Examination of Witnesses (Questions 314-373)
TERRY MURDEN AND BILL JAMIESON
9 FEBRUARY 2011
Q314 Chair:
Thank you for coming to see us, gentlemen. As you know, this is
the Scottish Affairs Committee. We are looking at the Scotland
Bill, but in parallel we are also running an investigation into
the economy in Scotland and the development of business, so we
hope to be able to touch on some of those issues as well. If you
read The Scotsman at all, you will have seen a recent editorial
suggesting that we should not rough up our witnesses. We realise
that you are delicate flowers and should not be asked hard things
or anything like that by impertinent oiks like ourselves, but
if you don't mind, we will try our best to raise some points with
you. Mr Jamieson, when I heard you speak on the euro I thought
you were a bit soft and insufficiently robust, so hopefully you
will be straight to the point today. We are not asking people
only from The Scotsman; we asked a number of other journalists
as well, but they were not able to come.
What we are particularly interested in is hearing
your views of the Scotland Bill and how it impacts on business,
and since you will meet many more businesses than we will, your
view of their view. I wonder whether we could start off by asking
you what you believe to be the main strengths and weaknesses of
the proposals for strengthening financial autonomy within Scotland,
the responsibility within Scotland, and how you think this impacts
upon the business sector. Maybe we can start with you, Mr Jamieson,
or Ace Enterprises as you described yourself in one of your recent
articles.
Bill Jamieson:
I did. Thank you very much indeed, Chairman, for inviting us.
We do appreciate the opportunity to try and cast some light on
the circumstances and the feeling and mood music around the Scotland
Bill in Scotland. One thing I would say is that it is primarily
a political Bill; in other words, it is designed or intended to
improve the transparency or accountability of the Scottish Parliament.
It does not claim, and it does not set out to be, a Bill that
is an economic tool, or that will affect Scotland's economic performance.
It is not a tool for raising the GDP performance of Scotland.
It does not set out to do that.
I would say that among the business community, apart
from one notable exception, there is a great deal of apathy—maybe
neutrality is the best way to put it—about the Bill. It
has not set the heather on fire among the business community.
I would add two points to that on either side. There is a group
of business people who are associated with the Campaign for Fiscal
Responsibility, led by Ben Thomson, which broadly supports the
Hughes Hallett/SNP position. Are they representative of business?
No. On the other side, again on the margin, there is CBI Scotland,
which is rather concerned about the amount of time and concentration
taken up by the Scotland Bill. It represents a constituency in
the business world which is saying, "We have a lot of problems
to deal with between now and 2015 or 2016 which we fear have been
pushed to the margin with concentration on the Scotland Bill and
the debate between the proponents of the Bill and Professors Hughes
Hallett and Andrew Scott". So there is a concern within some
of the business community that it is taking the eye off the ball
of what you can do with the powers that Scotland already has within
its gift to improve its economic performance—all the micro
things it can do.
Terry Murden: In
so far as the business community is engaged in this at all, it
is only going to be concerned about whether it increases its costs.
As we know, business is going through difficult times at the moment
and I think it will take a sceptical view of anything that appears
to impose change, because it sees change as being another burden.
An income tax cut would be nice and everybody would welcome it,
but if anything, most businesses would fear that their costs would
rise with any powers given to Parliament to change tax.
Q315 Chair:
Would it be fair for us to take the view that, with the caveats
you mention, as far as business is concerned, there is no enormous
concern about potential threats, or indeed opportunities, flowing
from the Bill at all, and—taking Bill's point—that
the devolution process being accelerated, and the transfer of
powers, will not in itself result in a magical increase in GDP
and general happiness and prosperity?
Terry Murden: As
far as I can see, there is no evidence to support one argument
or the other. Clearly, there are two camps here. One tries to
claim that greater fiscal autonomy and lower taxes, which they
assume may flow from that, would lead to higher growth, but there
is another school of thought that says there is no evidence of
that happening. Even in countries like the US, which has cut taxes,
there is no hard evidence that it has increased GDP. If we look
at this Parliament, we have had a cut in income tax from Westminster,
but the economy is hardly booming. You cannot say that one necessarily
leads to the other.
Q316 Fiona O'Donnell:
When I met Alfie Allen when he came to give evidence I said how
excited I was, so I really feel that I should say to you, Bill,
what a thrill it is for earthlings like us to meet stars from
the media firmament like yourself. You can tell that I might not
be so nice in my next question. In terms of the way the debate
is evolving in the media, we have had quite a bit of interest
in the Holyrood Committee's scrutiny and your own McGonagallesque,
if I may call it that, commentary on things like Scottish citizenship.
I did not know whether it was really serious or it was for fun,
because it was very clever and witty. Generally, how do you think
the debate is evolving? Is it really just a case of journalists
having fun with it, or is there some serious debate out there
in the media?
Bill Jamieson:
The debate about the Scotland Bill is taking place at, if you
like, one remove from the immediate problems facing business and
the economy in Scotland. It is a very, very tough time. You will
know far better than I that the problems being faced in the public
sector—redundancies and Government cutbacks—are impacting
on many companies that supply goods and services to the Government
sector. These are the immediate worry points and concerns. You
are asking people to focus on the consequences of a piece of constitutional
legislation that will not take effect until, I believe, 2016.
Looking through to that, there is a residual concern about exactly
how this variable income tax will work. Who will be responsible
for determining who is, or is not, a Scottish taxpayer or a Scottish
citizen from the point of view of tax? There was a very good paper
written by the Institute of Chartered Accountants of Scotland,
which I recommend to the Committee.
Fiona O'Donnell: It has
given evidence.
Bill Jamieson:
Chartered accountants are not, perhaps, the most gripping people
on the earth, so I wrote about this in a rather humorous manner
in order to engage public attention, but I hope it brought out
some of the complexities here about who is and who is not a Scottish
citizen for the purposes of income tax. The Institute of Chartered
Accountants said you had to have a statutory definition of citizenship.
Unless you have that, you are going to put into effect legislation
which is open to challenge, and the rulings could prove very arbitrary.
