The Scotland Bill - Scottish Affairs Committee Contents

Examination of Witnesses (Questions 561-683)

RT HON MICHAEL MOORE MP, RT HON DAVID MUNDELL MP, CHRIS FLATT AND LAURA CRAWFORTH

16 FEBRUARY 2011

  Chair: May I welcome you to the sitting? I am glad that both of you are here this time after the slight confusion there was last time about whether David was invited. I notice that David is half the man he used to be, so he has obviously got a new diet or taken exercise. We very much welcome him in whatever form he chooses to come in front of us.

David Mundell: Ian, a compliment from you is always well received.

  Q561  Chair: Treasure it, because it might well be the only one you get.

  Could I start off, Michael, by asking about the timetable for the progress of the Bill? We saw the reference in Hansard on Thursday to Sir George Young indicating that the intention was to bring it back fairly soon. That is going to be before the Scottish Parliament Committee has reported, as I understand it. I wonder whether that is entirely desirable, and whether you would consider rethinking it.  Michael Moore: From the outset, our timetable had the intention of securing Third Reading, subject to the will of Parliament, before the Scottish Parliament went into its election dissolution period so that the electorate and the parties in Scotland had a strong indication of where the Bill was headed and to demonstrate that it had secured parliamentary support. Given the nature of the Bill, and because it will be scrutinised very thoroughly in the Scottish Parliament, and rightly so, we have recognised from the outset that there will be some delicate—if not choreography, at least timings of the reports so that we will be able to get our processes to completion. We expect that the report from the Scottish Parliament LCM Committee will come in the first week in March. Obviously, that is a timetable the Committee controls, and it is subject to all the issues that might still confront it. But if that is the timetable, our commitment is that we will be going into Committee after that date. So we would hope and expect that the report will have been published before we start Committee stage. None the less, there will be a Report stage for us and Third Reading, and then the full role of scrutiny in the House of Lords before any changes might come back to the House of Commons. It is my judgment—and I hope it will be accepted, given what we are trying to do to get to Third Reading—that that is a tight timetable, but a reasonable one. It will allow your Committee, the Scottish Parliament Committee and the House to consider matters fully.

  Q562  Chair: Sir George Young said on Thursday, "On the legislative consent motion, it is indeed our intention to secure that before we reach the appropriate stage in proceedings on the Scotland Bill."

  I interpret that to mean that he would want to have the legislative consent motion before you start the next stage in this House. You seem to be saying that in fact he will start the next stage once Ms Alexander's Committee has reported, which is not quite the same thing.

  Michael Moore: No, indeed, and Sir George has written to Stewart Hosie today, copying it to the shadow Leader of the House, to clarify the situation in the way that I have described to you. I have written to the shadow Secretary of State, who wrote to me as well—on Valentine's day—to raise her concerns about the process, and she has had a reply this afternoon as well. This is slightly difficult for me, but you have been here a number more years than I have, Mr Davidson, so I am sure you know that I cannot pre-empt tomorrow's business statement—depending on when tomorrow starts, after this evening's proceedings. However, I think you might want to follow that closely. But the point is, as I have expressed before, that on the expectation that the Scottish Parliament Committee will report in the first week of March, we will not be going into Committee before it has reported.

  Q563  Chair: Right. When you say Sir George Young has written to clarify, you mean that he has done a complete somersault and a U-turn and reversed the position—it is a horrible thought to contemplate in your head. The idea is that he has completely changed what he said. Is that correct?

  Michael Moore: The distinction is between the report and the motion. The motion will still need to be debated—

  Q564  Chair: But that is not what Sir George said, of course, so he is not clarifying; he is completely changing.

  Michael Moore: I say he is clarifying. You are entitled to take a different view on that.

  Q565  Chair: Okay, I think I understand that point—[Interruption.] I got a new BlackBerry today and I don't quite understand how you switch it off—I think that is possibly right. There you are; it has run out. That's resolved.

  May I clarify, then, how speedy you intend the progress to be, and how many sessions of the Committee of the whole House you intend to take place before the timing of the likely legislative consent motion and the likely production of our report?

  Michael Moore: I may have misunderstood the timing of your report. You are completely in control of your own timetable. I understood your intention was to conclude your report in time to be able to table amendments on Report, but I don't know whether I've misunderstood that.

  Q566  Chair: You're not speeding it up? It's not going to be four days in a row or anything like that? It's going to be over a period, so we will still—

  Michael Moore: Indeed.

  Q567  Chair: Sir George has done one somersault. There's no reason why he shouldn't be doing a second, and we might be caught out by that.

  Michael Moore: We have discussed these things carefully. I hope—again, this will be your judgment, not mine—that when you see the proposed timetable, you will see that it is appropriate. It allows the Committee, Members of the House and others to get on with the business of scrutiny and amendment, if they so wish.

  Chair: Questions on the timetable before I move on. Eilidh, you were looking poised to ask a question.

  Q568  Dr Whiteford: My question echoes your own, Chair. When precisely will the Committee stage commence? Will our Committee have had a chance to report? George Young's letter says that there should be an amending stage in the first House after the LCM has been passed to enable amendments to be tabled. Can you confirm that that will be the case?

  Michael Moore: That would apply to Report stage. If we go back a moment and look at the LCM procedure as it has been over a number of years, the principle has been not that we should as a House sit doing nothing with legislation, but that there should be an opportunity, after the LCM has been passed, to get an amending stage here in this House. We will certainly satisfy that principle. On the point about whether we will go into Committee before the motion or the report, I just refer you to the answers I've already given.

  Q569  Fiona Bruce: May I ask whether you have any additional comments to make about the sufficiency of four days to debate this issue?

