In Committee, we debated the definition of a Scottish taxpayer for the Scottish rate of income tax. I said that the Government would table a new clause to apply the same definition to the Scottish variable rate, in response to one of the recommendations of the Scottish Parliament’s

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Scotland Bill Committee. The reworked definition of a Scottish taxpayer for the new Scottish rate of income tax is a significant simplification. I appreciate that it is unlikely that the Scottish variable rate will ever be invoked. Nevertheless, without the amendment, there would be two separate definitions of a Scottish taxpayer in place at the same time. There is potential for practical difficulties for taxpayers, employers and their professional representatives, who might need to familiarise themselves with one definition for the years up to 2015-16, only to have to switch to a different definition for subsequent years. That is entirely unnecessary.

Applying the definition of a Scottish taxpayer that has been developed for the Scottish rate of income tax for the purposes of the Scottish variable rate will help smooth any transitional issues, and will also make it easier for people to understand whether they are classed as a Scottish taxpayer. The Scottish Parliament’s Scotland Bill Committee rightly recommended the change, with which the UK Government very much agree, and I commend the new clause to hon. Members.

On a previous occasion, my hon. Friend the Member for Milton Keynes South (Iain Stewart) raised a particular query. He has tabled amendment 24, about which he intends to speak later. I will respond to the issues that he raises after he has had an opportunity to set out his thoughts on that.

Government amendment 31 would make a small, technical change, to which I hope the House can agree. Section 989 of the Income Tax Act 2007 contains several definitions, which apply for the purposes of income tax legislation. It includes definitions of the basic, higher and additional rate of income tax. They refer to the rate of income tax set by the UK Parliament in the year in question. Government amendment 31 would extend those definitions to include the rates applicable to a Scottish taxpayer. As I said, it is a minor drafting amendment, and I do not anticipate its proving too controversial.

The purpose of Government amendment 15 is to correct a technical fault with the Bill so that it is consistent with the Government’s policy intentions as set out in the Command Paper, which states that the Scottish Government will be able to borrow to manage the difference between forecast and outturn tax receipts. However, as I explained in our Committee debate on 14 March, the Bill as it currently stands enables the Scottish Government to borrow to manage this difference only for fully devolved taxes, and not the Scottish rate of income tax. That is a technical fault, which the amendment corrects. I hope that it will be accepted.

Let me deal with Government amendments 32 to 35. The purpose of Government amendment 32 is to introduce a power, which will enable the Government to amend in future the way in which Scottish Ministers can borrow, including by way of bond sales, without the need for further primary legislation. The Bill gives Scottish Ministers a new power to borrow, by way of loan, from 2015-16 up to £2.7 billion of total debt, £2.2. billion of which can be used to fund capital expenditure.

The UK Parliament has an interest in ensuring that Scottish Ministers can borrow efficiently and sustainably because, although interest paid on any loans will be funded from the Scottish budget, it will be included in the UK fiscal aggregates. The Bill therefore gives Scottish Ministers the power to borrow in the most efficient and

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sustainable way—from the national loans fund, as recommended by the Calman commission. In addition, should Scottish Ministers so choose, the Bill gives them the power to borrow by way of commercial loan where that represents value for money.

Reports on the Scotland Bill by the Scottish Affairs Committee and the Scottish Parliament have recommended that Scottish Ministers should be granted additional borrowing powers—specifically, the power to issue bonds. The First Minister made the same points in his discussion with my right hon. Friends the Chancellor of the Exchequer and the Secretary of State for Scotland. The reports and discussions have highlighted the discrepancy between the powers of Scottish Ministers and local authorities, which already have the power to issue bonds.

So far, the main evidence that has been provided to the Government in support of Scottish Ministers issuing bonds is “because other bodies can do it”. However, with the exception of Transport for London, the vast majority of local authorities have not exercised those powers in recent history, not least because local authorities judge that they have access to more efficient and sustainable forms of borrowing.

The Government continue to believe that the case against bond issuance is clear cut, particularly in the medium term, given the uncertain outlook and challenging fiscal mandate. All the evidence suggests that further bond issuance would have a negative impact on the UK’s fiscal position.

In the context of the highest deficit since world war two, the Government would consider allowing Scottish Ministers to issue bonds in future only when that does not undermine the overall fiscal position, or have a negative impact on total UK borrowing. If a case is made that Scottish Ministers’ borrowing powers could be extended without undermining the overall UK fiscal position or increasing UK borrowing, the amendment that I am tabling today would allow changes to the borrowing powers of Scottish Ministers to take effect swiftly, by way of an order.

The Government have committed to conducting a review of the costs and benefits of bond issuance over other forms of borrowing to help inform any decision. The amendment would have the effect of, first and foremost, protecting the UK’s fiscal position by continuing to allow Scottish Ministers to access the most efficient and sustainable source of borrowing.

Jonathan Edwards (Carmarthen East and Dinefwr) (PC): After the Bill has been passed, the Welsh Government will be the only political entity in the British state unable to borrow. Will the Exchequer Secretary address that matter quickly, rather than awaiting some prolonged Calman process, which the Government currently envisage?

Mr Deputy Speaker: Order. I am not sure that that is relevant to the debate.

Mr Gauke: I want to make it clear that Government amendment 32 would not grant the power of issuing bonds to the Scottish Government. However, it would enable us to move more quickly should that decision be made in future The Welsh Assembly Government are

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not alone in their status, although the amendment would enable us to move more quickly should we decide to proceed in that direction.

Amendment 2, which was tabled by Her Majesty’s Opposition, would bring forward the introduction of the capital borrowing requirement set out in clause 32 from April 2015 to April 2012. Amendment 26 would remove the role of the Treasury in approving capital borrowing and the restriction that such borrowing must be by way of a loan. Amendment 27 would introduce a new statutory code of practice, to be agreed between the Treasury and Scottish Ministers, to govern capital borrowing permitted by section 66(1) of the Scotland Act 1998. Amendment 28 would remove the £2.2 billion aggregate limit on capital borrowing by Scottish Ministers. Amendment 29 is consequential on amendment 28. As hon. Members wish to remove the borrowing limits from the Bill and the ability to revise those with the approval of the House, clause 32(10) would no longer be necessary, because there would be no such secondary legislation.

7 pm

All amendments would have the effect of altering the time scale for capital borrowing and the conditions on capital borrowing. I shall first deal with the timetable for implementing the borrowing powers. The Government believe that the capital borrowing powers are an important part of the package to increase the financial responsibility of the Scottish Parliament. The Bill enacts that new power at the point when Scottish Ministers have the necessary fiscal levers to support borrowing. From 2015-16 onwards, Scottish Ministers will have control over devolved taxes and the Scottish rate of income tax. The new borrowing powers come into effect at the same time, when Scottish Ministers can support such borrowing.

The House should be aware that, if the borrowing powers were introduced earlier in this spending review period, the UK’s spending plans would be altered—plans which the International Monetary Fund recently endorsed, and plans from which I am sure hon. Members would not want to deviate and put the recovery of the UK public finances at risk and undermine the credibility of the Government’s spending plans. The Command Paper allows Scottish Ministers to access partial borrowing powers in 2013, before the rest of the Bill comes into force, with the consent of the Treasury. That power can be used to make pre-payments to fund large capital projects such as the construction of the replacement Forth crossing. On 13 June, my right hon. Friends the Chancellor and the Secretary of State for Scotland confirmed that partial borrowing powers would be introduced two years earlier than originally intended to help Scottish Ministers to begin large capital projects as soon as possible.

The Bill contains borrowing limits for important reasons, which I set out in Committee. I should place today’s debate in context. First, the new £2.2 billion borrowing power is additional to the capital budget that Scottish Ministers will receive through the next spending review process. To give a sense of the magnitude of that sum, at the end of this spending review period, the Scottish Government’s capital budget will be £2.3 billion.

Secondly, Scottish Ministers have an unfettered power to switch resource spending to capital. Their borrowing does not represent free money. Those who pay the

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Scottish rate of income tax must pay the debt interest, but UK borrowing will increase as a result of increased Scottish borrowing. It is therefore surely right that the limit is determined by this House—first through its considerations of the Bill, and subsequently through the approval of any order to alter the limit. The Calman commission and the Scottish Parliament recognised the case for Scottish Ministers receiving new borrowing powers as part of their increased responsibility and accountability. Both recommended that the Treasury should have the ability to set conditions and a cap on the amount that Scottish Ministers can borrow in a year.

The limit in the Bill is set initially at £2.2 billion, because that represents an acceptable risk for the UK finances that does not crowd out other priorities in the next spending review period.

Andrea Leadsom (South Northamptonshire) (Con): If that debt must be consolidated with the UK’s national debt, it should surely be considered as quasi-UK Government debt. Does the Minister therefore agree that if the Scottish National party goes ahead with its vote on independence, it will need to consider very carefully the increased cost of borrowing that would ensue?

Mr Gauke: We must certainly understand the wider UK consequences of that. That is why there is a cap. In the Government’s judgment, £2.2 billion is the appropriate level at this point.

Stewart Hosie (Dundee East) (SNP): For the sake of clarity, will the Minister confirm that that £2.2 billion is a cumulative sum, and that the annual amount is £230 million?

Mr Gauke: Yes, that is the case, but we must consider the consequences of that borrowing for the UK’s debt position. That is the level that we believe is right.

As I set out in Committee, the £2.2 billion represents a floor, not a ceiling. The Bill provides for the limit to be increased to more than £2.2 billion with the approval of the House, but not for it to be reduced to less than £2.2 billion.

David Mowat (Warrington South) (Con): A few moments ago, the Minister mentioned the pre-payment amount for the Forth road bridge. Did the Treasury consider a toll on that bridge, in much the same way as a toll was considered for the Mersey Gateway bridge next to my constituency? If not, is that not asymmetric governance?

Mr Gauke: The decision on whether to put a toll on the Forth road bridge will be one for the Scottish Government. The Treasury has therefore not considered that proposal. Perhaps my hon. Friend should ask Scottish National party Members what consideration was given to such a toll. I suspect that the answer will be, “Not a lot.” The expression on the face of the hon. Member for Dundee East (Stewart Hosie) is probably confirmation that no consideration was given to my hon. Friend’s suggestion. Asymmetry is inherent in such devolved matters.

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The UK Parliament has an interest in ensuring that Scottish Ministers can borrow efficiently and sustainably, because although interest paid on any loans will be funded from within the Scottish budget, it will be included in the UK fiscal aggregates.

Andrea Leadsom: For the sake of clarity, the Minister tells my hon. Friend the Member for Warrington South (David Mowat) that the decision on whether there will be a toll on the Forth road bridge is a devolved matter, and yet also says that any Scottish Government borrowing would be included in the British national debt. How can that toll be a devolved matter? The UK is involved in keeping the cost of funds to the Scottish Government down so that they can afford to fund a bridge that people in England are unable to afford without charging a toll.

Mr Gauke: We must remember that any debt service will be financed by the Scottish taxpayer—that is the context.

We should move on. As I said, any loans will be funded from within the Scottish Budget and included in the UK fiscal aggregates. The Bill therefore continues to give Scottish Ministers the power to borrow in the most efficient and sustainable way—from the national loans funds, as recommended by the Calman commission. In addition, should Scottish Ministers choose to do so, the Bill gives them the power to borrow by way of a commercial loan when that represents value for money.

The Government continue to believe that Scottish Ministers should be able to borrow only by way of a loan, but because overall macro-economic policy will continue to be a reserved matter, and because Scottish borrowing will impact on the UK fiscal position, it is right that this House agrees the limits and conditions of borrowing. I therefore ask Opposition Members not to press amendment 2 and amendments 26 to 29 to a Division.