Once that starts to happen, public acceptance of a tax change
really starts to crumble; people can point to anomalies that were
not intended. It is very important to maintain public support
for a tax. You may get agreement on the principle but it is very
important that you have a piece of legislation that, in practical
terms, you are confident will work, and will not send HMRC into
a terrible spin with its IT processes, and in which the public
have confidence that when they get their tax demand it is broadly
the correct sum they are being asked to pay up.
Q317 Fiona O'Donnell:
You have said that giving these new financial powers to Holyrood
does not in itself boost our economic performance in Scotland.
Professor Muscatelli said the same thing. It is about what the
Scottish Government does with the powers it has just now, and
the powers it gets. Do you think that is why the debate is focusing
on these issues? If councils can deal with who lives in a council
area and is liable to pay council tax in that area, is this really
such a great challenge for Scotland?
Bill Jamieson:
That is a very good point. You might say that one of the things
missing from the debate about the Scotland Bill is that you do
not detect any strong lobby either side of the power to vary tax.
In other words, there is not a strong lobby to say that this is
a fantastic means to raise the level of income tax, to put more
money into Government services, and to avoid all these cuts. I
do not think that lobby is there. Equally, I do not think there
is a very strong lobby for bringing down the rate of income tax,
particularly in today's climate. I do not detect that as an area
where people want to go. It is almost an abstract debate about
having a power, like putting a big blunderbuss, a big gun, on
a wall in a glass case that says, "Do not break except in
emergencies."
Terry Murden: Yes.
After all, we have had the power to vary income tax by 3p and
it has not been used. There is a suspicion, I suppose, as Bill
was saying, that this current plan will not be used, and we are
dancing round the subject a little bit.
Q318 Chair:
And public opinion in Scotland reflects that view—that this
power, being unlikely to be used, is not worth debating that much?
Terry Murden: When
you talk about public opinion, public opinion, as far as it is
expressed through The Scotsman in particular, is focused
on this issue about fiscal autonomy. It has been an academic debate,
largely, with various parties coming down in favour or against
one view or other. To a certain extent, that is drawing away from
the main issue of the Bill. The Bill, of course, does not suggest
fiscal autonomy, but that is how the debate has moved; it has
moved away from what the Bill is proposing. The debate has almost
become about what is not in the Bill rather than what is actually
in it.
Q319 Chair:
You have both mentioned fiscal autonomy on a couple of occasions.
I wondered about the extent to which you thought that autonomy
was a weasel word for separation or independence, and was being
used by people who did not want to use the word "separation"
or "independence" but were trying to disguise it behind
a different term that is more neutral, as it were, thereby avoiding
the opprobrium that "separation" has generally attracted.
Terry Murden: The
supporters of it, such as those whose letters we read in the letters
pages, have articulated a lot of this. There are those who want
the Bill to provide Scotland with more powers over other taxes,
such as corporation tax, inheritance tax, property taxes and so
on. I suppose eventually you get to the point where you have to
ask if this is a kind of independence by stealth. If you keep
giving more and more powers, at what point do you declare the
country to be independent of Westminster?
Q320 Fiona O'Donnell:
Was devolution not always, as people are fond of saying, a process
rather than an event?
Terry Murden: It
may well be.
Q321 Fiona O'Donnell:
But not necessarily a motorway to independence?
Terry Murden: Yes.
Q322 Lindsay Roy:
It is your contention, from what I can gather, that the business
community is largely apathetic to this because it has more immediate
interests and pressing priorities, and the population at large
are not really engaged—it is a bit of a diversion for them—so
really it is political anoraks and economists who are involved
in this. Would you agree, however, that it is imperative that
we do our very best to get it right?
Bill Jamieson:
Yes.
Q323 Lindsay Roy:
And that the focus should be on accountability?
Bill Jamieson:
Correct, because there is no doubt that there is an asymmetry
at the moment. In Scotland we have a Holyrood Parliament that
has powers to spend but no powers to vary tax significantly. That
leads to a situation where all the debate in Scotland and in the
Scottish Parliament is about spending money with none of the responsibility
of having to raise it significantly. The result is that there
seems to be, if you like, a compression and a concentration and
squeezing of as much money as we possibly can out of the Barnett
formula and the Barnett consequentials, whereas there is a very
strong case for Parliament to have more responsibility and more
accountability to voters through the tax system. To that extent
there is a very powerful argument for this Bill.
Q324 Lindsay Roy:
Therefore, do you think that as we approach the Scottish parliamentary
elections this will have a higher profile?
Bill Jamieson:
Yes.
Q325 Lindsay Roy:
It has not been particularly prominent in the media, apart from
one or two aspects.
Bill Jamieson:
Yes, correct.
Q326 Chair:
Terry, do you have anything to add to that?
Terry Murden: I
think that is a fair comment. Trying to engage with the general
public is going to be quite a task. At the moment it is focused
more on whether or not the powers that it is proposing would help
to boost economic growth although, as Bill says, that is not the
fundamental purpose of it. Even from the point of view of the
general business community, there is—it is probably wrong
to say that it is a lethargy; probably they have not quite understood
what is happening. When you dig lower than the main lobby groups
like the CBI and the IOD and so on, people are so busy getting
on with just trying to stay in business and keeping the wolf from
the door that things like this seem to be rather hypothetical.
They have not realised that this change may well come about.
Also, there is an argument put around that business
will not be able to cope with the proposed tax changes and that
it will be too costly and difficult administratively. My view
is that that is rather overplayed. Companies are quite capable
of dealing with different tax codes and jurisdictions. Anyone
who has operations overseas has to deal with this kind of thing.
That is probably a little overplayed. But I do think there is
going to be a concern that there will be some form of added cost
and until people explain to businesses what this is about and
what they can get out of it—what the benefits might be—they
will be sceptical at best and just kept in the dark at the moment
about exactly what it all entails.
Q327 Lindsay Roy:
In essence, there are quite a few hares running and part of the
role of the press is to inquire, and to see what evidence there
is to support the views that are being put forward.