  David Mundell: I think that we will be able to have a full debate. One of the points on which we have rebutted criticism from some quarters is that the Bill hasn't received full scrutiny. It has received extremely full scrutiny from the Committee in the Scottish Parliament. We had a very robust debate on Second Reading and this Committee is scrutinising the Bill, so there is a very thorough period of scrutiny. There will be three full days on the Floor of the House in Committee, and there will be Report and Third Reading. There will also be the opportunity for scrutiny of the Bill in the House of Lords. As has been well reported in the media, there are a number of distinguished former Scottish MPs, and indeed MSPs, in the House of Lords who I am sure will play a very full part in that process.

  Q570  Mr Reid: What's the reason for having Third Reading at the time that it's scheduled for?

  Michael Moore: That goes back to the initial driving force for the timing, which was to get Third Reading in the House of Commons completed before the Scottish Parliament goes into its election dissolution period.

  Q571  Mr Reid: What's the reason for that?

  Michael Moore: Because that was our way of demonstrating that the Bill has reached a very advanced stage and that the basic principles and shape of the Bill are well established and endorsed by the House of Commons. It was an approach that from the outset, when we were talking with other parties that have supported the Calman process, had broad support.

  Chair: That was a hard one.

  Q572  Lindsay Roy: Can I ask when our paper—the Scottish Affairs Committee's paper—is likely to be concluded?

  Chair: In time for Third Reading.

  Michael Moore: In time for Report.

  Chair: As I understand it, you're accepting the amendments that we will propose, so we will endorse that!

  Q573  Fiona O'Donnell: I was going to ask about that because I am new to this and I am learning how legislation works. The opportunities to make amendments are at Committee stage.

  Michael Moore: Three days thereof, and then Report stage.

  Q574  Fiona O'Donnell: So there is a further stage.

  Michael Moore: As this is a constitutional Bill, all stages of Committee are taken on the Floor of the House, rather that in one of these Committee rooms, so everybody can participate in the Committee and table amendments there. Traditionally, Report stage was a way to report back to the rest of the Commons on how the Bill had emerged from Committee. Clearly, it is an opportunity for further amendments.

  Q575  Fiona O'Donnell: So the report from the Holyrood Bill Committee and this Committee could provide the substance of further amendments?

  Michael Moore: Yes, precisely. And there is also the House of Lords. Let's not forget that there will be further opportunity there. Any changes that are made in the House of Lords come back to the House of Commons for further consideration.

  Q576  Fiona O'Donnell: Before our last panel of witnesses left, we asked them how they would vote if they were Members of Parliament, and it was 50:50. Can I just confirm that you will both vote in favour of the Bill and be present for the vote?

  Michael Moore: Yes, thank you, Fiona—[Interruption.]

  Q577  Chair: David did not seem very enthusiastic about that, I must say.

  David Mundell: Just for the record, I rebut that statement.

  Q578  Chair: So what would your answer be?

  David Mundell: I will be voting in favour of this Bill. It has been a great privilege, as I said on Second Reading, to have been part of the process throughout, from when we joined Members of the Scottish Parliament to bringing the Bill to Parliament.

  Q579  Chair: Indeed. Can I just clarify that we intend to publish in the week beginning 14 March, so will that give us enough time? Is it correct, Michael, that there will still be time?

  Michael Moore: Yes.

  Q580  Chair: Can I ask another set of questions on the process of consultation and discussion? We saw witnesses from SCVO, and we also had the benefit of reading blogs by Martin Sime, who is SCVO's chief executive. Commenting on everything you had produced, he added: "And all this without an ounce of consultation from the Coalition government." It would be helpful if you clarified whether there has been an ounce of consultation with SCVO at any stage in the work on the Bill, because it seemed very strong on this. For the chief executive to say what he did in an article in The Scotsman or Scotland on Sunday, as well as on the SCVO's official blog, seems a fairly damning indictment of the coalition Government. Perhaps you can clarify whether there is any truth in what he said.

  Michael Moore: I was surprised and, indeed, disappointed that Mr Sime had reached that opinion, not least because the first stage of consultation was back during the Calman process itself. Those involved engaged extensively with different stakeholders; they had consultation meetings around the country. SCVO and others were able, I am pretty sure, to give evidence as part of that process. We have what we call the high-level implementation group, which brings together different key stakeholders, and they have helped and advised us along the way about how we developed the Bill. The group met a few times before we published the Bill. A senior member of the SCVO team is part of that process. On charities law, in particular, it was pretty clear that SCVO had pretty strong views. We were talking about re-reserving that, and we have not done so—it is not in the Bill. Not only have we consulted, but we have responded to what I understood to be one of SCVO's major concerns about the Bill and the Calman process.

  Q581  Chair: I find myself in a bit of difficulty here. Obviously, what I read out was what SCVO stated to us when it met us and what it put in its blog and in the papers. Perhaps we will reflect on that and pass it on to SCVO. If it remains unhappy, we might discuss with you about how best to pursue this.

  Michael Moore: I wouldn't suggest for a minute that it is signed up to every last bit of it—clearly it is not. On the other hand, if the charge is that it was not consulted or did not have an opportunity to contribute, that is simply wrong.

  Q582  Chair: Let me repeat the quote: "And all this without an ounce of consultation from the Coalition government."

  Michael Moore: I just don't know how that can be said.

  Chair: Fine, that's very helpful.

  Q583  Fiona O'Donnell: We had quite a big debate during the last evidence session about the 10p tax band being applied evenly across all the bands. What is the reason behind that, and not allowing the Scottish Parliament perhaps to raise the levels for higher-band taxpayers?

  Michael Moore: The starting point for this was part of the recommendations that came forward from the commission. We agreed that we were going to take those through into the Bill. We obviously examined the reasons informing that particular decision.

  There are three elements to this. First, this broadly maintains the redistributive nature of the tax system. Our fundamental is that we want to keep the virtues of a unified United Kingdom tax system. We are not going down the road of separate tax systems in Scotland from the rest of the UK—in the main. Clearly, on some of the smaller taxes we will be, but on this main one we will not be. We want to maintain the integrity of the most important tax in the UK. The redistributive element is the first part.