Stewart Hosie: The Minister suggests that various Opposition Members from various parties do not press their amendments. Is it not normally in order to hear the arguments for them before jumping to such a strange and presumptuous conclusion?

Mr Gauke: I do not think it an unprecedented statement. I am sure that the hon. Gentleman and I have served on many a Committee where that has been suggested. I wait to hear how persuasive the case is, but I suspect that I will not be persuaded, and that, to some extent, the amendments may be probing. We await the arguments, and I look forward to them.

New clause 8, tabled by the right hon. Member for Birkenhead (Mr Field), has two purposes. First, it seeks to legislate for the Chancellor, within six months of the day on which the Bill is passed, to

“lay before the House a report on the formula for allocating funds from the Consolidated Fund to the Scottish Government, and the alternative ways of calculating the sums to be paid.”

Secondly, it would require that within

“six weeks of laying that report…the Chancellor…lay before the House proposals for a new…formula which would ensure that the funds allocated to the Scottish Government are no more than 5 per cent. below or above the equivalent figure for each of the other nations of the UK.”

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As hon. Members know, the formula for allocating funds from the Consolidated Fund to the Scottish Government is known as the Barnett formula, and as hon. Members will recall, the Bill seeks to increase the accountability of the Scottish Parliament to its people by devolving fiscal powers from Whitehall to Holyrood, and deducting a corresponding amount from Scotland’s block grant.

The Bill does not change the level of funding for Scotland. Future decisions taken by Scottish Ministers will affect the overall funding for Scotland’s public services, because Scottish Ministers will decide whether to increase or decrease devolved taxes relative to the UK. Reforming the Barnett formula is an entirely separate issue from those we are considering in the Bill, and one that the Calman commission did not make any recommendations on. The current formula is an administrative procedure and does not appear in legislation. It is not specific to Scotland, but is a mechanism for allocating funding across all four countries of the UK, so it would not be appropriate to legislate to alter it for Scotland in isolation. The Bill would not be an appropriate place for that

Kate Hoey (Vauxhall) (Lab): I understand why the Minister does not think that discussion of the Barnett formula is appropriate for this evening’s debate, but my constituents feel strongly about the fact that Scotland gets so much more than they do generally. What mechanism could we use to have the Barnett formula looked at?

Mr Gauke: Partly following the strictures of the hon. Member for Dundee East, I would say that I am loth, at this stage of the debate, to make strong recommendations to the House about which new clauses should be accepted and which should be withdrawn and so on. I simply want to provide the context and argue why the Barnett formula should not be addressed in the Bill. I appreciate that there is a wide range of views on this issue, and that there are strong feelings throughout the UK. I dare say that a number of those views will be expressed this evening—indeed, this debate provides an opportunity for it. At this stage, however, I just want to draw the House’s attention to some of the difficulties with trying to address the matter in the Bill. I shall turn to the substance of the debate in a moment, but that is what I am seeking to do at the moment.

Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op): I am sure that the hon. Gentleman will want to confirm that if my hon. Friend the Member for Vauxhall (Kate Hoey) got the reorganisation of the formula that she seems to want, the parts of the UK that would lose the most—the ones that are most overfunded by her definition—would be London, where she is an MP, and Northern Ireland, which I know she has a close interest in. If we are going to debate the matter, let us debate the facts rather than the myths.

Mr Gauke: As I said, I appreciate that there are strong views on this issue, and that they will be expressed this evening. Little did I know, though, that such strong views would be expressed quite so quickly among hon. Members in such close proximity to each other.

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Mr Russell Brown (Dumfries and Galloway) (Lab) rose

Mr Gauke: And now I will hear another perspective.

Mr Brown: The Minister mentioned the four nations, but I am sure he will want to correct that, because not only are there variations between the four nations, but there are regional variations within England as well.

7.15 pm

Mr Gauke: Of course, and there are regional variations within all the four nations. The point is that there are strong views on this issue. I am making the case for why it is difficult to address it in the Bill. Reforming the Barnett formula is an entirely separate issue from those we are considering in the Bill, and from the matters that the Calman commission looked at. As I said, the formula does not appear in any legislation as such, and there would be disadvantages in trying to come up with a legislative answer. However, I appreciate that this is an opportunity to debate the matter.

Mr Frank Field (Birkenhead) (Lab) rose

Mr Gauke: I am sure that the right hon. Gentleman will continue this debate.

Mr Field: Might the Minister tell the House whether he thinks that the Barnett formula is now fair? If it is not, when do the Government intend to do something about it?

Mr Gauke: The Government understand the concerns expressed about the devolved funding arrangements, but we have also made it clear that the priority now must be to reduce the deficit, and any change to the current system and Barnett formula must await the stabilisation of the public finances. The Bill does not rule out or rule in reform of the formula in the future, but we do not believe that now is the right time. A change in the Barnett formula is not the purpose of the Bill, and it would not be appropriate to legislate for it here. As I said, I look forward to this debate, as right hon. and hon. Members will clearly take the opportunity presented by the Bill to express their views on this particular point.

David Mowat: Will the Minister give way?

Mr Gauke: And I know that there is one hon. Member in particular who will take that opportunity.

David Mowat: I understand that the Exchequer Secretary does not want to spend too long now talking about the Barnett formula, so I will be quick. He said that we are too busy sorting out the deficit to address the Barnett formula, which I think is a fair and reasonable point. That is why many of us think that we should put in place a process to ensure that by 2015, when, as I understand it, the structural deficit will be eliminated, we can put in place a fair and transparent policy.

Mr Gauke: I understand the views expressed by my hon. Friend. There are a number of changes and developments in this area, not least the powers in the

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Bill. I agree with him that this will continue to be a live issue, but at this stage I am not in a position to make any promises to him. However, I am sure that this issue will continue to be debated, and strong views will be expressed. I can understand the points he makes, but this is not the time for a legislative solution.

Amendment 23, tabled by the right hon. Member for Birkenhead, is consequential on new clause 8 and would delay the financial provisions in part 3 of the Bill coming into force until two months after the House passes a resolution approving the Chancellor’s proposals for a new funding formula. It would then automatically bring part 3 into force two months after such a resolution. I set out why I did not consider it appropriate to debate at this time a new funding formula for Scotland when I discussed new clause 8. The Government are clear that this is a UK-wide administrative procedure and therefore has no place in the Bill. The Government’s priority is to stabilise the public finances and reduce the deficit before making any changes to the Barnett formula, as I have said.

Even were we able to accept new clause 8, the manner of commencement set out would be problematic because it would create technical problems by potentially bringing in consequential amendments relating to the Scottish variable rate before that itself had been repealed. I am sure that that is not what the right hon. Gentleman intends. The new clause would have other consequences, however. It would mean that clause 32, on borrowing provisions, could not be brought into force until an agreement had been reached on a new funding formula for Scotland. As I have set out, the changes introduced by the Bill are not contingent on a new funding formula being agreed to replace the Barnett formula, so I do not see the need to wait to introduce the borrowing clauses until such a new formula has been agreed.

Amendments 25 and 37, and new clauses 9 and 19, relate to corporation tax and alcohol duties. These amendments propose to increase the power in the Bill to provide for an Order in Council specifying corporation tax and alcohol duties as devolved duties. The Scottish Government have publicly requested that six additional powers be included in the Bill, including powers over corporation tax and alcohol duties. I understand that the First Minister has met colleagues in the Government to highlight those requests. In those meetings, the First Minister agreed to provide detailed written analysis of the benefits to both Scotland and the UK of devolving those powers. No such papers have yet been provided. We await them with interest, because we have yet to hear the case made in detail.

As hon. Members will recall, the Government are committed to implementing the recommendations of the Calman commission, which considered the merits of devolution for a wide range of taxes and decided that neither corporation tax nor alcohol duties were suitable candidates for devolution. Calman concluded that the potential administrative impact of devolving either tax would be significant. The creation of compliance costs for businesses operating on either side of the border, as well as the increased collection costs for the Government, would be undesirable, especially in the present economic climate. The risks of tax avoidance and arbitrage could also be increased, with additional costs to the Government and the UK Exchequer. These arguments apply to both corporation tax and alcohol duties.

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Calman also noted that if comparable levels of public services were to be maintained, the scope for substantive reductions in the rate of corporation tax in Scotland would be limited, unless the Scottish Government were willing significantly to increase revenues from other sources, such as income tax. The figures involved could be significant. For instance, if we take the Scottish Government’s estimate of the corporation tax base, published in their “Government Expenditure and Revenue Scotland” report, and apply the methodologies developed for the Government’s paper on rebalancing the Northern Ireland economy, the cost of reducing Scottish corporation tax to 12.5%—the current rate in the Republic of Ireland—would be just over £2 billion. However, the Scottish economy is very different, not least in the presence of many large multinationals, particularly from the financial sector, whose current activity is unlikely to be adequately covered in the gross value added estimate, but whose profits are additionally likely to be attributable to Scotland with regard to corporation tax.

Provisional HMRC analysis has indicated that losing payments from large Scottish-domiciled groups could add £600 million to the direct costs. Such tax cuts would have to be funded, either by significantly reduced levels of public spending in Scotland or by tax rises in other areas. It is worth noting that these are initial estimates, and are likely significantly to underestimate the scope for profit shifting to Scotland. The model uses similar assumptions to those applied to the costing for Northern Ireland. However, given the geographic proximity of England and Scotland, the integrated infrastructure, the large number of big GB-owned groups with a substantive presence on both sides of the border, and the relatively large and complex nature of the Scottish economy, there are likely to be greater opportunities for groups to shift profits there than may be the case for Northern Ireland.

In addition, corporation tax is a very volatile tax, and would create much more revenue risk for the Scottish budget. For instance, corporate tax receipts fell by 16% from 2008-09 to 2009-10, while income tax receipts fell by 5%. Such a large volatile income stream would place great risk on the Scottish budget. Income tax, which is more predictable and less volatile, is a much more suitable candidate for devolution. The commission based its decision on the strong evidence that it received from the independent expert group and the alcohol retailing and production sector. The evidence identified increased compliance costs and significant scope for tax avoidance, given the mobility of goods such as beer, wine, cider and spirits.

Dr Eilidh Whiteford (Banff and Buchan) (SNP): My recollection is that the Calman commission refused to rule out devolving corporation tax, should that happen in other parts of the UK. Perhaps my recollection is wrong, but it would be a mistake to misrepresent in this debate what the Calman commission actually said.

Mr Gauke: The Calman commission did not recommend devolving corporation tax as substantial practical profit shifting issues would arise, and we cannot ignore the fact that it would need to be paid for. This is not something that we could all sit round in a room negotiating, before coming up with a number. To comply with the Azores judgment, made under European law, it would

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be necessary to identify the precise number. I should also make it clear that the cost of any reduction in corporation tax would have to be met by increased alternative taxes or a reduction in the block grant.

Dr Whiteford: It is important to differentiate the substantive point of whether this Government support devolving corporation tax from what the Calman commission report actually said. Having found it—I think—I can tell the Minister that the Calman commission recognised that

“changes to Corporation Tax can be a tool for economic development,”

and did not

“rule out a scheme for devolving Corporation Tax in the future as part of wider reform across the devolved nations.”

Does the Minister accept that that is actually what was in the Calman commission report?

Mr Gauke: But the Calman commission did not say that that was the right way forward at this point. As I have said, some very substantial issues would need to be addressed, not least the opportunity for profit shifting and the impact on the UK Exchequer were Scotland to have a lower rate of corporation tax, as businesses operating in Scotland and England would shift their profits to Scotland, which would disadvantage the UK as a whole.