Chair: Part of the role
of the press is to start hares running.
Bill Jamieson:
No, we don't do that. But one significant factor here is that
we have passed through, if you like, two time periods for this
legislation. The Calman Commission was set up in the world of
sunshine and idyllic economic growth in 2005 and 2006. All the
figures and all the projections that are laid out in the Calman
Report relate to a world that no longer exists, or has changed
fundamentally with the financial debâcle, the recession
and everything that has happened since. My perception is that
the political momentum behind the Calman Commission and the Scotland
Bill has run into the changed circumstances that Scotland is now
in. I would say that there is a mood of much more caution and
conservatism about undertaking constitutional change. The impetus,
if you like, is not quite what it was in 2005 and 2006 when Calman
was being conceived. It is not as if public opinion was at this
stage in 2006 and has strengthened throughout the process. No,
I do not think so.
Q328 Dr Whiteford:
If I may, I would like to pick up the issue of asymmetry that
you alluded to earlier when you were talking about the accountability
question of money raised in Scotland and the money spent in Scotland.
There have been some real discrepancies in the estimates of the
impact of this Bill. The Government's figures estimate that we
will move up to about 35% of the money. I know that some of the
other evidence we have received has suggested that it could be
as low as 26%. I just wondered whether you had a view on that,
if you had an opinion in terms of the assessments that have been
made.
I was also quite keen to know, picking up on what
you have just been saying about the Calman Commission proposals,
if you would have liked to have seen the commission, or perhaps,
in our current context, the Bill, go much further in picking up
on drivers of GDP, as you said right at the start.
Bill Jamieson:
If I may take the second part of the question first—I cannot
answer the first part—just to position ourselves here, The
Scotsman, as a paper, very much favours going further than
the Scotland Bill. We see an intellectual rationale for including
corporation tax as part of the legislative change. We believe
that because we are very concerned about the state of the Scottish
economy and the imperative need for drivers of growth to get us
out of this rut that we are in and this period in which the Scottish
economy has consistently been under-performing, compared to the
rest of the UK. That is where we are in broad principle. That
is not to say that we are not attentive to the points I was making
earlier about making sure that the detail and the practicality—the
engine underneath the bonnet of the legislation—works.
On the first part of the question about the differences
in the estimates of how much tax Scotland would have under its
power in the legislation, we really are in the hands of expert
witnesses and, one hopes, very sharp estimates from the Treasury
and the Office for Budget Responsibility, because there is this
gap between the estimate of how much tax we raise and how much
tax actually comes in.
Q329 Dr Whiteford:
That is very helpful. Referring to the first part of your answer,
I wonder to what extent you see the Bill as a genuine step forward.
Bill Jamieson:
I pause because there is a sense that it is an opportunity missed.
There is a very powerful argument for having a much stronger,
greater and more serious debate about what Scotland has to do
and where Scotland has to go. We have hesitations about whether
this legislation is sufficiently powerful of itself to generate
and catalyse the debate that has to happen in Scotland. We are
not there yet.
Q330 Dr Whiteford:
Do you have anything to add to that?
Terry Murden: We
are getting into the realms of the issue that I mentioned earlier—into
whether this is a drift towards independence. You are getting
very heavily into the political debate rather than the economic
or the business debate, which is where we came in. One thing that
I see is that, whereas the Union parties are behind the Calman
Commission pushing a greater transfer of tax powers, when we had
an opportunity, as in the large retailers' levy, which was very
controversial recently, they all opposed it. On the one hand,
there is this push to try to give the Parliament more tax-raising
power, but when push comes to shove they all seem to hesitate
and not want to go forward with it. I do wonder whether this Scotland
Bill might eventually get pushed into the long grass. We may get
all of these powers but never actually implement them and the
debate will simply rumble on until such time as someone decides
whether or not to pull the lever on full independence. How you
achieve that is another matter.
Q331 Chair:
Obviously, that pleased Eilidh, but could I pick up the point
about this being an opportunity missed to have a debate about
what happens in Scotland? I think we are allowed to criticise
The Scotsman, aren't we? Is that okay? You are not going
to report me to your editor, are you?
Bill Jamieson:
Feel free.
Q332 Chair:
Good. I see that you have a reporter here as well to back you
up. You are absolutely right that opportunities have been missed,
in terms of having the debate about the future of Scotland, Scotland's
business and so on. The Scotsman, along with a number of
others, has been guilty of conflating that debate with the constitutional
debate and assuming that one is the same as the other. The other
day we had before us a representative of the Federation of Small
Businesses. He told us that one of the major difficulties that
his members have experienced in employing people is of kids being
illiterate, innumerate, unable to work in a normal society and
all the rest of it. They were insufficiently socialised. The Scottish
Parliament has had powers over all these things for some considerable
time and they have not been addressed. I wonder about the extent
to which The Scotsman is guilty of sloppy thinking in assuming
that it is only by the constitutional route that these things
are resolved. It is a bit like the Hughes Hallett and Scott view
that if you transfer economic powers, growth will come—if
you build it, they will come—whereas there is a whole number
of areas where the Scottish Parliament has had powers and has
not done anything with them. It is grossly negligent.
Terry Murden: If
you look at the example of Parliament itself and the trams and
other things that it has had the ability to influence, they have
hardly been—
Q333 Chair:
How can you say that this Bill is a missed opportunity when you
are then using as evidence for that the fact that there has not
been this general economic debate about whither Scotland? Explain
that.
Bill Jamieson:
I think your criticism is most unfair, Chairman.
Q334 Chair:
And that will be reflected in tomorrow's editorial.
Bill Jamieson:
Most unfair. Almost every day we write about all the micro-measures
we have to take to improve productivity, output and certainly
skills training. Skills are a very big issue, and not just in
Scotland, but right across Europe and the advanced economies,
as Eilidh will have heard.
Dr Whiteford: Yes.
