to devolve the whole thing, not just part of it.

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[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

As others have said, the genesis of the clause lies in the report of the Smith commission. I have supported the commission since the day, indeed the hour, when it reported, but we cannot ignore the fact that the process was undertaken at great speed. Necessarily, given that five parties were engaged in the process, it involved a degree of compromise all round. It is for that reason that all of us undertook to ensure that there would be consultation following the publication of the report and, subsequently, the draft clauses.

In a debate in which consensus is not always easy to come by, I am pleased to note that there is consensus on the fact that the clause is a faithful replication of the agreement that was reached under the chairmanship of Lord Smith. However, the consultation that has been conducted since the publication of the draft clauses at the end of January has highlighted, and generated, a substantial number of important matters, some of which are technical and some of which go to the heart of the issue of taxation itself.

I suggest to the Secretary of State that further consideration may be necessary. He has the ability, through the good office that he holds, to bring all the parties together again to consider the representations that have been made during the consultation, and to consider whether, given the complexities and possible areas of conflict that could arise, it is actually worth implementing the tax power in the way that is currently envisaged. If the consultation is to be carried out in good faith—and, for my part, it always has been—there are sufficient matters about which we should be talking. That would still allow us—if it were necessary, and if it were possible to construct a consensus—to return to the issues on Report.

[Nigel Mills]

I rise as a reluctant supporter of the devolution of income tax to the different countries of the Union. I agree with the hon. Member for Edinburgh South (Ian Murray) that people throughout the United Kingdom should feel that they are paying the most important tax—the tax that puts the largest amount of money into the UK pot—and seeing it redistributed. We are where we are, however, and we are talking about devolving income tax to Scotland.

I fear that we have one foot in each camp, with part of the tax in this Parliament and part of it in the Scottish Parliament, and that we will end up in a real mess. I am not sure how it is possible to make a tax work when a Parliament can set the rate, the bands and the starting point, but not the actual rules. A particular policy issue in Scotland may mean that the Scottish Parliament rightly wants to incentivise certain employment and income activities. That may not be not a priority for the United Kingdom as a whole, perhaps for reasons of scale or owing to a different approach, but there will be no mechanism enabling income tax in Scotland to promote that certain activity. A new tax relief for people working in the offshore oil and gas industry, for instance, might not be a priority for the UK as a whole, but it might be a priority in Scotland.

The record of our income tax code is cluttered with examples of the use of the tax code to promote certain types of behaviour. I am not sure that we can secure the full and effective use of a tax code if our Parliament is not setting the rate and looking after local activities.

The flipside will be that tax avoidance as a result of a loophole may become material for the Scottish Parliament in the case of a certain piece of exploitation, but will not become material to the budget of the whole UK. It may be extremely important in Scotland to get that loophole closed, but in the UK there may be several others that are ahead of it in the queue, because it does not represent a large loss to the Westminster Parliament. An action that ought to be taken on something that has a material impact in one part of the UK will not be taken because of the strange disparity that exists.

If we are going to start devolving taxes, we should step back and have a look at what a federal UK tax system would be like. We should work out which taxes are federal and which are devolved, and then try to bring about some consistency in Wales, Scotland and Northern Ireland so that similar taxes can be devolved in the same way, rather than adopting a piecemeal approach in regard to corporation tax in Northern Ireland, income tax in Scotland, and so forth. I do not think that anyone in the country will know to which Parliament they are paying what tax, and who has complete control of it. That means that we will not get all the advantages that we expect, such as the ownership and the accountability that my hon. Friend the Member for Gainsborough (Sir Edward Leigh) mentioned.

I do not think that we are achieving the sharing and the pooling that the hon. Member for Edinburgh South wanted, the coherent use of income tax that the SNP wants, or the full devolution that would make sense. We appear to have become involved in a strange halfway fudge which we may regret in a few years’ time. I think it would be better to step back and try to get this right from the start, rather than trying to find a way of clearing up the mess.

I accept that there are always good reasons why the line is drawn where it is. We must be very careful about tax avoidance through the use of residency, or pretend residency. If I am working full-time in Scotland, to get the Scottish rate—which may be higher or lower than the rate in the rest of the UK—I shall probably have to go and live in Scotland. I suspect that I cannot achieve that artificially. If I have large dividend flows, I can probably pretend that I am in Edinburgh when I am in London and vice versa in order to obtain the tax advantage. I can see why there is an attraction in having one UK-wide passive income tax, rather than an active tax.

[Ian Murray]

The hon. Gentleman is raising the issue of what are known in my constituency as “willies”—people who work in London, live in Edinburgh. Those are people who take the trip down to London every Monday and go back on a Thursday evening. According to the House of Commons Library, the UK’s reason for not devolving dividend income is to prevent people from pushing money into dividend income and taking advantage of a differential rate.

[Nigel Mills]

Yes, as I was saying, I accept there are always reasons for drawing the line where we do, and trying to stop tax avoidance within a territory is a powerful reason. However, that has left us here with a convoluted tax system where we seem to be devolving part of it, and that is not a sensible approach. It would be better to have a federal income tax which everyone in the UK paid at a lower rate than they pay now and which covered all passive income, and then have a devolved income tax like the one in the United States. It has a state income tax that can be credited against the federal one. That may be a better, more sustainable system than the one we have.

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[Pete Wishart (Perth and North Perthshire) (SNP)]

The hon. Gentleman is making a thoughtful speech and he has the ears of those on the SNP Benches. He is right that we have got a halfway house and we have got to get this resolved. That is what the Scottish people thought they were voting for when they voted for us in such numbers. Is there anything the hon. Gentleman can do to persuade his right hon. Friend the Secretary of State to listen to what Scotland has said, and to have the proper solution and ensure we do this right and get what the Scottish people voted for just a few weeks ago?

[Nigel Mills]

I have tried to convince the Treasury Minister, my hon. Friend the Member for South West Hertfordshire (Mr Gauke), of various tax reforms over the last five years with, I would have to say, somewhat limited success, so I am not sure my words will help. If we are to achieve a lasting settlement of our constitution, having these tax rules in the right place with everyone understanding them and believing them to be fair will be extremely important. I do not think my constituents will understand how Scotland can set a different rate of income tax from what they pay if Scottish MPs are still able to vote on the English rate of income tax because it applies to passive income and dividend income. I suspect we will get into a constitutional nightmare, and I can foresee a situation in which Scotland chooses a lower rate of income tax than we have in England, and the English taxpayer will, rightly or wrongly, see a subsidy going from England to Scotland through the Barnett formula and then SNP MPs coming here and voting for a higher rate of income tax than their constituents are paying. That is the nightmare we would hate to see.

We need to have a clear devolution of taxes and responsibility, not what I fear we have here: a halfway fudge that we will have to try to fix in a few years’ time.

[The Secretary of State for Scotland (David Mundell)]

May I start by agreeing with the hon. Member for Edinburgh South (Ian Murray) that we should put on record our thoughts for those people who have been caught up in the events in Tunisia, particularly those from Scotland who have perished? Although our debate has been curtailed today, it is right that that matter has been given such due consideration in this House.

I say to the right hon. Member for Orkney and Shetland (Mr Carmichael) that I have considered the various issues raised in the House in the first part of our Committee stage, and I will continue that approach through the further days in Committee.