  The second part is the volatility issue. In particular, when you look at the additional rate, in times of economic growth especially, it will outperform—the yield on it might do better than the yield on the other levels of taxation. The converse is also true: when you get into a period of economic decline or recession, the yield on that tax will decline more quickly. It is inherently more volatile, which increases risk, and we are determined to limit the risk in the process. The third and final part is that it obviously has the merit of simplicity.

  Q584  Fiona O'Donnell: Given that, is it about people having to fill in a tax return? Would a Scottish taxpayer then have to—

  Michael Moore: They won't have to do that.

  Q585  Fiona O'Donnell: No, but if that power had gone, would that have been necessary?

  Michael Moore: It's really about the question of how you design the collection and information systems and everything else.

  On the issue of whether taxpayers have to fill out tax returns, they will get a special Scottish coding, so the work will be done through the software in the systems. It will not be necessary for everyone in Scotland to do that.

  Q586  Fiona O'Donnell: What I was asking about—sorry if I wasn't clear, Michael—was if that power to vary the rate to different taxpayers had been devolved to the Scottish Parliament.

  Michael Moore: I would be happy to clarify, but I don't believe that that, of itself, would have required a tax return, but it would certainly have made the software to manage the collection process much more complicated.

  Q587  Fiona O'Donnell: We heard slightly concerning evidence from Alan Trench. He raised some concerns about HMRC not having Scottish representation and—I want to be very careful about the words I use—its impartiality, and about where the accountability to the Scottish Parliament and Government would be. Do you have any concerns about that?

  Michael Moore: No. HMRC works on behalf of the whole of the United Kingdom, and it will be the responsibility of HMRC to continue to collect not just the tax retained in the Treasury, but the amounts then passed on to the Scottish Government. We will be appointing an additional accounting officer within HMRC with specific Scottish responsibilities—absolutely named and nailed as responsible for the collection of the Scottish rate of income tax. That is an important additional bit of accountability, in addition to which there will be the UK-Scottish bilateral tax committee, and all the governmental mechanisms that will ensure that the oversight within Government is strong, and that Parliament here and in Edinburgh will be able to scrutinise all the activities of HMRC.

  Q588  Chair: May I just pursue that point a little bit? One of the issues about this is the extent to which it is transparent. To what extent will the figures involved be out in the public domain? Clearly, there are those who might wish to make mischief and dispute the accuracy of figures. We want to ensure, I would have thought, that as much as possible is publicly available so that we can avoid those unnecessary disputes.

  Michael Moore: I am happy to confirm what is spelled out in the Command Paper. The Office for Budget Responsibility will be responsible for the forecasts of tax receipts. The amounts that are subsequently collected will be publicly available. The reconciliation will be publicly notified and will be available for scrutiny and independent audit as Parliament or Government see fit.

  Chair: Fine. All of that will be done. Sometimes you do have mistakes in the arithmetic and the like, so we would want to ensure that all of that was overcome, if possible.

  Q589  Fiona Bruce: The UK Government have decided, at this time, not to devolve certain taxes that the commission recommended devolving, or corporation tax. I would be interested to hear the reason why.

  Michael Moore: Corporation tax is obviously the most significant of those taxes that might have been devolved. Again, that was looked at by the commission. The report—whether it is of the independent experts or of the commission itself—spells out that one of the main reasons for that is to maintain the integrity of the United Kingdom taxation system, maintain its simplicity and minimise the compliance costs for businesses, and also not set up the overt possibility of tax competition for corporations, which might be tempted, if the rate were higher or lower—depending on whether they were north or south of the border—to relocate their headquarters. The underlying factories or businesses might stay where they were, but the brass plate on the door of the headquarters might be moved around simply according to the corporation tax provisions within the United Kingdom. We do not think that that is sensible, so for that reason corporation tax was excluded.

  Let's turn to the other taxes that we are not devolving that the commission recommended we should. The main reason for not devolving the aggregates levy—I rehearsed this point on Second Reading and it had already been put in the Command Paper—is the fact that this issue is before the courts at present. It is not appropriate to devolve a tax when its very existence, or its structure, is under challenge. We have put the commitment in the Command Paper, and I am happy to repeat it today, that assuming an appropriate outcome from the court case, we will look to devolve that. On the issue of air passenger duty, you will be aware that the Government are reviewing that. Once the outcome of that is known, we will take steps to devolve it as appropriate. I hope that we clearly signalled that in the Command Paper.

  Chair: It was very helpful to have that point clarified.

  Q590  Cathy Jamieson: Could you say a bit about the rationale for having a situation in which any new taxes that the Scottish Parliament wish to introduce have to be approved by Westminster? Some people have argued that that is almost like fiscal centralisation rather than devolution. Can you also explain for the record how that would work in practice? What would be the process for Westminster approving that?

  Michael Moore: I'm sure someone can flick me to the page in the Command Paper that spells out the criteria that we have established for that. I am a bit sad that people might take the glass-half-empty perspective on this. It would have been a lot easier to say, "There will be no facility for any other taxes within Scotland for devolution." That would have made this a smaller, less impressive Bill, as far as I'm concerned. What we're providing, for the first time, is the facility to allow the Scottish Parliament, with the agreement of the United Kingdom Treasury, to set new taxes. They're really tightly defined in existing legislation. I refer you to page 33, which has very helpfully been drawn to my attention. You'll see there the list of criteria. Essentially, this goes back to Fiona Bruce's point about corporation tax and to my answer to her. We need to make sure that we're not setting up some kind of artificial competition within the United Kingdom and not, overall, unbalancing the arrangements between Scotland and the rest of the UK.

  Q591  Cathy Jamieson: It may not be possible at this stage to give an outline, but I think people would want to be assured that the scrutiny at Westminster would be proportionate if the Scottish Government decided that they wanted to introduce something. Have you thought through how that would actually work in practice, in terms of how it would be approved or not by this place?