Bill Jamieson:
I do not think that this Administration in Scotland has been remiss
in its attention to skills training, because it seems to attract
an awful lot of money and attention, but there is no doubt that
the report from the FSB that you heard is echoed by other institutions
and other parts of civic Scotland that are picking up on this,
so please do not think it is just the FSB. That is a big problem.
As for saying that we conflate issues, we certainly
do not believe that constitutional change is the key that will
magically unlock and bring about a transformation, but we have
a very serious concern, particularly as we approach the Holyrood
elections in May, that we are hearing from the parties in Scotland
very little in the way of innovative thinking about how things
can be improved. This is quite depressing.
Q335 Chair:
Terry, do you want to add to that at all?
Terry Murden: I
think that that is a reasonable summary. Bill talked about this
Bill as being the first step—a stepping stone for where
we end up. I am not quite sure what journey we are on with this
process. I am not sure whether the Scotland Bill is an attempt
to grant more power or to try to restrain the Parliament in some
way by not giving it exactly what it wants. We certainly will
not get a settled will from this, I am sure, and there will be
pressure for more change.
Chair: I think we have
already talked about this being a process. There are those who
assume it is a one-way process. The rest of us see it as being
an iterative process, in the way that some powers are being transferred
back to Westminster and others are being transferred to Holyrood.
Therefore, there will be a constant exchange as people examine
these things. Fiona, you wanted to come in.
Q336 Fiona O'Donnell:
Yes. Thinking back over the questions that Ian, Lindsay, myself
and Eilidh have asked, a lot of them talked about the scope of
the debate. In terms of the inquiry we have had at Holyrood, and
Eilidh was talking about the claim that the powers would allow
the Scottish Parliament to control only 26%, I wonder if you feel
that the scrutiny at Holyrood has elevated the debate. I know
the paper has been critical of the treatment of some witnesses.
You then get Professor Scott saying in his evidence to Holyrood,
"We can get close to 20 per cent, if not 25 per cent, but
we cannot get 35 per cent. However, we are happy to accept that
that might relate to the data set on which we are working, which
is disputed." Even if the only conclusion you come to is
that if you laid all the economists in the world end to end they
would not reach a conclusion, we need this kind of scrutiny and
level of debate to ascertain what the opportunities and risks
are in this Bill.
Bill Jamieson:
I could not agree more. I have to say, as a point of clarification,
yes, The Scotsman did express some concern about, if you
like, the manners of the Scotland Bill Committee. On the substance,
on the interrogation of Hughes Hallett, we thought it was absolutely
admirable, and that these points should have been brought out.
It was very interesting that when the questions drilled down into
the academics that were cited by Professor Hughes Hallett, like
Lars Feld, for example, and got into his paper and what he was
saying, it was found that he was much more ambiguous about this
issue as to whether fiscal decentralisation brings economic growth.
He was much more ambiguous about it. It also picked up on other
parts of Hughes Hallett's evidence which had been very partial
with one economist; he had taken only a partial piece of his research
which was drawn from experience of devolution in China and was
based on Chinese statistics. Thank goodness we had some forensic
analysis of that paper.
Q337 Fiona O'Donnell:
So it was the sneering, rather than the substance, that perhaps
left a bad taste in the mouth?
Bill Jamieson:
Yes, quite.
Fiona O'Donnell: That
is very helpful. Thank you.
Chair: So far, you are
not complaining about us either, as I understand it.
Bill Jamieson:
I don't want to.
Dr Whiteford: You are
all smiles.
Chair: So far. The night
is yet young.
Q338 David Mowat:
Mr Murden, I am interested in your view in terms of the business
community. Do you think there is an issue with the level of scrutiny
round the settlement that has been arrived at so far, in terms
of the Barnett formula, which is thought by many to mean that
the settlement that Scotland receives is higher than that in other
parts of the UK, which could potentially institutionalise a larger
public sector north of the Border and may not be positive to GDP
growth as a whole? Is that an issue you have come across?
Terry Murden: The
short answer is "not very much". I do not think your
average businessman worries about that kind of thing. I do not
think it keeps him awake at night.
Q339 David Mowat:
That is not an issue you consider, from the point of view of The
Scotsman, either?
Terry Murden: It
is not an issue that I would get particularly engaged in, no.
Bill Jamieson:
I would respectfully disagree. I think that among some of the
more thoughtful businessmen there is a worry that over-dependence
on—
Terry Murden: I
did say "the average businessman".
Chair: So the average
businessman is not thoughtful? Right, we have got that.
Bill Jamieson:
There is an over-concentration on Barnett, absolutely, and on
spending decisions to the neglect of the whole economy. Sometimes
I listen to debates in the Holyrood Parliament and I get the sense
that they feel that the economy is the Government sector, the
public sector.
Terry Murden: But,
with respect to you, Bill, this is not exclusive to Scotland.
There are other parts of the UK where there is a large preponderance
of public sector activity and these issues are of equal concern.
We have this imbalance that the coalition is allegedly trying
to correct.
Bill Jamieson:
Yes, but there is an imbalance.
Terry Murden: Undoubtedly
there is an imbalance.
Q340 David Mowat:
It is true of other sectors of the UK. The premise of my question,
though, was that the settlement, if you like, as a result of a
higher level of expenditure in Scotland, may have a displacement
in other types of economic activity. But thank you for your answer.
I would like to go back to your point on residency,
Mr Jamieson, which you have written about, and your concerns about
the way that it is all going to work in terms of how many nights
you spend and all the rest of it. I understand that, but what
do you see as the alternative?
Bill Jamieson:
The alternative is to have very good, watertight legislation and
a statutory definition of who a Scottish taxpayer is for the purposes
of tax collection and tax assessment. One of the things that the
ICAS report picked up, which is quite relevant, is that you cannot
split a tax year. In other words, you could spend quite a lot
of time working outwith Scotland, but as far as HMRC is concerned,
you may be taxed as if you spent all your time in Scotland. Many
people would feel that to be inequitable. The whole purpose of
having a tax assessment is to arrive at a fair and just assessment
of the tax that people owe, and people will pay if they share
the feeling that it is a fair and just assessment.