Stewart Hosie: A number of businesses moved to Ireland in the last Parliament to take advantage of lower corporation tax. A number of others moved to continental Europe, to the Netherlands. One of the drivers for this Government reducing corporation tax was to send out that signal. That change will not necessarily be paid for by changes to allowances or spending cuts; it will be paid for in the medium and long term by increased economic growth, which is a consequence of a lower business tax regime. Why has the Minister excluded the potential of growth in Scotland from it having lower corporation tax, and merely highlighted the payment in other ways?

Mr Gauke: Let me be clear: I am not making the case against lower corporation tax per se; I am saying that if Scotland had a lower rate of corporation tax, that would have an impact on the Exchequer, and Scotland and the Scottish Government would have to pick up that cost. I do not believe that that is a matter of dispute or that the hon. Gentleman disagrees with that. Indeed, we are not even talking about something that we could pursue under European law—I am sure that he will be aware of the details of the Azores judgment. [ Interruption. ] That point is clear, so I am surprised that there are so many mystified faces on the Opposition Benches.

Mr Ian Davidson (Glasgow South West) (Lab/Co-op): This relates to the Minister’s point about the Azores judgment—people in my constituency speak of little else. I want to clarify the important question of transparency. Have the Government provided the Scottish Government with the figures that the Minister has quoted, in order that they can challenge them or produce any additional information? It is important that this debate is conducted

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not just at the level of rhetoric, but that firm proposals are made with numbers attached. Will the Minister therefore clarify whether there has been an inter-governmental dialogue on these matters?

Mr Gauke: We are talking about preliminary numbers, which I have put forward on the basis of early estimates produced by the Treasury this week. We are keen to engage with the Scottish Government, just as we have with the Northern Ireland Executive. I am sure that there will be exchanges of correspondence, meetings, discussions and a full examination of both the numbers and the methodology used in producing them. We are more than willing to engage in that process, but we are also waiting for the Scottish Government to offer their analysis of the impact of devolving corporation tax, of what the costs would be, and of the economic advantages and disadvantages. We know that the Scottish Government take a great interest in this—they make this point on a regular basis—but we await their analysis.

Ann McKechin (Glasgow North) (Lab): I think I am correct in saying that the Minister for Culture and External Affairs in the Scottish Government wrote to Members before the Easter recess suggesting clauses to be added to the Bill, including one on corporation tax. On that basis, is the Minister saying that the Scottish Government provided no information on their analysis of the impact of this tax? Since first requesting the information, how long has he waited for it?

7.30 pm

Mr Gauke: I look to others for inspiration on the precise details, but we are certainly talking about months. The hon. Lady is right to say that the detailed analysis has not been provided. I am sure that the Scottish Government are working very hard to produce it, but we have not received it. It could have been helpful for this evening’s debate, but so be it.

Mr Mike Weir (Angus) (SNP): It might have been difficult for the Scottish Government to provide that information during the purdah period, and they were re-elected only a matter of weeks ago. It is perhaps no surprise, therefore, that those weighty documents have not yet arrived on the Minister’s desk.

Mr Gauke: I have to make a confession to the House: I have come only relatively recently to these issues. My understanding, however, is that the Scottish National party has been interested in this policy for some years. I am sure that if it is a priority, and I understand that it is, we will receive the paper very soon. I look forward to receiving it.

Mr Russell Brown: Perhaps I should be directing this question not to the Minister but to the Secretary of State for Scotland, because he has been engaged in this process. Has there been any indication of how long we can expect to wait for these figures?

Mr Gauke: No, there has not, but I am sure that it is a priority and that they will arrive shortly.

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Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): Perhaps the reason the Scottish Government have not yet been able to produce the figures is that some of the international studies are not to their liking because they show that lower rates of corporation tax do not necessarily lead to higher growth rates.

Mr Gauke: The hon. Lady may speculate about the reason, but it is not for me to do so. Perhaps I have done enough speculating as it is—

Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP) rose—

Mr Gauke: Or am I going to be encouraged to do some more? I give way to the hon. Gentleman.

Mr MacNeil: The Minister talks about the Scottish Government justifying why they should have this power, but have the UK Government given any justification for why they should hold on to the power over corporation tax in Scotland?

Mr Gauke: It was about five minutes ago when we last set out the reasons that corporation tax remains a reserved matter. The Bill provides for a substantial devolution of tax powers to the Scottish Government, but corporation tax has always been a matter for the United Kingdom. We are exploring this matter in the context of Northern Ireland, but if there is a case to be made for a radical change in this area, we would like to hear it and we look forward to doing so soon.

Mr Davidson: Did not the Minister say earlier that the Government had produced their latest estimates only about seven days ago? In the circumstances, this criticism seems a trifle unfair, even though the Scottish Government have had a long time to produce theirs. Surely they would benefit from this Government sharing their figures. If the Treasury undertook to pass on its figures to the Scottish Government, I am sure that a response would soon be forthcoming, enabling us to conduct this debate properly and not simply on the level of transitional demands.

Mr Gauke: The hon. Gentleman is clearly anxious to move the debate on, and he makes a perfectly reasonable point. The Treasury and the Government would be quite happy to share our analysis with the Scottish Government, and if that would assist them in their work, we would be pleased to be of assistance.

Stewart Hosie: Speaking of sharing information, the Minister has raised the spectre of the Azores ruling, but a comparable and permanent reduction to the block grant in place of the devolution of corporation tax would certainly meet all the state aid rules. The Azores judgment smokescreen that the Minister has thrown up is quite irrelevant.

Mr Gauke: The point I was making was that the cost would have to be borne by the Scottish Government, through either increased taxes or a reduction in the block grant. We would clearly have to enter into discussions with the Commission, but I think that he is right in principle, and that such a proposition would comply with the Azores judgment. I am merely making the

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point that, although the final cost would have to be determined, it would be substantially higher than £2 billion if it was the Scottish Government’s policy to bring the rate of corporation tax down to the level that pertains in the Republic of Ireland.

I shall move on to amendment 18, which seeks to make the date for commencement of all the taxation provisions in the Bill—those relating to the Scottish rate of income tax, the Scottish tax on land transactions and the Scottish tax on disposals to landfill—contingent on the consent of the Scottish Parliament. The process to be used to provide consent is not detailed in the amendment, but I assume that the hon. Member for Dundee East has in mind something akin to the legislative consent motion convention to which the Bill is subject. I consider this amendment to be unnecessary. Similar amendments were tabled by the hon. Gentleman in Committee. We have committed to working closely with the Scottish Government as we move towards full implementation of the measures in the Bill. This engagement will ensure that the Scottish Government can keep the Scottish Parliament apprised of implementation work in good time.

As hon. Members will be aware, the Scottish Parliament voted on the Bill in March, with 121 of the 129 Members voting in favour; this included the Scottish Government. Following the election in May, the Scottish Parliament established a new Scotland Bill Committee to consider amendments to the Bill. This will ensure a further opportunity for the Scottish Parliament to vote on changes to the Bill.

As I said on Report in relation to the taxes to be fully devolved, we made it clear in the Command Paper accompanying the Bill that if the Scottish Parliament was not ready to introduce the smaller taxes in April 2015, we would consider delaying the switch-off of the UK-wide versions of the taxes in Scotland. Should the Scottish Government and Parliament decide that they do not wish to put in place a Scottish version to cover the existing tax base, we will not leave the current landfill tax or stamp duty land tax in place. It will be for the Scottish Government to decide what, if any, arrangements they wish to put in place, once the matter is devolved to the Scottish Parliament. I consider this additional requirement to be unnecessary and I am therefore minded to urge the hon. Gentleman to withdraw his amendment, but of course I shall wait with interest to hear his arguments. This has been a somewhat lengthy speech, for which I apologise to the House, but I have attempted to deal with a large number of new clauses and amendments. I hope that that has been helpful, and I look forward to the forthcoming debate.

Stewart Hosie: As the Minister has pointed out, there is a large number of new clauses and amendments in this group. I intend to give them a decent airing, not least because I was chastised by the hon. Member for Glasgow North (Ann McKechin) in a recent newspaper article for speaking for barely 14 minutes in a previous debate. I would not want to disappoint her by not providing closely argued contributions on the new clauses and amendments tonight. It is also worth putting it on record that barely three hours for a Report stage is quite inadequate.

Our amendment 29 and new clause 9 deal with corporation tax, about which the Minister went on at some length. This is a tax levied on profits and the

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Scottish Government are seeking to devolve the competence to use it as key policy lever to promote economic activity in Scotland. It is important to focus not on the dry detail of the amendments, but on what we and any Scottish Government would do with the powers. We believe that corporation tax can be a key element in the country’s overall economic strategy and can promote economic growth and job creation by enhancing international competitiveness and encouraging innovation and investment.

We believe that the case for devolving corporation tax is clear. Over the past 30 years, Scotland’s economy has grown more slowly relative to both the UK and the average of small EU countries than it ought to have done. We believe that for Scotland to fulfil its economic potential, additional levers are required and corporation tax is, I believe, a key mechanism. It can be an important tool in helping to support increased business start-ups, increased business research and development and investment, and in encouraging more firms to locate their headquarters in Scotland—the very reasons, I suspect, why the UK Government announced a lower corporation tax rate and a strategy for reducing it further.

Jim Sheridan (Paisley and Renfrewshire North) (Lab): Far be it for me to be a cynic, but could it be that both Governments—the UK and the Scottish Government—wish to reduce corporation tax to appease the big business people who make donations to their political parties?

Stewart Hosie: No. That would be extraordinarily cynical, and not something that even the hon. Gentleman in his daftest moments would actually believe to be true—[Interruption.] The hon. Member for Central Ayrshire (Mr Donohoe) says from a sedentary position that the hon. Gentleman does believe it. That worries me even more. I suspect that that kind of attitude from Labour sends a signal that Britain and Scotland are not open for business, which is a dreadful signal to send out.

We also believe that corporation tax can be used to support the development of new industries, which is vital. As it stands, the Bill contains no new effective levers for economic growth. The UK Government have made it clear that the Bill is primarily about improving financial accountability and political governance. There is no problem with either of those things, but we need economic development as well—and the tools to do the job. We are firmly of the view, as are the Scottish Government, that any transfer of powers to Scotland must include real economic levers to promote jobs and growth.

The argument from the UK Government that we cannot have corporation tax powers might appear rather contradictory. Clearly, there is increasing support for the principle of devolving the responsibility for corporation tax—not least to Northern Ireland, where it is currently under active review.

With those points in mind, I back the Scottish Government in seeking devolved competence for corporation tax to be used as a key policy lever to promote economic activity in Scotland. We are seeking the responsibility to vary both the corporation tax base

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and the tax rate, with the base defining the element that is subject or liable to be taxed—the bulk of profits, netting out allowances and so forth—and the tax rate being the amount of taxable profit required to be paid during each accounting period. At the moment, that is estimated to be about £2.8 billion for Scotland on 2008-09 figures— and for very good reason that excludes North sea corporation tax. It comes in at about 6.5% of the total tax revenue in Scotland. We believe that the full devolution of corporation tax with an appropriate reduction in the block grant, which covers the Azores issue, would provide the Scottish Government with a new lever to promote growth and jobs.

The position of the Scottish Parliament Scotland Bill Committee was established in a very clear conclusion:

“The Committee’s view is that if a scheme to vary corporation tax were to be available in some of the devolved countries of the UK as a tool of the UK Government’s regional economic policy, it should be available as an option for a Scottish Government to use also.”

That is incredibly important. Now that it is clear that such a tool is being considered for Northern Ireland in the UK Government’s consultation on “Rebalancing the Northern Ireland economy”, it follows that consideration must now be given to devolving corporation tax to Scotland.

7.45 pm

Mark Lazarowicz: I want to be clear about what the hon. Gentleman is saying. He said that if there were to be a devolution of corporation tax and the ability to vary it, an appropriate change would be made to the level of the block grant. Does he mean that if corporation tax were reduced in Scotland by £1 billion, an equivalent £1 billion reduction would take place in the block grant? Is he talking about a like-for-like reduction?