  David Mundell: I think it's important to restate that this is a positive measure. One of the examples that I'm aware of, from my time in Parliament and your own, is the proposal for the plastic bag tax. Whatever the merits or otherwise of that particular proposal, there were issues around its validity and operation. I certainly believe the Scottish Parliament should have the opportunity, if it wanted to do that, to bring it forward.

  Q592  Cathy Jamieson: Can I use that as an example? Supposing the Scottish Parliament decided it wanted to introduce such a tax and brought it forward. Would it bring forward the primary legislation in the Scottish Parliament? Would it come here? How would that be dealt with?

  David Mundell: My understanding is that there would be a resolution here, in the way that orders are currently brought forward, and there would have to be a positive—

  Q593  Cathy Jamieson: It would be affirmative?

  David Mundell: An affirmative vote in both Houses of Parliament.

  Q594  Cathy Jamieson: So would the Scottish Parliament bring it forward first, and would it be approved here after it had gone through the whole process in the Scottish Parliament, or would it be almost a bit of a reverse Sewell, where there would be an in-principle agreement here first?

  David Mundell: At the moment, we have—I think it has worked very effectively, certainly during my time in this role—a process for Scotland Act orders, where orders are brought forward at the instigation of the Scottish Government and Scottish Parliament. Most recently, we've been discussing an order about kerb crawling. Inevitably, there is preliminary discussion about the fact that the order is likely to be supported. I think it's perfectly legitimate for the Scottish Government to bring forward an order that they are not necessarily sure would be supported at Westminster—they're perfectly entitled to do that—but the process would require a degree of discussion if the objective was to get it implemented.

  Q595  Cathy Jamieson: I appreciate that it's a bit of an ongoing and developing scenario. There's also been the criticism that the devolution of the tax powers proposed in the Bill is a blunt instrument that doesn't give the Scottish Government sufficient levers to stimulate economic growth in Scotland. Can you put a few points on the record about your views on that?

  Michael Moore: I am happy to repeat comments made before, and some of the arguments in the Command Paper. Primarily, this is a constitutional Bill. It's about giving the Scottish Parliament more accountability, ensuring that we tweak the balance of devolved and reserved powers, and improving some of the procedural aspects of Parliament and of interparliamentary and intergovernmental relations.

  However, as far as economic growth is concerned, my view is that the greater scrutiny and accountability that will be inherent as a result of the need to set a tax rate will really focus the mind on what impact that tax rate will have on people and businesses in Scotland. It will also renew the scrutiny of how Scotland spends its other Government expenditure and whether that is focused on economic growth. Separate to that, we are introducing, through the Bill, significant new capital powers. They could be used in a way that would not generate economic growth, but I would be surprised if that was the case.

  Q596  Chair: Could I seek clarification on both of the points that Cathy raised about the new taxes? Can I clarify that, if the Scottish Government wanted to tax large landed estates, for example, they would be able to do so? In terms of your caveats—it shouldn't be distorted and so on—is that the sort of thing that would fit?

  Michael Moore: I don't know whether that is a particular tax that you have always longed to introduce.

  Q597  Chair: You, like me, have seen life in the Borders; a better taxation of large landed estates would not be a bad thing there, in my view.

  Michael Moore: I think I'd better be careful, on a number of different levels, about speculating about that kind of thing. Just to build on what David said in response to Cathy Jamieson, what would happen in those circumstances is that the Scottish Government would come forward with their proposal, we would discuss it, and it would have to be agreed. It would have to meet the tests set out on page 33 of the Command Paper about competitive tax arrangements, arbitrage, tax avoidance and so on, although it is pretty hard to move a big landed estate.

  Chair: That's why I'm trying to clarify the issue.

  Michael Moore: What I will not do, if you will forgive me, is get drawn into speculation about whether or not that is a good tax to want to introduce. For any type of tax to be brought forward, the Scottish Government would bring it forward and they would take account of these criteria. There would then be a process of discussion and negotiation with the Treasury, and then—assuming that the Treasury agreed to the new tax and that the Scottish Government were still happy with the way it would be shaped—the orders would be passed through the relevant institutions.

  Q598  Chair: I am not pursuing the question of process. I am seeking clarification from you, the Minister.

  Michael Moore: I am not going to speculate on how that tax might be used.

  Q599  Chair: Nor am I asking you to discuss the virtues of the tax. I am just trying to clarify whether or not, under your understanding of the criteria that would possibly rule out a tax, something like a tax on large estates or on rural land would actually qualify, or whether it would automatically be rejected.

  Michael Moore: There is a very fine line between commenting on the whys and wherefores of the desirability of that tax and saying whether or not it would be allowed to come through. Put it this way: any process like that would require discussions and agreement with the Treasury.

  Q600  Chair: To be fair, I understand that. Perhaps I will ask David, because he actually made it clear that he thought this was quite a step forward and quite a development, and that it was a permissive power to be welcomed. I agree with that. I had not actually realised that it was, perhaps, as significant as might appear from what you said. I am just trying to clarify the extent to which it is something that is likely to be used.

  Michael Moore: Could the Scottish Government bring forward such a proposal? Yes. Whether it would get the agreement of the Treasury is an entirely different point.

  Q601  Chair: I am seeking to clarify, though, the sorts of criteria that the Treasury might use. I hear what is in the Command Paper, but what I am not clear about is how the criteria are likely to be applied in practice. I am seeking some guidance from you, the Minister involved in bringing this forward. If the Scottish Government, for example, came forward with a Buckfast tax, under which it was proposed to tax alcoholic drinks containing a high proportion of caffeine, would that fall under the criteria of unfair competition? You have presumably discussed all these things.

  Michael Moore: No, we haven't gone through a list of taxes that might be brought forward. The whole point about this is that it enables a power that will enable parliamentarians in Scotland to consider what they want to do. If they came up with that, it could be considered. How the Treasury and the UK Government respond depends on the specific proposals and their compliance with the criteria.