Another issue is to whom the Scottish part of HMRC
is accountable. As I understand it, it is going to be like a unitary
tax here, which will bring together Holyrood and Westminster tax
in one unit. There will not be two separate tax bodies. But I
suspect there may be a lot of pressure for the Scottish HMRC end
to be accountable to the Scottish Parliament. We are not quite
sure to whom this enlarged HMRC would be accountable.
Q341 David Mowat:
In terms of your first point, you say there is a need to look
for equity and justice, and that is right, but there is always
a balance between equity and justice and ease of legislation,
in a sense. I can imagine that if you had a statutory definition
of a Scottish taxpayer there would be issues around that as well
because they are going to move. If it is not based on residency,
how would you come up with some kind of statutory definition of
a Scottish taxpayer? It seems to me that what is being proposed
in the Bill is reasonably pragmatic.
Bill Jamieson:
I think that the Institute of Chartered Accountants of Scotland
would beg to differ and say that if you proceed down those lines
you are in danger of putting into legislation an Act that is open
to all sorts of ambiguities and arbitrary routes.
Q342 David Mowat:
Ambiguity is relevant to what you have said about the residency
days and all the rest of it, but I am having difficulty seeing
what an alternative might be or how that could work; that was
all.
Bill Jamieson:
Surely that is in your hands, because you are the legislators.
Chair: But we seek to
be guided.
Q343 David Mowat:
Was your second point about reconciliation between the Revenues?
Bill Jamieson:
Yes.
David Mowat: I am not
sure I wholly understood that. Again, I think how this would work
is that an employer would account for the revenue. He will have
two boxes on PAYE and one would go to Scotland and one to England
and it would be added up and sorted out. I am not quite sure I
follow the point that you are making.
Bill Jamieson:
I was wondering about the accountability of the HMRC itself. Is
it answerable to Westminster or answerable wholly or partly to
the Scottish Parliament?
Q344 Fiona O'Donnell:
Chair, can I say I see an issue there, given that the Scottish
Government is going to pay the bill?
Bill Jamieson:
Yes.
Fiona O'Donnell: You would
think that if you pay the bill for HMRC's services, there would
be some accountability.
Bill Jamieson:
Yes. This bill has been estimated at between £45 million
and a top figure of about £150 million.
Q345 David Mowat:
I think that number is without any impact on business; that is
the central number.
Bill Jamieson:
One hopes so, yes.
Q346 Fiona Bruce:
Good afternoon, gentlemen. I want to go back to creating the right
environment for business people to feel confident to do business—to
be entrepreneurial and to take risks. You said that you can see
benefits or merit in there being greater fiscal devolution, but
that is not happening at the moment to the extent of, perhaps,
including corporation tax. You said that other things could be
done, such as concentrating on skills development, and said that
the CBI felt that the Government had taken its eye off the ball
in connection with all the micro things that could be done. I
would like you to develop that. What else would you like to see
happen to give business confidence again?
Bill Jamieson:
Gosh. If you look at some of the submissions that have been put
in from bodies like the FSB, which you mentioned, the chambers
of commerce and CBI Scotland, you will get quite a long list of
very familiar things. Just as they present to the UK Parliament,
I am sure they raise the same issues with the Scottish Parliament.
For example, one issue is on planning and how helpful and useful
the system is to the entrepreneur. There has been progress in
introducing pre-planning assessments in Scotland to try to speed
up what has been a chronically slow system.
If you read today's Scotsman, Mr Chairman,
in case you missed it—I hope you did not—you have
the example of Penelope Keith; it took her six years to get planning
permission for a café. Come on; why does it take so long?
It is an extreme example, but there are problems with the planning
system and how to make the planning system more efficient and
responsive and to speed up the appeals process. That is a big,
big issue with business.
There have also been concerns about the Holyrood
Administration's changes to the system of non-domestic business
rates, which have hit the hotel and leisure sector particularly
hard, and there was the recent attempt to introduce an out-of-town
superstore tax to raise £30 million for the Scottish Government.
It has been called all sorts of things. We even called it a tax
on food. The concern of the business community was that, had that
gone through, it would have established a precedent for picking
off other sectors in just as arbitrary a manner.
Terry Murden: If
I could pick up on that, it comes back to what I saying about
the Bill; it seems to allude to the opportunity for the Government
to bring in new unspecified taxes, as I understand it. There was
talk of an aggregates tax, aviation tax and these kinds of things.
Those have been suspended for the time being, but the idea of
new taxes, which seems to be undefined, will bother businesses
because they do not like this kind of uncertainty. They want to
know precisely what they will be able to do.
Business, fundamentally, needs to be able to get
its goods to market as quickly and cheaply as possible. Anything
the Government can do to help it achieve that aim has to be positive.
I would add transport to the list of things that Bill mentioned.
The transport network is creaking, not just in Scotland but around
the country. As a regular commuter on the M8, I know that it can
take me two and a half hours to travel 65 miles door to door.
It should not take that long. And we still have problems with
the rail network. All of that ties in again with the planning
system, which is ridiculously slow. The whole process of Government
is slow.
Business gets concerned about too much government—being
over-governed and having too many processes of decision making.
They want things to happen quickly and to get their products to
market quickly and not be impeded by bureaucracy, added cost,
added taxes and inconveniences that seem to be put in their way
at every step. All of these act as a disincentive to invest and
develop new businesses. Wealth creation is a big factor that should
underpin everything we are trying to do. There is a concern that
the powers of tax and so on included in the Scotland Bill will
be used by parliamentarians to fund their pet projects and that
it will not be for the benefit of the country as a whole, let
alone the economy. They will seize on this opportunity, having
been given the keys to the candy store, to go and help themselves.
We have to make sure there is proper accountability and responsibility
among parliamentarians that helps to finance growth correctly.
I am not quite sure that the Bill really specifies how it intends
to achieve that.