Stewart Hosie: It has to be initially to get this kicked in. At that point, the Scottish Government are rightly responsible for their revenue raising and their tax spending within it. That is normal, grown up and quite appropriate.

Mr Brian H. Donohoe (Central Ayrshire) (Lab): I ask a simple question: what does the hon. Gentleman mean by “initially”?

Stewart Hosie: A permanent reduction for corporation tax to be devolved and taking responsibility for the income we raise to pay for the services we have.

Sheila Gilmore (Edinburgh East) (Lab): Will the hon. Gentleman let us and Scottish taxpayers know how that financial gap would be met in the period before any economic benefits might arise? Would there be cuts in services, for example, or would the Scottish Government have to consider a rise in income tax for people in Scotland?

Stewart Hosie: The hon. Lady predicates her argument on failure, as Labour Members tend to do. There is no reason to believe that there would be a net loss of revenue to Scotland. Let me put it to the hon. Lady in a different way. The UK went into the recession with £0.5 trillion of debt; it now sits somewhere close to £1 trillion and it is forecast to rise under this Administration to about £1.5 trillion by 2014-15. Scotland, however,

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has had a net surplus over many years and it is certainly a surplus relative to the UK even in very recent years. Instead of talking Scotland down, we need to be serious about how to gain the powers to grow the Scottish economy and take responsibility for our own actions, which is vital.

Sheila Gilmore: I understand the optimism and do not want to cut through it in any way. However, the hon. Gentleman said that he accepted that there would initially be a reduction in the block grant, which will initially create a financial issue. I was simply asking how it would be met in the short term.

Stewart Hosie: It will not be a reduction because we will have the corporation tax yield, which is comparable to the reduction in the block. It is the same amount of money initially and we take responsibility thereafter.

Mr Donohoe rose

David Mowat rose—

Stewart Hosie: I have already given way five or six times and I want to make progress. There will be plenty of opportunities for hon. Members to intervene later.

There is a very strong case for additional powers. Evidence shows that corporation tax can be a key element in a country’s overall economic strategy and it has the potential to promote economic growth by enhancing international competitiveness and encouraging innovation and investment. As the Minister said, we have long argued for devolution of corporation tax as a powerful means of addressing the economic challenges facing the Scottish economy. We believe that a centralised and uniform corporation tax structure disadvantages nations such as Scotland to the benefit of London and the south-east of England. To say that is not to be anti-London or anti-south-east; it is just to say that when businesses reach a certain size, they tend, other things being equal, to be attracted to the largest conurbations. In the UK, that of course means London.

The evidence base for devolving corporation tax powers to Scotland is pretty clear. Over the last 30 years, as I said at the beginning, Scotland’s economy has grown more slowly relative to both the UK and the average of other small EU countries. One reason for that relatively weaker economic performance has been the relatively smaller corporate sector in Scotland relative to other parts of the UK. Business birth rates are lower, the business base is smaller and Scottish companies typically engage in less research and development.

As I said, there is also evidence that Scottish headquarters drift south of the border once businesses have reached a certain size. Effective use of corporation tax could serve as a powerful tool to address those trends by improving competitiveness and encouraging investment and expansion. Evidence shows that, at the margin, corporation tax rates can be an important factor in international firms’ decisions about foreign direct investment, which is one of the key objectives of the Scottish Government and Scottish Development International.

At the same time, a number of key sectors in the Scottish economy face tough competition from abroad. Companies abroad receive attractive tax breaks as part of allowances in relation to corporate taxation. The

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computer games industry, for example, has received a very attractive proposition from Dublin, and receives tax breaks in Montreal that have been denied by our Government despite forceful representations to the Minister by members of all parties. Improvements in those areas will help to boost productivity and, ultimately, the competitiveness of the Scottish economy, which will benefit not just Scotland but the United Kingdom as a whole.

The devolution of corporation tax powers is not solely about making possible the creation of a more competitive environment within the Scottish economy; it also about increasing and promoting accountability. A greater devolution of economic policy levers and tax revenues means that the Scottish Government will have the levers that they need to increase sustainable economic growth, and an opportunity to reinvest the proceeds of that growth—higher long-run tax revenues—in Scotland’s public sector. Having control over corporation tax would also mean that the Scottish Government would bear the risk on the economic levers. We believe that positive reform must be about balancing the revenue and expenditure implications of policy choices, and about giving policy makers the levers to promote economic growth.

Mr Alan Reid (Argyll and Bute) (LD): According to the hon. Gentleman's logic, if the power were devolved, the Scottish Government would reduce corporation tax. How would the gap in the Scottish Government’s revenue be plugged? Would that be done by means of higher taxes or a lower standard of services?

Stewart Hosie: The hon. Gentleman must have been asleep for the last 14 minutes, because that is precisely the question that the hon. Member for Edinburgh East (Sheila Gilmore) asked. I am surprised that he did not hear or understand my answer to her question, which was that the corporation tax yield would fill the gap caused by the reduction in block grant.

David Mowat: The hon. Gentleman made a powerful point a few moments ago, if I heard him aright. He said that, unlike the United Kingdom, which has a significant deficit, Scotland had experienced a surplus over the last few years. Can he tell us how, in reaching that conclusion, he accounted for the bail-out of Royal Bank of Scotland?

Stewart Hosie: I have two answers to that question. The first is that in the 40 years before the crisis, Scotland experienced a surplus on average. The second relates directly to the hon. Gentleman's question. I am fed up with the argument that runs “Scottish banks bad, English banks good.” There seems to be a failure of basic understanding. Northern Rock took £20 billion, as did the Lloyds banking group. No one seems to speak about Northern Rock. Bradford & Bingley required £37 billion. RBS required £45 billion, but a large chunk of that related to the asset protection scheme. It was not a question of Scottish banks’ being bad and needing to be bailed out while all other banks were fine.

I do not want to drift too far from the new clause, but the Office for Budget Responsibility made it clear in its assessment earlier this year that the net impact of the financial crisis measures would be a surplus of £3.5 billion

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for the taxpayer. It is interesting that the hon. Gentleman does not seem to know what the out-turn figure is likely to be.

Amendment 25 provides for powers to charge a tax charged on the profits of companies—

Mr Reid: Will the hon. Gentleman give way?

Stewart Hosie: Not at this point.

New clause 9 would allow for the introduction of an additional devolved tax charged on the profits of companies, and would require such a proposal to be placed before both Houses of Parliament.

Mark Lazarowicz: Will the hon. Gentleman give way on that point?

Stewart Hosie: No, not on that point.

Mr Gauke rose—

Stewart Hosie: I will give way to the Minister.

Mr Gauke: I know that the hon. Gentleman is keen to move on from the subject of corporation tax, but I seek clarification, I think with good reason. He said that he understood the Azores judgment and what was necessary for compliance with it. He said that if the yield from corporation tax went to the Scottish Government, the block grant would be reduced and everything would be fine. All that is correct. However, if the Scottish Government reduce corporation tax, there will be a cost. He has not made clear how the Scottish Government would deal with that. Would they do so by spending less or by increasing other taxes?

Stewart Hosie: Evidence that I have seen in a significant number of companies suggests that the reductions in block grant would be phased in. We see a trend increase in business tax yield as business tax rates are reduced. I am sure that the Minister has seen similar figures, which may have driven some of his own policy decisions. I suspect that Scotland would be unique if we did not follow a pattern that has been seen time after time in other countries.

Mr Reid rose—

Mr Gauke rose—

Stewart Hosie: I will give way one more time to the Minister.

Mr Gauke: The hon. Gentleman is presenting the Laffer curve argument. He suggests that a corporation tax cut could pay for itself. As he knows, I support that idea and am looking at what the Government are doing in that connection. It is not altogether surprising that there are advantages in reducing corporation tax, but, initially at the very least, it comes at a cost. We had to put that in the Red Book. Does he believe that there would be no cost, or does he believe that the tax cuts would immediately pay for themselves?

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Stewart Hosie: I am glad that the Minister agrees with my direction of travel. What I am saying is that the Scottish Government would have to take responsibility for the consequences of Scottish Government policy, as is right and proper.

Mark Lazarowicz rose—

Mr Reid rose—

Stewart Hosie: I will give way to the hon. Member for Argyll and Bute (Mr Reid), but then I shall try to move on to excise duty.

Mr Reid: If the hon. Gentleman's argument is correct and reducing corporation tax results in an increased tax yield, that will apply in England and Northern Ireland as much as it will in Scotland. If there are different corporation tax rates in different parts of the United Kingdom and if the hon. Gentleman's argument is correct, surely every part of the United Kingdom will enter into a competition to reduce corporation tax, and we will end up with a race to the bottom to the detriment of all parts of the UK.

Stewart Hosie: I do not want a race to the bottom, but I do believe in tax competition. It is a pity that the hon. Gentleman and his new-found friends do not.

I must now move on from corporation tax to excise duty. Amendment 37 would ensure that provisions relating to alcohol excise came into force two months after the enactment of the Bill. New clause 19 would amend the Scotland Act 1998 so that alcohol duties became an exception to the general reservation in that regard.

All excise duties are currently levied by the UK Government. Alcohol duty is one of the most important excise duties levied in the UK. It is estimated to raise approximately £800 million a year in Scotland, less than 2% of the total tax yield in and on behalf of Scotland. In addition to raising revenues for the Exchequer, one of the key aims of the duty is to reduce excessive consumption of alcohol, which has been proved to lead to a variety of health and social problems. In the current devolution framework, the Scottish budget typically picks up the cost of addressing those problems through police, health and some social welfare costs expenditures. That is done entirely within the Scottish block. Devolving responsibility for excise duty to Scotland would help to ensure that the tax system for alcohol consumption was consistent with the alcohol policy of the Scottish Government and equipped to tackle one of the greatest health and social challenges facing Scotland.

Jim Sheridan: Will the hon. Gentleman give way on that point?

Stewart Hosie: Certainly.

Jim Sheridan: As chair of the all-party parliamentary Scotch whisky and spirits group, I can tell the hon. Gentleman that the Scottish whisky industry is deeply concerned about his proposals. What worries the industry are the administration costs. It would be necessary to designate the final destination of the product, and, even

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more worryingly, Members of Parliament would bear the additional burden of taking carry-outs from London to their constituencies in Glasgow.

8 pm

Stewart Hosie: I suspect that any MP trying to take a carry-out through airport security would immediately be stopped.

The devolution of alcohol excise duties would also enable the Scottish Government to implement a revised alcohol duty structure to offer greater protection to the competitive position of Scotch whisky, something we have tried to do on several occasions in a number of past Finance Bills. On 12 May 2009, the vote on alcohol duty took place at half-past midnight. We were trying to implement a fair rate of duty—which we can achieve through the devolution of excise duties—so that alcoholic beverages were taxed on their alcohol content, and on no other spurious measures. Interestingly, five Conservatives managed to vote with us, yet 268 Labour Members voted against, thereby maintaining the unfair level of duty on Scotch whisky. I am sure the hon. Member for Paisley and Renfrewshire North (Jim Sheridan) is sincere in his view, but it does not stand the scrutiny of the recent voting record.

The devolution of excise duties ought to be handled through the devolution of additional powers as described in the amendment, because alcohol duty is levied on all products consumed in the UK irrespective of their country of origin. As a result, the UK Exchequer collects duty on Scotch whisky only if it is consumed in the UK, as exported whisky is not liable for excise duty. Similarly, imported products such as spirits produced overseas are liable for duty when entering the country to be sold in the UK market. We seek to devolve this power, and the Scottish Government seek the responsibility to vary the rate of duty levied on products in Scotland and to implement a more streamlined and efficient system of alcohol taxation that better targets rates of duty to combat binge drinking and excessive consumption of cheap alcoholic products, and that supports a fairer and less discriminatory system for premium products such as Scotch whisky.