  Q602  Chair: I think we would ask you to reflect on that and see whether or not you can give us additional guidance as to what might qualify. I am genuinely uncertain about what sort of things might qualify, notwithstanding the caveats you have provided. How meaningful is this? Specifically, I understand the point about wanting to have this cleared before the election. I think it would be helpful, rather than unhelpful, to avoid a lack of clarity on this particular matter. I can think of areas where the possibility of banning or taxing Buckfast would be very popular, and I can think of areas where it might be unpopular, but we need to be clear about something like that. Is that acceptable?  

  Michael Moore: I appreciate that that's your perspective. For us, the important point about this is that it is an enabling power. As I look at it, I am not sure how helpful it is to go through and have a menu of potential taxes.   

  Q603  Chair: At the moment, we don't know what it enables, though.   

  Michael Moore: It enables the Scottish Government to come forward with their own decision and their own views on what those new taxes might be. If that is what they want to do, then they will bring it forward. Like much of the rest of the taxation proposals, there is a lot of work that will have to be done after Royal Assent to work through the new mechanisms, and to get the transition on income tax and all that sort of thing sorted out. There will be a lot more discussion on that. But I accept you—

  Chair: It could be a Buckfast or a Buccleuch tax.

  Michael Moore: The Duke will be delighted to hear that.

  Chair: Indeed. No more than he deserves.

  Q604  Lindsay Roy: Good afternoon, gentlemen. Witnesses have expressed concern about a lack of detail in the Command Paper on the method that will be used to calculate the reduction in the block grant, especially as that is so central to the Government's proposals in the Bill. Why is this process and methodology not outlined, and how would you suggest that it be done?

  Michael Moore: You will not be surprised to hear that I take a slightly different perspective from those witnesses on the lack of detail. What we have sought to do in the Command Paper—and again, this was set out on Second Reading—is set out how we would anticipate this being done. We recognise that fundamentally, this is a huge development for Scotland. Above all else, it is important that we get it right. When we come to reduce the block grant permanently—for the smaller taxes initially but then, most importantly, for income tax—we need to ensure that the process is agreed, is transparent and uses the best available data.

  At the moment, we do not have good forecasting arrangements for income tax receipts. We do not have all the data that we will require. However, we are setting out in the Command Paper how we will go about doing that with the OBR, from financial year 2012—how we will begin to do those forecasts, building up the body of evidence and making sure that we are equipped to make the judgments. We will want to make that adjustment, based on a period of years, and ensure that the judgment we are making is consistent both for historic figures and expectations going forward. If we get that number significantly out, it makes a big difference to that permanent adjustment.

  Q605  Lindsay Roy: Are there any options actively being considered at the present time? Why not have a once-and-for-all adjustment, for example? Professor Muscatelli has suggested that a different arrangement might be put in place based on a straightforward formula.

  Michael Moore: And others in different commissions—the Holtham Commission and others—have looked at formula versions, too. All the evidence that Professor Muscatelli gave in his independent group and, through that, to the commission, and their judgment, which we accepted, is that it is best to do it on the basis of a period of years in time, and make that adjustment. What we have also said, however, in the Command Paper is that we will make sure that we keep that under review, so that there are not massive divergences after that adjustment is made.

  Q606  Lindsay Roy: Calman suggested a commensurate reduction to the block grant. You are suggesting a proportionate reduction. Is that the same thing?

  Michael Moore: Yes.

  Q607  Chair: Can I just clarify a matter, again? On the formula, this would be "show working" again, wouldn't it?

  Michael Moore: Yes.

  Q608  Chair: All of this is going to be transparent?

  Michael Moore: It has to be. It absolutely has to be.

  Chair: It doesn't have to be. We are just trying to seek clarification on what the Treasury might do on something else there.

  Q609  David Mowat: I don't really understand how that "show working" would work. I listened very carefully to your answer about the first year and how you would actually work it out. What you do is get your income tax amount through this systems change that you are going to make, and calculate in advance what you would have expected the block grant decrease to have been. If those two things are different in year one, what do you do?

  Michael Moore: What we're saying is that as we now start to identify those receipts for Scotland and make projections about what those tax receipts will be for the future, and build up that expertise both in forecasting and in understanding what Scottish tax receipts are, we will have a body of evidence that will allow us to say, "The Scottish tax take is x% of the grant," and therefore we reduce by that amount.

  Q610  David Mowat: I understand that, and that would have been based on this estimate you've made of the tax take, and you do that based on the OBR and everything else, but then you do this mechanical process that's going to require thousands of bits of software to be changed in payroll systems up and down the country, and that will come up with a number, which may be different from the number you estimated; and there you are—you are left with those two numbers. One might be—I don't know—£3 billion, and the other £2.5 billion. You have got a difference. What do you do then? I don't know that being transparent helps with that. In a way, you've just got a different answer.

  Michael Moore: Well, I hope the disparity wouldn't be on that kind of scale. Let me come back to the way it will work. In terms of making the adjustment, from 2012 onwards, we're going to be doing the forecast on tax receipts. We will also be building up the body of evidence on what the actual recent tax receipts have been in Scotland, so that when we get to 2018 or 2019, which is the year when the final adjustment is going to be made—that is still to be decided—we will have six years' information on which to base a sensible decision. Thereafter, we will be using OBR forecasts for the allocation of income tax receipts into the Scottish funds, and we will reconcile those the year after that, and any adjustments will go through the Scottish Consolidated Fund.

  Q611  David Mowat: I don't understand—sorry, perhaps I am being dense on this—what the process of reconciliation means. The amount you knock off the block grant in the first year is based on an estimate from the OBR, isn't it?

  Michael Moore: No. It will be based on our OBR forecast and our historic receipts—the data that we have built up.

  Q612  David Mowat: But you can't know what that is, because you don't know enough about where your tax base is resident, do you? Or are you making lots of assumptions about it?

  Michael Moore: We will make assumptions, which will be very clear. Also, part of the reason for the length of time we wish to take is that we want to make sure that we can get the methodology moved from the principles that we are identifying; it should be a period of years, and it should have backward evidence and forward projections at the heart of it. We should ensure that we get the right, fair outcome for United Kingdom taxpayers, and Scottish taxpayers as a subset of those.