Q347 Fiona Bruce:
Thank you. You said that the Scottish economy has consistently
been under-performing with regard to the rest of the UK. I would
be interested in your analysis of that and also your sense of
what I would call the morale of the business sector, which is
a very fragile thing. Business people can be cautiously optimistic
or, if you like, almost frozen in terms of not wanting to take
on any staff. I know that when the recession began the mindset
was, "Let's just see if we can survive", and there was
absolutely no expansion within that mindset. Where do you think
the morale and mindset is now in the Scottish business sector?
Terry Murden: To
pick up the "under-performing" bit, Scotland's economy
has under-performed compared with the rest of the UK for a good
many years. No one seems to be able to break that cycle. There
have been odd occasions when GDP growth has been above average,
but it tends to be temporary. No one has really found the answer
despite all the money thrown at organisations such as Scottish
Enterprise and all the other schemes and initiatives we have,
and have had over the years. I think it also adds to the scepticism
and perhaps impacts on morale among the business community that
what we will get as a result of this Bill are yet more initiatives
and schemes that will just go round in circles, and that once
again it will be back to base.
Q348 Mike Freer:
Taking those things in reverse order, if you have an unwieldy
public sector, it never grows its productivity to the same degree
as the private sector. We have seen that over the last 30 years.
If the public sector is too large in Scotland, then clearly it
will always under-perform the parts of the UK that have a more
balanced economy.
Going back to the almost doomsday scenario you were
painting about tax autonomy—businesses closing down because
they are over-taxed, over-regulated and over-burdened—I
find that quite exciting, because if those people who are paying
the bills start to see the consequences of the bills, they might
start to challenge those who are levying taxes that are too high.
It goes back to what Mr Jamieson was saying: that the debate is
imbalanced because the debate is all about spending.
Terry Murden: We
have mentioned one example—this large retailers' levy. Once
the Parliament has been given an opportunity to raise tax, there
is an outcry.
Q349 Mike Freer:
Or they could cut it.
Terry Murden: They
could cut it, but business tends to believe that they will not.
Q350 Mike Freer:
Is that not a good thing?
Terry Murden: Of
course it is a good thing. It is a good thing if it does not mean
that something is impacted adversely as a result of it.
Q351 Mike Freer:
But as the taxpayers start to see businesses closing down and
fleeing Scotland because it is a high-tax zone, as we have seen
in the federal economies of the States—
Terry Murden: And,
with respect, we are seeing it here in this city, where some companies
have gone abroad because of high taxes.
Mike Freer: They relocate
to a lower-tax area.
Terry Murden: Yes.
Q352 Mike Freer:
I appreciate that it could be a doomsday scenario, but the upside
is that if the voters of Scotland start to see that the high tax
policies of their Parliament are destroying jobs, they might start
to challenge their politicians a bit more. Is that not a good
thing?
Terry Murden: It
is, but then they only have a chance to change it every four or
five years. A lot of damage can be done in that time.
Q353 Mike Freer:
I understand the doomsday scenario, but I rather see it as an
opportunity to challenge the politicians to rein in taxation.
Terry Murden: There
is a link between changing the amount of money raised from tax
and the revenue risk that you get from that, if you like. As the
one goes up and down, there is an impact on the amount you get.
I suppose there would be concern that if you cut taxes, where
will the revenue come from?
Q354 Mike Freer:
The argument is that growth accelerates, so the total tax take
increases.
Terry Murden: It
is unproven.
Bill Jamieson:
Quite right. The balance of opinion in Scotland currently—this
may depress you even further—is that it is Government and
public spending that generate economic growth, so there is another
dimension here of argument to open up, but it is getting off the
point. But many people do believe that.
Q355 Lindsay Roy:
Is it not also the case that we need to promote social wealth?
In particular, I am looking here at cultural change in our education
system so there is a much stronger promotion of enterprise initiative
within our schools, so that there can be further encouragement
to start up businesses. From my experience as a former head teacher,
more of that needs to be done.
Bill Jamieson:
What you say is absolutely right. However, that does not alter
the fact that when people leave school and have the choice, or
had the choice up until very recently, of going into business
or starting up on their own and going into the Government sector
in one form or another the odds are stacked so heavily in favour
of taking the Government job route. There is job security, better
pay, pensions—everything. The whole thing is just so skewered.
Terry Murden: And
once they are in the public sector they are not persuaded to leave
it and go into business because it is too much of a risk.
Q356 Lindsay Roy:
That is why I mentioned cultural change. An attitudinal change
and change in mindset is vital.
Terry Murden: In
my view, it is the single biggest reason why we have a low rate
of entrepreneurial activity. Certainly, up to now there have been
too many people in well-paid jobs—there probably will not
be in future—who may have made very good entrepreneurs and
might have run very successful businesses, but they are in a comfort
zone that they do not want to leave.
Q357 David Mowat:
The point I was making earlier when I asked the question was just
that. The consequence of the way the settlement works at the moment
has precisely the effect on Scotland that you have just set out,
which is a displacement effect.
Bill Jamieson:
Yes.
David Mowat: It was portrayed
as being perhaps a very good thing for Scotland to have a relatively
generous settlement—I know that not everyone agrees on this—
under the Barnett formula. It causes the impact you describe,
which, over time institutionalises a mindset which says that the
Government produces economic activity. Actually they are right;
in a sense it does, because that is how it works at the moment,
and it is very dangerous.
Q358 Chair:
To put a slightly different view on it—again, it is always
difficult to build points from personal examples—I think
of my own children, who worked for a while in the private sector,
in the hospitality industry in Scotland. Having been there for
a while on the minimum wage, being treated appallingly, they decided,
"I'm not staying in that any longer than I can possibly avoid."
I can understand why a lot of people get out of the private sector
and into the public sector where generally they are treated much
better, like human beings, and are not exploited in the way some
people are in the private sector. I think there is a balance to
be struck. But I come back to the question of corporation tax.
I presume that The Scotsman is not campaigning for the
Scottish Parliament to get powers over corporation tax in order
to increase it.
Terry Murden: No.