Mr Donohoe: Will the hon. Gentleman at least give credence to the fact that over a great number of years previous Governments held back from imposing higher taxes on Scotch whisky, along with all other spirits, and that as a consequence the level playing field he seeks is close to being achieved?

Stewart Hosie: I am prepared to recognise that duty did not rise for a number of years, but that is not the point I am making. My point is that alcohol taxation is unfair because it is based on different types of alcoholic drink, and not entirely on alcoholic strength.

Mr Donohoe: But it is getting to that point.

Stewart Hosie: It is no such thing, as I am sure the hon. Gentleman’s contacts in the Scotch whisky industry will confirm.

There is a strong social case for the devolution of alcohol duty, not least because there is clear evidence that, for alcohol, price is a driver of consumption. There is strong evidence from numerous surveys in

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Europe, America, Canada, New Zealand and elsewhere that levels of alcohol consumption in the population are closely linked to the retail price of alcohol. As it becomes more affordable, consumption increases, and as the relative price increases, consumption falls.

We, and the Scottish Government, are committed to introducing a minimum price for alcohol, and gaining control over the excise duties would provide an additional mechanism to address excessive alcohol consumption. That would help to reduce the annual cost of alcohol misuse in Scotland. Devolving excise duty would enable a future minimum price per unit to be established within the excise system. Under the current system, the introduction of a minimum price is estimated to generate additional revenue for retailers, not the UK or Scottish Government. That was the argument the Labour party made in the Scottish Parliament. Devolving excise duty for alcohol would therefore result in all the additional revenue from increasing the price of low-cost alcohol products accruing to the Scottish Government, and those revenues could then be reinvested in public services in Scotland. The case for devolving alcohol duties is very strong indeed.

Mr Reid: I agree with one of the hon. Gentleman’s points: alcoholic drinks should be taxed on alcohol content. There is a practical problem with his amendment, however. It is my understanding that he wants to increase taxes on alcohol in Scotland, but if alcohol is then priced cheaper just across the border in Berwick or Carlisle, surely a lot of revenue will be lost by people nipping across the border to buy their drink?

Stewart Hosie: There are always borders. The hon. Gentleman was presumably one of the 28 Lib Dems who backed us in 2009. I am pretty sure some of the Lib Dems in the Scottish Parliament now back minimum pricing. I ask for a wee bit of constituency in terms of the policy therefore, and given there are only five Lib Dem MSPs, it should not be too difficult to do a quick phone around.

I turn to the topic of capital borrowing and amendments 26 to 29. We all know that infrastructure investment is an essential contributor to productivity and economic growth. That is presumably why the Chancellor of the Exchequer made great play of spending £2 billion more on capital projects in the comprehensive spending review period than the previous Labour Administration had planned to spend. In the short term, such expenditure can boost economic growth, total output and employment. Over the long term, capital investment, both public and private, is a key driver of productivity, competitiveness and long-term economic growth.

Public sector investment that enhances a country’s physical, technological and digital infrastructure can increase the productive capacity of the economy and drive private sector growth and investment. Indeed, we know that direct capital investment would save or create twice as many jobs as the same amount of investment used for a VAT cut, such is the scale of the economic multipliers of direct capital investment.

Jim Sheridan: The hon. Gentleman is absolutely right that this does create jobs. Can he therefore justify his Government’s cancellation of the Glasgow airport rail link project?

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Stewart Hosie: Some projects were simply unaffordable, not least because a number of parties—the other three parties represented here now, in fact—voted for half a billion pounds for the Edinburgh tram system, and look at what an overwhelming success that is!

The Scottish Government are responsible for the vast majority of Scotland’s public investment, covering transport, water, health, education, local government, prisons, housing and so forth. There is, I hope, now widespread agreement across the political spectrum that the Scottish Parliament should have full responsibility to determine the pace and scale of Scotland’s infrastructure investment programme, within a prudent and sustainable long-term financial framework. The Scottish Parliament should have substantial capital borrowing powers to fund productive expenditure for the following purposes: for very large, discrete projects or programmes such as the Forth crossing, which the Minister mentioned; to provide medium-term economic stimulus similar to the accelerated capital programme undertaken in 2008-09 and 2009-10; to smooth the profile of investment in key public services; and to help to lever in additional investment, particularly from the private sector.

Sheila Gilmore: Given what I understood to be the hon. Gentleman’s party’s green environmental credentials, I am surprised that the capital projects he appears to favour are largely to do with roads, rather than public transport, such as the tram proposal that has been mentioned.

Stewart Hosie: The hon. Lady’s surprise is a matter for her, not me. An investment programme is in place that includes housing, environmental and insulation programmes and a large number of other programmes in Scotland, but we are discussing capital borrowing, not the specific projects for which it might be used. That will be a matter for the current and future Scottish Governments.

Sheila Gilmore: I must take the hon. Gentleman up on the point about housing, because I understand—from a recent report by Shelter, for example—that the number of new affordable homes being started in Scotland this year will have fallen from 6,000 to 1,500.

Stewart Hosie: That report is probably for the overall statistics. Sadly, because of the banking crisis, the banks’ withholding of cash and the difficulties with Bradford & Bingley, which funded housing associations, the slack has had to be taken up by the Scottish Government, who have been funding as many new housing starts as is humanly possible. I find it extraordinary that, given the thousands of houses that have been contributed to by the Scottish Government, the hon. Lady or anyone else on the Labour Benches can talk about Labour’s record, which, from memory, was not 6,000, 600 or 60, but six council houses being funded by that Scottish Government.

Sheila Gilmore rose

Stewart Hosie: I have given way twice—I am going to carry on.

As I was saying, the Scottish Parliament should have substantial capital borrowing powers for very large, discrete projects, the provision of medium-term economic

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stimulus, smoothing the profile of investment in key public services and helping to lever in additional private investment.

Sheila Gilmore: Will the hon. Gentleman give way?

Stewart Hosie: Not just now.

However, as a result of the decisions taken by the UK Government in 2010 in the comprehensive spending review, capital budgets available to the Scottish Government are now likely to fall by some 36% in real terms. That represents a cumulative reduction in spending power of around £4.1 billion over the period of the comprehensive spending review. The speed and scale of the cuts by this Government significantly constrain the Scottish Government’s flexibility in managing their infrastructure programme. It is vital that while ensuring the overall sustainability of borrowing—I agree with the Minister on that—Scotland’s capital borrowing facility has sufficient scale and flexibility to enable the funding of productive investments over the long term.

The proposals in the Bill state that from 2015 the controls and limits applied to capital borrowing mean that Scottish Ministers should be allowed to borrow up to 10% of the Scottish capital budget in any year to fund capital expenditure—£230 million in 2014-15—and that the overall stock of capital borrowing could not rise beyond £2.2 billion. They also state that borrowing to finance capital funded by a loan from the national loan fund would be for a maximum of 10 years, but that a longer time frame—for example 25 years—may be negotiated if that better reflected the life span of associated assets such as with the new Forth crossing.

In the written statement of 13 June, the Chancellor and the Secretary of State proposed:

“bringing forward to 2011 pre-payments, a form of cash advance, to allow work on the Forth replacement crossing”


“introducing a power in the Scotland Bill that will enable the Government to amend, in future, the way in which Scottish Ministers can borrow”—[Official Report, House of Lords, 13 June 2011; Vol. 728, c. 58WS.]

including through the provision of bonds. Notwithstanding any of that, the £2.2 billion cumulative limit is unchanged.

I am pleased that there is now established consensus among the Scottish Government, the Scottish Parliament, the House of Commons Select Committee on Scottish Affairs and a number of independent experts that the Scotland Bill’s proposals for capital borrowing require substantial enhancement and improvement. That unanimity was reflected in the motion that was agreed unanimously on 9 June in the Scottish Parliament. I make this criticism of the proposals even with the changes regarding our attempt to have capital borrowing devolved so that limits, bond issuance and all these matters are agreed between the Governments on a statutory basis. At the moment, the Bill is predicated on a framework that appears to have been developed without any explicit discussion about sustainability or affordability and without offering any objective means of testing those essential criteria. The annual borrowing limit of 10% of capital departmental expenditure limit seems arbitrary and the proposed total limit on borrowing, set at £2.2 billion, is believed to be too low to make a meaningful difference. Indeed, I think that the Scottish Parliament Scotland Bill Committee in Holyrood suggested £5 billion. The

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UK Government have not proposed any objective criteria to determine the path of total capital borrowing capacity over time and that builds uncertainty and discretion into the framework. The arbitrary mechanism that the UK Government have proposed for revising this is inconsistent with the basic principles of devolution. The central assumption of a 10-year repayment period for capital borrowing is inappropriate, as public capital assets will typically have a useful life of perhaps more than 30 years. Although helpful, the early implementation measures will do very little to offset the cumulative £4.1 billion reduction in capital expenditure.

The changes are welcome, but we believe that the UK Government’s proposals still require improvement in four key areas. First, the specification of annual limits on borrowing should be agreed between the Governments and not set arbitrarily. Secondly, the methodology for determining the borrowing capacity that is sustainable in the long term needs to be agreed. Thirdly, the terms of repayment for capital borrowing need to be agreed and, fourthly, the impact of the early implementation measures that are proposed also need to be looked at and agreed properly. We believe that should be done within the framework of a statutory agreement between the two Governments, and that is the purpose of the various amendments and new clauses we have proposed. They include amendment 26, which would allow Scottish Ministers to borrow for the purpose of meeting capital expenditure without requiring the approval of the Treasury and without it being by way of loan, and amendment 27, which would mean that Scottish Ministers and the Treasury must both agree to a code of practice and framework within which these things would be agreed. Our amendment 28 would remove the measure that suggests the cumulative borrowing total should be set at £2.2 billion, so it would become redundant when an agreement was in place.

Amendment 29 would remove subsection (10) of clause 32, which introduces the type E procedure. That subsection would not be necessary because the agreement on how Ministers are to determine and keep under review how much they can afford to borrow, the terms and conditions and the sums that may be borrowed and the limit on aggregate at any time outstanding in respect of the principle would be agreed.

8.15 pm

That brings us finally to commencement. [ Interruption. ] My hon. Friend the Member for Perth and North Perthshire (Pete Wishart) suggests from a sedentary position that I should keep going but I suspect that my speaking for close to an hour will be enough even for me.

The commencement procedures cover the implementation of the Scottish rate of income tax, income tax for Scottish taxpayers, the Scottish tax on transactions involving interests in land, the disapplication of UK stamp duty land tax, Scottish tax on disposals to landfill and the disapplication of UK landfill tax. As I said on Second Reading, these provisions will come into force two months after the Bill receives Royal Assent, but they will not have any practical effect at that point because the provisions in the Bill as currently drafted include an additional step that requires the Treasury to appoint a tax year as the first year in which the income tax provisions are to operate. In the cases of SDLT and

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landfill tax. the Treasury will appoint a specific start date but the principle is the same. Until the Treasury does that the tax provisions will sit on the statute book without changing the current arrangements whereby the UK Parliament controls all aspects of income tax, SDLT and landfill tax. The House should also note that although the repeal by the Bill of the current Scottish variable rate provisions is similarly commenced two months after Royal Assent, that has no practical effect until the Treasury appoints a tax year as the last tax year in which SVR operates. That might have been affected by earlier amendments, and I wait to hear what the Minister says about that. That two-stage approach to commencement is highly unusual and the practical effect is that the tax proposals will operate only when the Treasury decides.