  Q613  David Mowat: So you've got this model that you're going to use, effectively, that's going to estimate the reduction in the block grant based on a few years of looking at what you think the Scottish tax base is.

  Michael Moore: The model will be developed in partnership with the Scottish Government, because, again, it's important that there is full openness about the figures that are being used. Again, that will be available for scrutiny by Committees.

  Q614  David Mowat: And when you talk of reconciliation, you're reconciling that model with what actually happened, are you?

  Michael Moore: No, sorry; the reconciliation is for the future. Once we have made that permanent adjustment, we'll be in a situation where every year the Scottish Government will need to get access to the funds through the year.

  David Mowat: I see. So that's just a time reconciliation. Thank you.

  Q615  Chair: Can I just clarify one thing? Do you think that HMRC will be able to do all this within the £45 million that I think you've estimated it's going to come to, given that I think there's no historic experience in government of things coming in on time and on budget?

  Michael Moore: That is a provisional estimate in the regulatory impact assessment, and I would strongly highlight the provisional nature of that. A number of factors will come into play on that cost, but one of the critical ones will be what the Scottish Government decide they want on P60 documentation and other things. Until we know what the Scottish Government of the day think is the appropriate information that they need from the system, the costs, I'm afraid, cannot be finalised.

  Q616  Chair: Would you care to wager a fiver that it will be more than £50 million?

  Michael Moore: I'm not going to take any wager.

  Q617  Chair: So you lack confidence?

  Michael Moore: I don't think it would be appropriate for Ministers to start betting on this kind of thing.

  Q618  Chair: Right. A charitable donation then?

  Michael Moore: I'm sure you'll be quick to remind me if it goes your way.

  Chair: I certainly will.

  Q619  Dr Whiteford: I want to come back to the ambiguity about the mechanisms by which the reductions in the block grant will be calculated and reviewed. We've heard a lot of contradictory evidence on the tax proposals. My question, which comes back to the timing of all this and your acknowledgement that you want to get it right, is: how can the Scottish Parliament, or indeed this Committee, make decisions or express views on these tax proposals if we don't know what that mechanism is going to be?

  Michael Moore: I hope that the Committee and others will recognise the complexity of the arrangements and the need to take some time. We could sit down with the Treasury and say, "Here it is. This is the adjustment, it's decided already." I can just about imagine the howls of protest there would be about that. We're setting out a process over a number of years that will fully engage the Treasury, the Scotland Office, others and, crucially, the Scottish Government.

  Q620  Dr Whiteford: One of the reasons that confidence is low is that one of the other areas of ambiguity is your estimate that the measures in the Bill will result in the proportion of the Scottish budget funded from devolved taxes rising to about 35%. We've heard evidence from some very unlikely bedfellows—Reform Scotland and, more recently, the STUC—and they estimate that the figure will be closer to 26%, which is quite a big discrepancy. It is difficult for us, in this very truncated process, to reach conclusions on that. Do you stand by the Government's estimate, or do you think that there is room for revision?

  Michael Moore: The 35% figure goes back to the report of the Commission on Scottish Devolution, the Calman report.

  Q621  Dr Whiteford: The Government haven't analysed it?

  Michael Moore: No, we are broadly comfortable with that assessment. It may change one way or the other, but it is indicative as much as anything else. Surely the important point is that this significantly enhances the financial accountability of the Scottish Parliament.

  Chair: I think there's an issue here about credibility, because people have been bandying different percentages around. It would be helpful if you wrote to us showing your working and how you established 35%, as distinct from any other figure. That would help move things forward.

  Q622  Fiona O'Donnell: I want to take you back a bit, and colleagues will correct me if I'm wrong. We heard evidence from Professor Scott, who talked about the forecast for tax receipts. He said that such forecasts are always high, and on average they are 4% high. It might be that this is another occasion on which it would be better for us to write to you with his evidence. He implies that Scotland would constantly be borrowing to get itself out of that situation. Could you give us any reassurance either that there is something in the contingency to protect Scotland or that, if you know the forecasts are always 4% ahead of what will be taken, you would adjust for it?

  Michael Moore: That is part of the reason for building up the body of experience in such forecasting through the OBR and elsewhere. That is why we are not hanging around until 2017-18 to start the process. The OBR will have a mandate to start forecasting from 2012 onwards. It will then be an open book. We will all be able to see how accurate the forecasting is, compared with the out-turn.

  There might be difficulties, but with respect to the experienced people who observe the scene more closely than I might, I would hope that we can get the discrepancy as small as possible. Let's not forget that that will be for the Scottish Government of the day to anticipate as they make their forecast. It is the same for the UK Treasury, which forecasts its tax receipts and then develops its spending plans on the back of that. The UK Treasury builds in some contingencies, I am sure, and looks at what other measures should be taken if suddenly there is a shortfall. That is essentially a really important part of the new accountability. However, we are not just throwing away all the protections of the existing UK funding system. Apart from the devolution of income tax, there will still be a huge block grant coming through, which will maintain stability and keep things pretty secure for Scotland.

  Q623  Cathy Jamieson: I wonder whether I can ask a couple of questions about the borrowing powers. We have heard a lot of evidence, including from some members of today's earlier panel, that the limits set for current borrowing are too restrictive and should be higher. Could you explain your rationale for the figure that has been proposed? Is there scope to change that, and are you prepared to listen to the evidence that has been brought forward? How do you propose to allow the Scottish Parliament as much discretion as possible over the level of borrowing?

  Michael Moore: There are a number of issues there. The first and most important principle, I am sure, for all members of the Committee is whether we will listen to the evidence and look at it—of course we will. We have given some assurance to colleagues in the Scottish Parliament who are scrutinising this, and I am conscious that there have been different representations about this and we want to take note of that.