Q359 Chair:
You are assuming that if the Scottish Government get power over
corporation tax they will reduce it. We have had evidence from
a number of witnesses who have said that the evidence for saying
that immediate cuts in corporation tax will grow the economy is
not proven over the short term, and the real danger of devolving
corporation tax in Scotland was that Scotland would seek to cannibalise
corporation tax revenues across the United Kingdom as a whole,
which of course would be better for Scotland. If you are a Nationalist
you can understand why you would want to do that, because in those
circumstances you would not care about a decrease in corporation
tax in England, Wales and the rest of the United Kingdom. Are
you not guilty of a bit of superficial thinking here? That is
a trite solution, is it not? I understand that you want corporation
tax cut, but surely the objective could equally be met by corporation
tax from the United Kingdom and it would be much more honest if
you just campaigned for a cut in corporation tax rather than say
that you want to have the powers transferred.
Bill Jamieson:
That is a very good point. You will know better than I the sort
of ferment on what it is that should be done to help revive and
rejuvenate areas of the economy outside the south-east. It is
by no means a Scottish-only problem, as you will well know. All
sorts of quite radical ideas are being revisited here about what
we can do about the regions to stimulate business activity in
the regions. In principle, we are in favour of a reduction in
corporation tax for two reasons. First, we think that tax competition
in principle is a very good thing. I would imagine that if we
ever came close to a situation where there was a Scottish Government
that had power to alter business tax or corporation tax, that
would be watched very closely across the other nations and regions
of the UK and it would encourage tax competition downwards, particularly
for the business sector here. That is one argument.
You are right to point out that there is a not proven
verdict on the economic evidence for cutting corporation tax.
Does it lead to economic growth? It is very difficult to isolate
cuts in corporation tax in themselves as generators of growth.
The other complicating factor is that in many countries in Europe,
particularly Eastern Europe, where there is a flat rate of corporation
tax, other taxes are quite high. In terms of the inward investor,
there is not a great deal of benefit simply because the corporation
tax looks to be at a lower rate when you find that your other
taxes are higher. What we would hope is that what comes with the
philosophy, if you like, of lower business tax is a lot of other
things that are pro-business, proentrepreneur and pro-enterprise
and that begin to kick-start the culture change you identify.
Terry Murden: Our
view on that is that a package of measures, rather than one single
measure, is needed. For instance, if you take the situation in
Ireland which, as we all know, has had a very low rate of corporation
tax, that must have contributed to the growth of the Irish economy.
As we know, the Irish economy is now in a mess, but that is not
related to the fact that it has a lower rate of tax; it is because
of other things that went wrong in the Irish economy. There is
a danger of seeing one tax being used in isolation from all the
other economic tools that exist. To come back to the Bill, if
one of its purposes is to help the economy it has to look at a
range of things. For instance, on Sunday we wrote about the fact
that a campaign was running to reintroduce enterprise zones, which
I understand George Osborne is looking at ahead of the Budget.
There is going to be some rivalry about where these new zones
may be. You have to look at all the business rates packages.
The differences among the business community on this
are notable as well, because the CBI in Scotland does not support
changes to corporation tax; it wants a uniform single market for
the UK, yet the CBI in Northern Ireland is campaigning for a cut
in corporation tax, so even the business organisations themselves
are not united on this. As to the entrepreneurs, Jim McColl has
singularly been calling for a range of what he calls incentivising
taxes or other measures that would help the economy. My view is
that, yes, a cut in corporation tax is bound to be a stimulus,
but I do not think that in itself it would necessarily help. If
you cut corporation tax here and raise the cost of something else
here, you merely eliminate the advantage immediately. In the case
of Ireland they cut corporation taxes and then recklessly lent
money, so they lost those advantages.
Q360 Chair:
Your case is slightly more sophisticated, but as I took the position
you put forward, Mr Jamieson, you were saying that it was not
proven that cutting corporation tax would increase economic growth,
but you want it devolved anyway. I do worry—and we are quite
entitled to worry—about this question of cannibalisation
from the rest of the United Kingdom. You will never be able to
beat Bermuda or the Cayman Islands, if it comes to a question
of tax competition and where plants will be. I am not sure that
that route of competition downwards leads anywhere but madness.
Bill Jamieson:
It is very difficult from an academic point of view. If you are
an academic and you have been set the test of identifying the
factors that stimulate economic growth, it is very difficult to
isolate a lower rate of corporation tax in itself as the catalyst.
But you will find that in many countries that have reduced corporation
tax there is also a set of other business-friendly measures. That
is the point.
Q361 Chair:
To be fair, that is different, isn't it? We are running another
inquiry in parallel with this one. It started before the Scotland
Bill inquiry and will run after it, because this is more time-restricted.
It may very well be that if we have not upset you too much, we
will ask to see you again to try to pursue these sorts of issues.
Bill Jamieson:
Yes. You raise another interesting point: the extent to which
the debate that we are having here about the Scotland Bill has
resonance in other areas of the UK which have very serious economic
problems: the north-east, north-west, west midlands and the west
of England. They must listen to this debate with a great deal
of interest and apprehension, and may well feel, "Why does
Scotland get all this attention and focus? Our problems are equally
severe and deserving of attention."
Fiona Bruce: Clearly,
your politicians are shouting about it.
Chair: Those areas do
not have The Scotsman.
Q362 Dr Whiteford:
I represent a part of the country where there is absolutely no
shortage of entrepreneurial spirit and entrepreneurs. I think
we have the highest proportion of self-employed people in the
whole of the UK. One of the very real challenges they face is
the distance from market. That is one of the biggest barriers
to economic growth in my part of the world. I see that day in,
day out, with local companies. That has added-on taxation in fuel
costs and the massive fuel taxation that goes forward. In a debate
about corporation tax, is there a degree of unidentified taxation
that we need to offset to create a more level playing field across
the UK as a whole? I wonder what your thoughts are on that.
Terry Murden: This
is not just a matter of tax. If you are talking about bringing
advantage to other deprived areas of the country—
Q363 Dr Whiteford:
It is remote, not deprived.