The powers conferred by the Bill on the Treasury to appoint start dates are not subject to any parliamentary procedure and, indeed, will not even be publicised by means of statutory instrument, so the processes for bringing the tax provisions of the Bill into effect do not require the consent of the Scottish Parliament, Scottish Ministers or even Westminster. I believe that is a fundamental flaw. We believe that there must be a role for the Scottish Parliament in particular.

The Scottish Government have outlined serious gaps that remain in the Bill, and crucial details remain unknown. It is essential therefore that the Bill includes a specific mechanism to allow the Scottish Parliament the opportunity to consider the Scotland Bill proposals before they are brought into effect. Our amendments seek to make changes to the commencement provisions of the Bill to ensure that the tax provisions cannot be brought into effect unless the Scottish Parliament has specifically consented. As I said on Second Reading, there are a number of examples in which assent from Scottish or, indeed, Welsh Ministers, Parliaments or Governments is required before all-UK legislation can be invoked or rolled out properly.

These amendments are on corporation tax, excise duties, capital borrowing and commencement. The first three are part of a package of six measures that the First Minister has been discussing, and I am sure he will be making detailed responses to the UK Government. We believe the measures are important, not to deliver full fiscal autonomy, not to deliver independence but, as we said on Second Reading and beyond, simply to make the Bill better and to remove some of its inherent flaws and weaknesses.

I have been a long time speaking and others want to contribute. I commend our amendments to the House.

Iain Stewart (Milton Keynes South) (Con): I shall speak first to my amendment 24 before making some broader comments about some of the other amendments and new clauses.

I tabled the amendment as a probing amendment, as I felt there was still some ambiguity about one aspect of the definition of a Scottish taxpayer when it was considered in Committee. My point of concern is to define whether under clause 26 a taxpayer is resident in Scotland at the end of the day if that person is embarking on a cross-border overnight journey—one that departs Scotland before midnight and arrives in England after midnight. I think primarily of my old friend on the Caledonian sleeper, whom I cited in Committee. If the train leaves Glasgow

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and has crossed the border before midnight, is he deemed to be in Scotland or England at the end of the tax day? The point may seem trivial, but for someone who makes that journey regularly it could be material in defining whether they were a Scottish or an English taxpayer. Obviously, it would also apply to other modes of transport, such as private or heavy goods vehicles and overnight coaches.

It is a probing amendment and it may not offer the most specific or elegant definition, but I tabled it to find clarity. I shall be happy not to press it if alternative wording can be found, or the Minister can give clarity in case the definition is ever challenged in court. I shall return to that point briefly at the end of my comments.

I shall speak briefly to new clause 8 and the related amendments tabled by the right hon. Member for Birkenhead (Mr Field) and others. I suspect that one of our show-stopping debates tonight may be on the Barnett formula and related matters. When I looked at the amendment paper, I thought I would be following the right hon. Gentleman and responding to his points, but I shall have to anticipate his arguments from the interventions and from the new clause itself.

They are a beguiling set of amendments. I agree that at some point we shall have to tackle the whole issue of the Barnett formula and the fiscal relationship between all parts of the United Kingdom. [ Interruption. ] The hon. Member for Na h-Eileanan an Iar (Mr MacNeil) invites me to give a solution. If he bides his time—

Mr MacNeil: I said we have a solution.

Iain Stewart: I know, but I believe I have a better one and I shall turn to it in a moment.

The arguments are beguiling. The hon. Member for Vauxhall (Kate Hoey) said that she has correspondence from constituents asking why on the face of it Scottish residents have a much better deal from the UK public purse than people in England. I receive similar letters asking why prescriptions are free north of the border, but there is a charge in England. That issue has to be tackled.

Mr MacNeil: Among that raft of questions, has anyone ever asked the hon. Gentleman why the social security spend is higher per head in England than in Scotland?

Iain Stewart: I challenge the hon. Gentleman’s facts, because in preparing for the debate I read that often-thumbed document GERS—Government Expenditure and Revenue Scotland—and the Treasury’s public expenditure statistical analysis, which show, if my interpretation is correct, that social security payments are higher per head in Scotland than in England.

Fiona O'Donnell (East Lothian) (Lab): Could the hon. Gentleman rise to the challenge of explaining to his constituents why there may be different charges for services between one local authority area and another? If that can be explained, surely the choices made by the Scottish Parliament and Government can also be explained to his constituents.

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Iain Stewart: Indeed. If the hon. Lady will let me develop my argument, I shall address those points. There is a lot of misinformation swilling around and we need to arrive at hard evidence-based data so that we can make objective decisions about the future fiscal relationship between the different parts of the United Kingdom.

One of the misleading things is that we often talk about changing the Barnett formula as if that was the whole fiscal relationship between the different parts of the kingdom. In fact, it is a convergence formula; it was designed by Lord Barnett to diminish the difference between Scottish and English public spending over time. The reason why people complain about the formula is that so many elements of public spending are negotiated separately from the formula. Last week, there was an instructive debate about the formula in the other place and I remind Members of the comments of Lord Lang, a former Scotland Secretary. He said that between 2000 and 2002 the Barnett elements of the public expenditure rounds diminished the Scottish block by £17 million, but the total increased by £340 million because of separately negotiated arrangements.

Mr MacNeil: Was any mention made in that debate of the massive defence underspend in Scotland, which is a huge section of public spending where Scotland receives dramatically less than its per capita share compared with the rest of the UK? [ Interruption. ] I would say more if I was not being heckled by the hon. Member for Glasgow South West (Mr Davidson).

Iain Stewart: If the hon. Gentleman has a little patience, I shall come to what I believe is the solution.

I fear that new clause 8 and the related amendments are a little hasty in dealing with this matter.

Mr Frank Field: What about the Union?

Iain Stewart: The Barnett formula has not been in operation for the duration of the Union and only since 1978, so it is a comparatively new beast.

Yesterday, the right hon. Gentleman was speaking in the debate on the Pensions Bill where one of the arguments against the changes the Government are proposing is that the time scale to allow people to adjust their behaviour should not be less than 10 years. A similar approach should be taken to funding; there should be a process of evolution, not revolution. If we rush too hastily into the argument on the basis of misinformation, we risk splitting the Union asunder.

David Mowat: My hon. Friend is right. If a change is made to the block grant, as it must be at some point soon, there will be a long transition period, which may be as long as 10 years, but that is no reason not to do a review, put the matter on a needs basis and start that 10-year period. A transition of 10 years is reasonable.

Iain Stewart: I am grateful to my hon. Friend. I have a suggestion to make about how we can move forward. In this country we have never had a territorially based system of taxation or spending. From taxation receipts we do not know in detail which part of the United Kingdom contributes what in taxes. There are many estimates and forecasts, but there is little hard evidence.

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Mr MacNeil rose

Iain Stewart: I will give way to the hon. Gentleman in a moment. His party, in calculating Scotland’s share of the United Kingdom’s tax receipts, has used very different formulae and assumptions over the years. I do not have the exact figures to hand, but in the space of a few months it came up with a figure for Scotland’s surplus, if that is what it was, which varied by several billion pounds because it used different assumptions in calculating Scottish tax receipts. That is the problem that we have in calculating the true relationship.

8.30 pm

Mr MacNeil: Over and above tax receipts, disaggregated spending might be a lot easier. Does the hon. Gentleman believe that Departments such as the Ministry of Defence should provide full figures on how much they are spending in which parts of the United Kingdom? The Government have the power and authority to do that. We have many concerns about the shipyards in Glasgow and about defence spending. As a member of the governing party, does the hon. Gentleman feel that he should be encouraging his side to provide openness and clarity on these vital issues?

Iain Stewart: I am happy to come to some agreement with the hon. Gentleman. My solution is to provide a detailed breakdown on a territorial basis of actual spending and receipts—what is spent and received by each part of the United Kingdom.

Mr Davidson: I understand the point that the hon. Gentleman is making, but with reference to the different parts of the United Kingdom, does he accept that there are enormous divergences among different parts of England, and that that is fuelling much of the sense of grievance felt by many of our English colleagues? Much of this is a within-England problem of unfair distribution, particularly to the north-east and the north-west of England, which ought to be addressed by his Government.

Iain Stewart: The hon. Gentleman anticipates my next point exactly. It is too crude to look at the four constituent nations of the United Kingdom. In Scotland and in England we need to break that down further and look, as he says, at the different needs in the different parts of the kingdom. I will give a constituency example. My constituency, Milton Keynes South, is in the affluent south-east of England, yet I have very deprived wards in my constituency. Taking health spending as an example, what Milton Keynes is allocated as its formula share of health spending in England is capped because there is a transfer to other parts of England. I contend that that is not fair and it disregards some of the areas of need in my constituency, but it illustrates the problem that arises if the formula for analysing spending is too crude.

Mark Lazarowicz: As the hon. Gentleman knows, spending per head in London is almost 50% higher than in the south-east region of England. No one disputes that there are parts of London where there is great need, but other parts which do not fall into that category still benefit from Government spending which is 40% higher than in his constituency.

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Iain Stewart: The hon. Gentleman makes a good point. In calculating these figures, however, we should be careful about looking only at per capita spending. Again, I believe that is too crude. It is about the equality of service provision. In a rural area, the cost per head of providing a school place will inevitably be higher because the fixed costs of a building, for example, are divided by a comparatively smaller number of people.

Mike Freer (Finchley and Golders Green) (Con): Does my hon. Friend accept that allocating funds simply on geography, particularly defence spending, is a misdirection? Defence spending must be based on the strategic needs of the armed forces, not on a geographic spread. Does he agree that that line of argument is completely false in the context of defence spending?

Iain Stewart: My hon. Friend makes a very good point. We also have to look at the equality of the benefits given by defence spending—the protection that accrues to the whole country. It does not matter so much where the defence equipment originates if we are looking at the overall protection that the armed forces provide.

Mr Weir: The hon. Member for Finchley and Golders Green (Mike Freer) makes a valid point as regards defence. The attack on the Barnett formula is based on the fact that Scotland gets more per head, but if we take into account all spending, that is not necessarily the case because of the imbalance in the way that defence spending is allocated—so the figures are important. Where the assets are, for the purposes of this argument, may not be quite so important, but the amount of spending is very important. The economic impact of where the assets are is vital to many communities.

Iain Stewart: I am grateful to the hon. Gentleman for his point. May I infer that he is happy to retain the Trident base in Faslane, given the economic benefits that accrue to Argyll and Bute and West Dunbartonshire?

Mr Weir: There is little or no economic benefit from the Trident base, and there is an extremely disproportionate —[ Interruption. ] The point is that bases such as the RAF bases in Morayshire are important not only from a defence point of view but economically, and bases such as the Condor base in my constituency are important economically and also from a defence point of view.

Iain Stewart: I challenge the hon. Gentleman’s assumption about the lack, as he sees it, of economic benefits. I also contend that he is making a good case for Scotland's remaining part of the Union, so that the lion’s share of UK defence assets can be based north of the border.

Mr MacNeil: As part of the Union, Scotland currently has a manifest defence underspend. There is no defence advantage for Scotland of being in the Union at all; we are actually losing money by being part of the Union. Far more would be spent on defence in Scotland as an independent country than the Union is spending there, and the shipyards in Glasgow would be in a far better state with an independent Scotland than with a dependent Scotland represented by Labour.

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Iain Stewart: I have great respect for the hon. Gentleman in many matters, but this is not one of them. The argument that defence spending in Scotland would somehow be enhanced through independence is not one I agree with. I am not sure whether the Scottish National party’s policy is still to withdraw from NATO, but it used to be many years ago. I see Scottish defence assets only being decimated in the event of independence, so I agree to disagree with him on that point.