  If we look at the current borrowing powers of up to £500 million, that level was determined by colleagues in the Treasury based on their estimations of what the fluctuations might be in tax receipts that would need to be covered in any given year. The central assumption was that in the worst year of the recession, income tax receipts fell by 6% year to year. If you factored that in, the borrowing that we are setting for the new arrangements would be more than adequate to cover that. We will look at any evidence that suggests that is not right.

  I also point out—again, we have said this in the Command Paper—that the maximum stock could be £500 million, and although that may be varied from time to time, it will not be reduced. There could be uplift in that, but it will not go below £500 million. On capital borrowing powers, the judgment is about providing sufficient powers to enable the Government in Scotland to get on with major infrastructure projects. When I was in front of the Scottish Parliament Committee, obviously the Forth replacement crossing was one such idea, but it could be about hospitals and so on. The possibility of a railway is something else that might be considered—down to Galashiels and Tweedbank or wherever. That is an argument to be had in the Parliament.

  Q624  Cathy Jamieson: Can I pick up on that? One of the pieces of evidence that we have had from Alan Trench suggests that the capital borrowing limit is also low, amounting to the cost of only one or two large-scale infrastructure projects. Issues would arise from that in relation to affordability and whether it would be PPP, PFI or some other method of financing. What would you say to that?

  Michael Moore: This won't be the only facility. This is an additional facility over and above the capital available already. I am happy to look at evidence on this from Mr Trench or anyone else. We make it clear that the £2.2 billion facility—we might call it that—can be varied, but it will not be below that figure.

  Q625  Chair: Can I follow that up? Unless I am mistaken, no one we have heard has suggested anything other than that the limits are too low. There have been suggestions that the Scottish Government should be able to issue bonds and so on. Has that been considered by the Government at all?

  Michael Moore: It has been. Again, this is the glass-half-empty perspective. This major capital borrowing power was actually not in Calman. However, when we were looking at the financial powers that were appropriate as part of the package, it was recognised that that facility would be important. So it's £2.2 billion more than anybody was reasonably expecting. We can have discussions about the levels. As I hopefully clarified—helpfully or otherwise—we are clear that this is a baseline. We are not saying that it will be a free-for-all that will extend massively at any given point in time; it will have to be done with Treasury consent. It will also have to be within the overall United Kingdom borrowing. This is part of the UK's borrowing capacity, so it is entirely fair. The Treasury needs to consider what the appropriate level is within that UK context.

  Q626  Chair: Yes, because presumably UK borrowing for projects in England and Wales will be competing with projects from Scotland, Wales and Northern Ireland.

  Michael Moore: If we're talking about increasing the facility, that £2.2 billion facility will be available for the Scottish Government. After the first couple of years—during the current spending review period—when we are looking at ways of reducing our debt levels, there are some constraints on that at the moment. But, after 2015, in relation to lighter restrictions within that envelope, it will be a matter for the Scottish Government.

  Q627  Cathy Jamieson: On that, there have also been suggestions that the borrowing powers might have been brought forwards and made available, helpfully in advance of some of the other parts of the process kicking in. What is your view about introducing those in advance?

  Michael Moore: At the moment, that is not something we are looking at. However, I don't want to undermine the point I made before—namely, that the Committee will take a view, the House will debate this and the Scottish Parliament Committee will also come forward. All I would say is that that figure has been arrived at both with a view to the United Kingdom's overall debt management requirements and at a level at which we think serious capital projects can be contemplated.

  Q628  David Mowat: How much of the borrowing number that you've allowed for this is because of the timing issue on the receipts of tax flows, which you mentioned in a previous answer to me? How much of that will you use for that purpose?

  Michael Moore: That's primarily what that facility is for. The flip side of it is should receipts outperform forecasts, there is, of course, a Scottish cash reserve, which will be available for the Scottish Government to retain that excess and spend as they wish, subject to the rules.

  Q629  David Mowat: So for clarity, you see that £500 million being used for the smoothing of cash flows. You don't see it being used for capital spending.

  Michael Moore: No, the capital borrowing is quite simple. But there are existing public finance rules that allow the transfer of the current spending resource into capital resource. That is something the existing Scottish Government could be allowed to do.

  Q630  Chair: Can I just clarify whether all the capital borrowing will be through the Public Loans Board? As is the case for bonds or something similar. Did you consider bonds?

  Michael Moore: Our colleagues at the Treasury looked hard at that and the judgment taken was that that was not necessary. But, again, I know that the Committee and others may wish to raise that.

  Q631  Chair: I think it would be helpful if you were able to access something from the Treasury or directly that shows why you came down against bonds. We have a lot of evidence on that, but we haven't had all that much back from yourself there.

  Michael Moore: Apologies that I don't have it immediately to hand. The Exchequer Secretary, David Gauke, provided evidence to the Committee in Edinburgh.

  Chair: Fine. I think that would be helpful to allow us to consider this.

  Q632  Fiona O'Donnell: On that point, when you gave evidence at Holyrood, there were a couple of points you said you would write to them on to clarify. One was about the residential status of Scottish taxpayers. I can't remember what the other was. I wonder if we could be copied into that correspondence. I understand that it is not with them yet.

  Michael Moore: Certainly.

  Q633  Fiona O'Donnell: The other thing that was put in terms of capital borrowing was why not let the Scottish Government—the Scottish Parliament—go out there and try and borrow money openly in the market and let the market judge whether they are a good risk. I think that was the view put forward by Professor McLean.

  Michael Moore: People can argue the case, and have done so. What I would simply say is that the Treasury retains overall responsibility for the United Kingdom's borrowing and how that looks to the markets and internationally. I think it is entirely fair that it should—having given great flexibility with this power—establish how it should be used.

  Q634  Chair: Presumably, generally, borrowing from the Public Loans Board would be cheaper than issuing bonds, would it?

  Michael Moore: It depends on the time you go to the market.

  Q635  Mr Reid: Why was the Office for Budget Responsibility selected as the body for forecasting the Scottish tax base?