Terry Murden: Remote,
okay. Just recently I heard the argument that a six-lane motorway
connecting the Highlands with the central belt would unite the
country significantly, bring the whole of the north into the central
belt, help the growth of that area and unite a country which is
quite separated in that respect. This is nothing to do with tax.
It is simply the ability to get about easily and the ability to
get goods to market more easily. Anyone who wants to take the
A9 route and take their life in their hands knows what is involved.
Q364 Dr Whiteford:
In that respect, do you think the borrowing powers in the Scotland
Bill are adequate?
Terry Murden: I
understand that most of what they are being allowed to borrow
goes on the new bridge, and there is another £500 million
left in the pot, which goes against the National Loans Fund. Whether
that is enough, I am not in a position to say. But my point is
that you cannot look at just corporation tax or even taxes generally
as the only stimulus for the economy. If you look at any of the
emerging nations, and even the wealthy areas of the world like
the Middle East, China and places like that, what do they do?
They build an enormous international airport and power stations,
one a week in the case of China, and put in all the infrastructure—road
networks—and make sure everybody can get about properly
and get to international markets easily, and have the energy that
they need. If they do not have enough energy, they go out and
buy it from somebody else. They put all their ducks in a row,
to use a business expression, to make sure they can get on with
the job. It is no good saying, "We'll spend six months talking
about changing this little tax here," or "We might put
in a bit of dual carriageway over here"; that is just tinkering
around. We will not see any step change in the economy if we continue
on that path. That is the basic history of the country.
Bill Jamieson:
We also have a very rudimentary planning system. I do not think
they have the equivalent of Historic Scotland on their back, do
they?
Q365 Chair:
No, but to be fair, when we are discussing the question of changes
in the Scotland Bill, you mentioned earlier delays on the M8.
That has been devolved for ages; the same is true of the question
of the A9. All of that has been devolved for ages. As to power
stations, there is devolved power over planning, yet we have stations
being blocked. It is not, in a sense, a constitutional settlement
that is required to deal with these issues, is it? This is a question
of a wider debate about Scotland that has been, as it were, overwhelmed
by a debate about constitutional tinkering.
Terry Murden: Exactly,
but if you go right back to the beginning of this conversation,
in my view businesses will be more concerned to see the M8 turn
into a six-lane motorway than about the academic arguments about
certain issues in this Bill. Fiscal autonomy may be somewhere
out there. For a start, they are not quite sure what it is, but
what they do know is that when they are stuck in a traffic jam,
that causes them a problem in getting their business done.
Q366 Mr Reid:
There are two other taxes that have been devolved in the Bill,
landfill tax and stamp duty. Has the business community said anything
about that? Is it worried about it? Does it think it is a good
idea, or is it apathetic?
Terry Murden: Only
inasmuch as those are things that the ones who want to see a greater
range of taxes devolved have included on that list.
Q367 Mr Reid:
Is the feeling that there should be more taxes?
Terry Murden: No.
There is no consensus. If you speak to Iain McMillan at the CBI,
he will say that he is delighted that there are no plans to move
corporation tax, employment law, company law and all that kind
of thing and that they will continue to be reserved matters.
Q368 Fiona O'Donnell:
One thing that sometimes gets missed is that the Bill proposes
the Scottish Parliament can raise new taxes. Only two out of the
four made it into the Bill. Is there concern about that?
Terry Murden: Yes.
As I said earlier, this imponderable power to create new and unspecified
taxes leaves people feeling slightly uncertain about what they
might be. The worry among business people is that as soon as the
politicians, with all due respect, get a chance to exercise power
over tax, they may well raise those taxes.
Q369 Fiona O'Donnell:
That is after 11 years of the Scottish Parliament having the power
to vary income tax, and it never has done.
Terry Murden: Exactly.
They have not used it.
Fiona O'Donnell: They
are still concerned?
Terry Murden: And
the powers they have had have been used in such a way that people
feel there is no tremendous track record. We have seen £500 million
poured into the Edinburgh trams, which is deemed to be a waste
of money. There is a concern that if they are given power over
even more expenditure, they will waste it likewise.
Q370 Fiona O'Donnell:
Is there something essentially different about politicians in
the Scottish Parliament? I am not quite sure where this argument
goes. Is it just "Do not let politicians deal with taxation,"
or is there a particular distrust of the Scottish Parliament?
Terry Murden: You
have to look at the track record of the Parliament; it has not
exactly covered itself in glory with these things, has it?
Q371 Fiona O'Donnell:
With things like the trams, specifically?
Bill Jamieson:
It may come back to the fundamental argument for having the Scotland
Bill. If you give the Scottish Parliament the responsibility for
having to raise 26% or 35% of the revenue in taxation, the theory
is that there will be a better, more informed debate about public
choices on spending and taxation. I do not know whether the tram
system fits into that, because long after the thing went through
and was approved all sorts of problems were discovered with utilities
that nobody anticipated. Basically, the argument is: you will
get a better debate, a more informed Parliament and a better quality
of decision making.
Q372 Fiona O'Donnell:
Do you think that the supermarket tax is an example of an informed
debate and Government listening?
Terry Murden: I
think it is, yes.
Bill Jamieson:
It was a very well informed debate, because the tax was defeated.
Terry Murden:
It is curious that the parties that propose transferring more
power and responsibility are the ones who opposed the large retailers'
levy. We have a slightly odd situation there.
Q373 Chair:
Are there any points that you want to leave with us, or answers
that you have prepared to questions we have not asked? Do you
want to attack us on anything? Have we treated you outrageously,
or are you entirely happy? So the editorials tomorrow and at the
weekend will not reflect badly on us, and my mother will not feel
any obligation to disown me or anything like that? Is that true?
Terry Murden: We
will have a meeting outside to debate that.
Bill Jamieson:
Feisty but fair is our initial summation.
Chair: Fine. On that happy
note, thank you very much.
Bill Jamieson:
And if you want to get a letter into The Scotsman, just
give me a ring and I will do my very best.
Chair: Indeed. Thank you.
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