I will return to what I propose as a solution. Before we start recalibrating the Barnett formula or developing some other formula or mechanism, we need hard facts on the fiscal relationship between each part of the kingdom. Once we have that, we can move forward on a sensible basis towards having a stable and fair system in the UK. However, I will end on a note of caution. In a previous exercise I looked at other countries that operate some form of fiscal transfers between different parts of the country, such as Australia, Canada and Germany. There are different models in each country, but in all of them the spending relationship between the constituent parts is still a big political issue. I fear that we will never get to a point where everyone is completely happy with the relationship, but I believe that we can arrive at a stable solution.

Mr Davidson: It is important to put on the record that even under devolution Glasgow clearly gets far less than its fair share from a Scottish Government based in Edinburgh. I have just been to the Shetlands with the Scottish Affairs Committee, and people there feel that they are equally badly treated by Edinburgh. We also need a needs-based assessment within Scotland to stop money disappearing and being sucked down into the black hole that is Edinburgh.

Iain Stewart: Having been born and brought up in Hamilton, which is between Glasgow and Edinburgh, I am in something of a no man’s land on that point and wary of intruding on private grief. The hon. Gentleman’s point is an important one. The analysis should be not only among Scotland, England, Wales and Northern Ireland, but among the regions and cities in each nation. I do not intend to press my amendment to a vote, but I would be grateful if the Minister could suggest some alternative working or make some statement.

Mr Russell Brown: Will the hon. Gentleman give way?

Iain Stewart: One very last time.

Mr Brown: I thank the hon. Gentleman for giving way. My intervening on him is causing disruption behind me. Will he look again at his amendment and explain exactly what it means? I am a little perturbed, and I know that he has mentioned sleeper trains and everything, but will he explain again exactly what it means?

Iain Stewart: My amendment is very simple and would remove any ambiguity. If a passenger were on a cross-border overnight journey, irrespective of when the border was crossed, they would be deemed to be in Scotland at the end of the day when that service departed. It may not be the most elegant or precise of solutions,

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but I felt that in the debate in Committee there was some ambiguity about the position, so the amendment is my attempt to clarify it.

Mr MacNeil: Will the hon. Gentleman give way?

Iain Stewart: Forgive me, but I am going to finish now. Many other Members wish to speak, and I look forward to the Minister’s comments.

Ann McKechin: I welcome the very wise remarks of the hon. Member for Milton Keynes South (Iain Stewart). He always provides us with great expertise on Barnett formula issues, and on the point about having hard evidence, because one key component of our debate about the Bill has been the evidence for the various fiscal arguments that have been proffered over the past few months.

Borrowing powers were not in the original Calman recommendations, but we certainly welcome the inclusion of that tool for the Scottish Government. The Scottish Parliament’s Scotland Bill Committee, in its report, and the Select Committee on Scottish Affairs both recommended that the powers be brought forward from the proposed date of April 2013, and as the Minister will be aware, we have already called for their advancement to 2012. That proposal is in amendment 2.

The Government announced in last week’s written ministerial statement that they are to bring forward to 2011 pre-payments, in order to allow work on the Forth replacement crossing. That is not the same as bringing forward the capital borrowing powers in the Bill, and it would be helpful if the Minister in his winding-up speech were able to confirm that the full capital borrowing powers will be available from the next financial year, if the Bill is on the statute book by that point.

I also welcome the announcement in the statement that the Government are removing the requirement for Scottish Ministers to absorb the first £120 million of tax forecasting variation within their budget, giving them greater flexibility. A number of comments have been made about extending the borrowing limits, and that should be a matter of negotiation between the two Administrations. The Secretary of State says that he views the figure of £2.2 billion as a floor rather than as a maximum, and that is welcome.

My right hon. Friend the Member for Birkenhead (Mr Field)—

Kate Hoey: He’s gone to the loo.

Ann McKechin: My right hon. Friend and my hon. Friend the Member for Vauxhall (Kate Hoey), who I understand has reached a memorable birthday, spoke to new clauses on the Barnett formula, and the hon. Member for Milton Keynes South and others pertinently said that there is no easy solution.[ Interruption. ]I am pleased to see that my right hon. Friend has returned to his seat. In the financial year 2009-10, however, the average per capita expenditure in Scotland was £9,940, while in London the figure was £10,182. Indeed, it has been stated that the move to a needs-based system in countries such as Australia has resulted in the same amount of debate about what is required.

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Barnett should not be confused with devolution. Devolution allows the Scottish Government to make their own decisions on a range of issues, such as prescription charges, which do not apply in England, but it is separate from Barnett formula issues. The Barnett formula is relatively simple and objective, and as the Calman commission stated, any changes to it would be difficult to determine and “a highly political process”.

On the new clauses on corporation tax, for the record the hon. Member for Dundee East (Stewart Hosie) spoke about fiscal autonomy for 42 minutes, not 14. However, we are not necessarily any clearer about what impact his proposals would have on the electorate in Scotland. The Calman report specifically rejected the devolution of corporation tax. Paragraph 3.113 of the final report says that

“we therefore reject the devolution of corporation tax. Nor, especially in view of its volatility…from one year to another, do we see it as a candidate for tax assignment.”

8.45 pm

This matter was raised in an interesting report on Scottish economic growth issued this week by the Centre for Public Policy for Regions, which states:

“The research findings on the issue of the relationship between fiscal autonomy (or decentralisation) are neither consistent nor robust. Overall, the most important finding is that there is no simple and robust relationship between fiscal decentralisation and economic growth.”

It also states:

“The traditional drivers of economic growth tend to concentrate on microeconomic factors (such as innovation, R&D, entrepreneurship, and knowledge-based assets in general) as the key determinants of productivity…To a large extent, the policy levers available in this area have been within the control of the devolved Scottish Government since 2000.”

Instead of giving us an ill-defined list of extra powers, it would be helpful if SNP Members and their colleagues in the Scottish Government could specify how they wish to use their existing powers to increase Scotland’s economic growth and productivity.

Mark Lazarowicz: No doubt there is a theoretical argument that cutting corporation tax for smaller or new businesses would encourage them to grow and expand, but can my hon. Friend explain how cutting the corporation tax paid by Royal Bank of Scotland by 50% would encourage it to bring more jobs into the Scottish economy? Would it not just add to its already large profits?

Ann McKechin: My hon. Friend raises a good point. The Scottish Government are advocating a cut in taxes for banks but not for small businesses that do not pay corporation tax. Many employers in the private sector who employ many people do not pay corporation tax, but income tax. Substantially reducing corporation tax would lead to a large cut in public expenditure or increase the burden on income tax payers.

The Scottish Government already have a considerable number of economic levers. They have decided to cut funding to many Scottish colleges—for example, James Watt college in Greenock faces a cut of £5 million. They have cut regeneration funds in many of the most deprived areas, including a 71% cut in the Inverclyde regeneration fund. The test that the Scots will apply is not how many

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powers anybody has vis-à-vis someone else but how they use them for Scotland’s benefit.




SNP Members chunter on, but they do not have any intervention to make because these are decisions that they have made and they do not wish to take responsibility for them.

Fiona O'Donnell: Does my hon. Friend regret the macho element that has crept into this debate? Does she, like me, regret the fact that when Alex Salmond came to Downing street with his two friends and sat down with Government Ministers, there was not a single woman around that table?

Ann McKechin: My hon. Friend raises an interesting point about the issues that the Scottish Government have decided not to speak about. They did not come down here to speak to Ministers about the cuts in the welfare reform that will impact particularly heavily on women. They did not come down here to talk about the crisis in our care homes as a result of the imminent collapse of Southern Cross, which affects elderly people and their families right across the country. They did not come down to talk about the increase in the pension age, which will impact on women in particular. My hon. Friend is right that when it comes to issues that affect tens of thousands of people and women in particular, who make up the majority of the Scottish population, the SNP is sadly silent.

Dr Whiteford: The last time I looked, welfare reform and pensions were matters reserved to this House. I certainly contributed to the debates on those matters in this House, and the last time I looked I was a woman. It is sad that when we discussed the uprating proposals in the Pensions Bill, most Labour Members, with a few honourable exceptions, sat on their hands. It was left to just a few of us on the Opposition Benches to oppose the increases proposed by the Government.

Ann McKechin: I do not discredit the hon. Lady for making strong statements in this Chamber. However, I find it extraordinary that the First Minister, who feels that he can speak about any issue that impacts on Scotland and who has more powers, does not take the opportunity to speak about the issues that matter to ordinary people in Scotland every day of the week.

I will return to the Bill, as I am sure you would wish, Madam Deputy Speaker.

Mr MacNeil: Will the hon. Lady give way?

Ann McKechin: The hon. Gentleman is jumping up to speak.

Mr MacNeil: Will the hon. Lady clarify whether she is saying that she would welcome the First Minister coming to Downing street to talk about welfare reform and pensions?

Ann McKechin: If the First Minister had anything sensible to say, I would, but as yet, I have not heard it. It is a bit like the corporation tax issue—[ Interruption. ] The hon. Member for Na h-Eileanan an Iar (Mr MacNeil) needs to calm himself and not get over-excited. The Scottish Government have had many weeks to produce detailed analysis. They have complained that things

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have been rushed and that we have not had figures from the UK Government on a variety of issues throughout the passage of this Bill, yet they cannot produce the detailed evidence and analysis that would allow people in Scotland to judge whether their calls have validity.

The hon. Member for Dundee East was given five opportunities this evening to explain what the impact would be on Scottish public expenditure if there was a cut in corporation tax. He said in Committee:

“I would like it cut over a number of years”.—[Official Report, 14 March 2011; Vol. 525, c. 70.]

Members may be interested to hear that that has not always been the Scottish National party’s policy on corporation tax. In 1988, a certain Alex Salmond was suspended as an MP from the House of Commons for attacking the Tory Government’s reduction in corporation tax.

Pete Wishart (Perth and North Perthshire) (SNP): I am grateful to the hon. Lady for the history lesson. Is this what we are going to get from the Labour party for the next few years? I want to encourage her, because the negativity and can’t-do attitude that has permeated the Labour party is partly responsible for the overwhelming defeat that it suffered at the Scottish elections. Please carry on.

Ann McKechin: If that is the level of intellectual debate that we can anticipate from the Scottish Government and their colleagues at Westminster over the next five years, I think Scotland will be in a pretty poor state. Of course, we now have a hierarchy in the Scottish Government depending on whether one is a good Scot or a bad Scot. That is a level of debate that extends even up to judges in the Supreme Court.

If corporation tax was cut in Scotland, public spending would have to be cut in line with it, as we have heard today. The hon. Member for Dundee East suggested that the Scottish Government would take the power, but apply the same rate. That suggests that the power would not provide any benefit or disbenefit, except that they would have to administer the tax at a cost. At some point in the future, they would then apply the tax.

There are questions to which people in Scotland want answers. By how much would the Scottish Government cut corporation tax? The hon. Gentleman spent 42 minutes talking this evening and did not confirm that figure once. What would be the time scale for the cut in corporation tax? Would it be done over two years, three years or four years? We do not know. That is despite the fact that the Treasury, in its evidence to the Scotland Bill Committee in Holyrood in March, stated:

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

That is understandable given the maturity of the Scottish economy and, as the Exchequer Secretary mentioned tonight, the many large plcs that already have their registered offices in Scotland. Even Northern Ireland’s First Minister, Peter Robinson, believes that Northern Ireland is a special case and has warned Alex Salmond that Scotland could lose up to £1.5 billion if it follows through the bid to set its own corporation tax. Anyone would need answers to the questions I have asked if they are to decide that that is a good idea.

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The SNP is reluctant to say whether it thinks Scotland should be a high-tax nation or a low-tax nation. Does it believe in high-quality, good value public services, or does it want a lower public expenditure base, which would mean fewer nurses, doctors and police? There are consequences to that. Does it want an increase in income tax? [Interruption.] The hon. Member for Na h-Eileanan an Iar chunters about scaremongering, but he has failed to answer any of those questions. He should feel free to educate us about the detail of the SNP proposals.

Fiona O'Donnell: May I issue a word of caution to my hon. Friend about encouraging SNP Members to talk for any longer? The hon. Member for Perth and North Perthshire (Pete Wishart) said in his opening remarks that he could talk for days and days about the Bill. Is that not exactly the problem? Every hour the SNP spend talking about these ideas in the House is an hour when we are not talking about the issues that the Scottish people really need us to address.

Ann McKechin: I can understand my hon. Friend’s frustration. It is disappointing that the SNP has not taken the opportunity this evening to provide an explanation and analysis of why they think the change would be helpful.

Dr Whiteford: Will the hon. Lady give way?

Ann McKechin: I would like to continue this point.

Does the SNP believe that a further tax cut for banks, which pay the majority of corporation tax in Scotland, is a progressive policy? Does it believe that there should be a shift from corporation tax to personal income taxation, as has been the case in Switzerland, for example?

Mr MacNeil: That’s a poor country, isn’t it?

Ann McKechin: Actually, there has been very little increase in growth in Switzerland. There is no direct correlation, and the evidence is weak.

As I have said previously, and as a report that came out this week clearly indicated, many different levers of economic growth are already in the hands of the Scottish Government, but they have either chosen not to use them at all, or when they have chosen to use them it has had a detrimental effect as well as sometimes having advantages.

Dr Whiteford rose—

Ann McKechin: The Scottish Government have to make those choices, and like my hon. Friend the Member for East Lothian (Fiona O'Donnell), I would like to get on with the businesses of discussing how they are going to use their powers, what they intend to do with them and how they will benefit people. Instead, the SNP has obsessed over process for an indeterminate period. [Interruption.]

Madam Deputy Speaker (Dawn Primarolo): Order. The hon. Member for Banff and Buchan (Dr Whiteford) has to resume her seat when it is clear that the person who holds the floor, in this case Ann McKechin, is not giving way.

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This is not a game, it is a debate, and it would be good if all Members in the Chamber behaved in a respectful way. The heckling is getting a little out of hand, and I am sure some Members would not like me to point out who is doing it at the moment. Perhaps we can return to the debate.

Mr Frank Field: On a point of order, Madam Deputy Speaker. Do you think it possible that by 10 o’clock, I might actually get the chance to speak to my amendment, which has already been dismissed by the Government and debated by other people?

Madam Deputy Speaker: That is not within my gift, Mr Field, but let me say that I sincerely hope so.

Ann McKechin: I certainly hope that my right hon. Friend will have the time to do so, and I hope to conclude my remarks fairly shortly, but I wish to move on to the amendments on excise duty.

The issues relating to excise duty constitute a relatively new demand since the completion of proceedings in Committee. They were not part of the discussions of the first legislative consent memorandum Committee, but will doubtless be discussed in detail by the second LCM Committee. I would welcome further analysis of the proposal’s methodology.

9 pm

The Finance Minister in the Scottish Government, John Swinney, was questioned about the proposals on the BBC “Politics Show” on 22 May. He was asked, again five times, how the proposal to devolve excise duty in Scotland would work in practice and what steps would be required to stop the inevitable cross-border traffic if alcohol were suddenly cheaper in Carlisle than in Gretna. It was also pointed out to him that tax is collected not at the point of sale but when it leaves the excise warehouse. Given not only that all Scotch whisky comes from Scotland, but that Scotland accounts for 75% of the UK’s gin and vodka production—indeed, Diageo in Fife produces all the Gordon’s gin and Smirnoff vodka that one may see in shops throughout the UK—there are serious questions about how the proposal would work, the cost of administration and how tax avoidance and evasion would be tackled.

Stewart Hosie: Notwithstanding the hon. Lady’s questions, do I take it from her answers that she sees some potential to remove the obstacle that Labour in Scotland found to minimum pricing? The Labour party’s argument was that an increase in only the retail price went straight to the UK Exchequer and did not benefit the economy generally or the Government in tackling some of the consequences of drinking cheap alcohol.

Ann McKechin: The hon. Gentleman is right to raise the serious problem of alcohol consumption in Scotland. As the Labour group in Holyrood pointed out, simply raising the price and allowing supermarkets to retain the surplus—I think that that was the Scottish Government’s first plan—was neither popular nor logical.

However, it is important to note that excise duty is now subject to an escalator above inflation. The Labour Government introduced it before the general election so that excise duty increases above inflation. Although,

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following the recession, as might have been anticipated, consumption in England dropped, that has not happened in Scotland to the same extent. There is a significant difference between consumption in Scotland and average consumption in England, despite the identical price and range of products.

Price sensitivity does not seem to apply in Scotland to the same extent as it does in England. That suggests that cultural and social issues are predominantly behind the problem. I do not derive any satisfaction from that. It would be much easier if we could say that a simple price escalation would lead to a reduction in consumption. However, the evidence to date has not shown that that would happen. Indeed, the medical evidence shows that the unit cost would have to be considerably higher than that in the Scottish Government’s proposals to make any impact. Obviously, that would have an effect on the drinks industry, particularly given that much of it is located in Scotland.

The subject is serious. The Scottish Government already have a range of levers at their disposal. The one for excise duty is exceptionally complex and I do not think that the argument for it has been made. Certainly, more needs to be done, but it needs to be based on hard evidence. We also need to realise that some of the things that we would like to do and that we think could work might not be sufficiently strong to make an impact. We might have to reconsider our proposals.

I appreciate that the Scottish Government have begun re-examining the issue because I think that they recognise that providing money to supermarkets was not the way forward. However, the issue is much wider and requires several different measures. The power to ban drink discounting, which the Labour group supported, is already on the statute book in Holyrood. That has still to go ahead. I therefore hope that the Scottish Government will enforce the legislation that they already have on the statute book.

Mr MacNeil: First, I observe that on the minimum price of alcohol, the SNP minority Government were supported by a range of professional opinion. However, is not the hon. Lady’s point on the differences between alcohol consumption north and south of the border an argument for pricing within cultures, as opposed to uniform, blanket, one-size-fits-all pricing?

Ann McKechin: The hon. Gentleman must recognise that the cost of alcohol has increased by slightly more than inflation over the past 20 or 30 years, when, of course, the increase in incomes has been much greater. The Government’s ability to control that gap is limited.

The other problem is that the total price of alcohol is, to a large extent, made up of different forms of tax. When we increase taxation to more than a certain level, we find that there is an increase in black market sales, as we found when we increased taxation on cigarettes. I do not discount the fact that price can have a bearing on consumption, but the evidence to date in Scotland presents us with a much more complex problem, much of which is about cultural and social values. They are the only things that can explain the difference in consumption north and south of the border. The regimes of alcohol selling are more or less the same, but there is increased drinking at home rather than in public houses. The problem is complex, and a range of measures must

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be put in place to deal with it. My Labour colleagues certainly want to make changes that will make an impact, and they are prepared to have a serious debate.

Stewart Hosie: Finally on that point, and for the sake of completeness, I am sure the shadow Secretary of State would want to confirm that all 17 of Scotland’s public health directors supported minimum pricing, as did the four UK chief medical officers, the British Medical Association, the royal colleges, the Association of Chief Police Officers and many others, including Tennent’s, Molson Coors and Tesco. They saw minimum pricing as an important part of the solution to the problems in Scotland.

Ann McKechin: The supermarkets might well have supported minimum pricing because they would receive a good degree of financial benefit from it. However, some medical experts said that on the evidence, the price per unit would have to be a great deal higher than that proposed by the Scottish Government to have an impact. As I said, although the increase in the excise duty escalator, which the UK Labour Government introduced, has had an impact south of the border in reducing consumption, it has not had the same impact in Scotland. Price sensitivity seems to be different north and south of the border, and there are different patterns of consumption. The focus must be on cultural and social values as much as on simple economic values.

On that basis, there are considerable complexities in any such proposals. The Government’s proposals would have an adverse impact on the drinks industry, which has a substantial bearing on the Scottish economy, but the argument for them has not been made.

Mr Frank Field: I rise to move new clause 8 and the consequential amendment 23, which stand in my name and the names of my hon. Friends.

Madam Deputy Speaker (Dawn Primarolo): Order. I am sorry to interrupt the right hon. Gentleman, who has waited very patiently for his opportunity to speak, but what he is doing at the moment is “speaking to” his amendments. He is not formally moving them, which would cause a few problems.

Mr Field: Whatever that means, I shall try to move on, Madam Deputy Speaker. I am grateful for that.

I wish to speak to new clause 8 and amendment 23, but I sense that I am interfering in a family row between different factions. As clearly as possible, I want to put the English case, which seems to be lacking in the debate.

This is the first time I have wanted to join in a debate on Scottish matters in the House. That is my fault, though, and I assure my hon. Friends that I will not let it happen again—I now wish to pursue Scottish matters whenever they arise. I have been struck today, listening to a Scottish debate for the first time, by how many of us—myself included, perhaps—failed to think through what devolution meant, and now we have almost hit an invisible brick wall past which we cannot get our arguments.

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It seemed to me from observing the recent Scottish elections—obviously my sympathies lay with the party I have the honour to represent in Parliament—even from the language used by English politicians contributing to the Scottish debate that we had not thought through what the limited measure of devolution would mean. We got a pretty good hiding for our trouble on that score. I plead with the Labour Front-Bench team—this is meant as an encouragement, because I know that, as part of our policy review, they are thinking through what should necessarily follow from a defeat on the scale of the one we suffered at the last general election—not to go into the next general election without seriously thinking about the consequences of devolution, not just for Scotland but for the other parts of the United Kingdom, particularly England, where my seat is situated.

I have also been struck by the fact that although people try to mystify us by using various formulas and by saying, “What was given with one hand is taken by another”, I cannot answer, in the light of this debate and the work I have done, the charge put to me by a constituent of mine during the half-term break, when I visited the Scottish Parliament, which is a magnificent building—the extraordinary scale of the domestic architecture was incredibly grand. A constituent of mine greeted me as I went in and asked, “Why is it, Frank, that if I lived in Scotland, I would have free medicines, free long-term care and my children would go to university without paying the fees they pay in England?” Despite all the talk about grants and how we might review them, there is no reply yet to our English constituents on those points. If the explanation is not an unfair distribution of Exchequer grants, I want to know what we have in England that Scotland does not have that might pay for those extraordinary benefits.

Mr MacNeil: The right hon. Gentleman is making an interesting speech and has raised a fascinating point put to him by a constituent of his whom he met in the Scottish Parliament. The only immediate answer I can find to the question he has put to the House about the difference between politics north and south of the border is the existence of the SNP and what it contributes to politics in Scotland.

Mr Field: I said, Madam Deputy Speaker, that I was anxious to speak briefly so that other people might be able to contribute—after waiting many hours—so I will not go down that route. However, the hon. Gentleman knows that his is not the answer.

Mr Russell Brown: I want to put the record straight for my right hon. Friend and his constituents. He talks about free prescriptions in Scotland, which we now have, but I hasten to remind him that there was a period of two to three years when people south of the border with cancer-related problems got their medication free, while people in Scotland were paying for their prescriptions. This is about priorities. The Labour Government rightly made that decision, and it was just a shame that the Scottish Government did not follow suit at the time.

Mr Field: Much as I admire my hon. Friend, I obviously should not have given way, because he is distracting me from the argument that I wish to make, which is a simple one. I am not convinced of the basis for those

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differences, and neither are many of my constituents. I have affection for the way our different nations have been grouped into the United Kingdom, but I am anxious, because unless we start to face these questions and answer them soon a general sourness will enter into English politics, and we will not be able to judge where that sourness will lead us.