  Michael Moore: Because it is now set up to be independent of Government but do the forecasting for the United Kingdom Government, as it has already been doing. It seemed like a natural extension of that work, to ask it to do this work as well.

  Q636  Mr Reid: What discussions have you had with the OBR about the problems that are going to arise in forecasting the tax base?

  Michael Moore: Those discussions will only start once the Bill gets Royal Assent. I would again stress the fact that we have a number of years of work ahead of us, which means there is plenty of time to consider all the different issues.

  Q637  Mr Reid: Have you done a feasibility study? Are you satisfied that it is feasible to get a reasonable estimate?

  Michael Moore: Yes, I'm sure that is clearly our working assumption. The OBR itself is relatively new, but it is getting established, and over the next few years, I am confident that it can take on the role and provide the information that all of us need to judge the tax situation in Scotland.

  Q638  Mr Reid: Several witnesses expressed concern that, once the Bill is implemented, both the Scottish and UK Governments will share the same tax base, and that organisations like the OBR have to be accountable to both Governments. Have any mechanisms been looked at as to how the OBR will be accountable?

  Michael Moore: The OBR will be accountable to this Committee, to Committees of the House, as they see fit, and clearly more generally. We have expressly said in the Command Paper that its work will be open for scrutiny and audit. If the Scottish Government were to decide that they wanted to have the information audited, that would be possible. It will prepare, independently and professionally, its estimates and calculations, and if others wish to scrutinise and audit, they can.

  Chair: That is very helpful. There is a healthy dose of paranoia running through some of the contributions that we have had: the suggestion that, because they are based in Westminster, the NAO, the OBR or the HMRC can't be trusted. If you are saying that all their workings will be visible, or they could be audited, that tends to overcome that difficulty. That is very helpful. Thank you.

  Q639  David Mowat: As a follow up, I have been reflecting on the matter. This OBR number is going to be the driver of what you knock the block grant down by, so the OBR matters.

  Michael Moore: The OBR matters, but we will have historical tax receipts. We will actually have established tax receipt numbers.

  Q640  David Mowat: But you won't have that, because the only way you're going to get the tax receipt numbers is by this tax code change that you have mentioned of getting an S on the code and working it all through the systems and getting a final number. You're only going to have that when you go live. I'll tell you what I was reflecting on: you could have actually implemented this by getting an accurate tax receipt number for year nought, and using that for the block grant reduction rather than a forecast.

  Michael Moore: Bear in mind the final adjustment in 2018-19 is two or three years after we've implemented the tax powers in 2016. So you have built up a body of evidence—right to the heart of your point—of actual Scottish tax receipts.

  Q641  David Mowat: Okay, so—to the heart of my point, then—the first year reduction in the block grant will be based on the actual amount that we got in the first year.

  Michael Moore: Actual and further.

  Q642  David Mowat: So the OBR is only a cash-flow timing device, then? It's not relevant to actual cash flows.

  Michael Moore: I would be surprised if people didn't want not only to look at the historic figures but to look forward to what the OBR was forecasting for years to come and look at that based on its forecasting work and decide whether that was a relevant consideration. Going forward, you're absolutely right.

  Q643  David Mowat: Okay. I will go back to what I'm supposed to be asking about now, which is the mechanics of the HMRC process. I think you mentioned earlier in your evidence that the tax code will have an S on it and the software will flow all that up through. Is that HMRC software, or is it software that all companies in the whole country have, which is what they run their payroll systems on?

  Michael Moore: Correct. It is the latter.

  Q644  David Mowat: It is the latter. So that's quite a big job there. Anyone who might employ someone who is resident in Scotland will have to have this in their system.

  Michael Moore: In your constituency and across the country, a point that we have been very keen to ensure that the business organisations and others are aware of and engaged with. I apologise if I don't get its title completely right, but the Chartered Institute of Payroll Professionals or its equivalent is a member of the higher level implementation group. One of the first questions we asked was what the compliance challenges of the introduction would be for businesses, given that companies in England will also need to comply with this. Its response to that was that, when the Scottish variable rate was being established back in 1999, the software packages that were then on the market were upgraded to take account of the need to identify a Scottish taxpayer. Its view, which has not changed since, as far as I'm aware, is that that software will work for this as well. In other words, it has been lying dormant in most businesses over the past 10 years.

  Q645  David Mowat: But a business will have to report, won't it? It will have to report two numbers quarterly to HMRC: its Scotland number and its other number.

  Michael Moore: That will be driven out of the system in the same way as normal tax information.

  Q646  David Mowat: I am not trying to minimise it, but not everybody uses computer systems. A lot of people do this manually. There is an overhead to all of this, however. Are you comfortable that it can be done?

  Michael Moore: Based on the professional advice that we have received, yes.

  Q647  David Mowat: Your advice is that you're comfortable. But the £50 million number—

  Michael Moore: Is the HMRC cost.

  Q648  David Mowat: Who is paying for the HMRC cost? Is it the Scottish Government or the UK Government?

  Michael Moore: The Scottish Government.

  Q649  David Mowat: So that is just part of the deal. That was how it was to be done.

  Michael Moore: That is why they are taking a very close interest in the sum of money involved. If I may refer to the inelegance of the situation of the Scottish variable rate arrangements at the moment, there has not always been perhaps the best communication and discussion on these matters, but I am pretty confident that a lot of attention will be paid to this in the years to come.

  Q650  David Mowat: And is most of that HMRC cost going to third-party software suppliers? It is all outsourced, isn't it—all that software and that process?

  Michael Moore: Yes, but it is basically the marginal cost of establishing this functionality in the UK system, so that HMRC will be responsible for collecting that tax and paying it into the Scottish Consolidated Fund, and ensuring that the Scottish Government are not thrashing around looking for where their next money is coming from.

  Q651  Chair: Can I just clarify the jobs involved in any of this? If new jobs are created as a result of this new mechanism will they be in Scotland, and will you give us that guarantee? New jobs involved with HMRC operating any new system. I think you can understand why we raise this point. It would perhaps be inappropriate if any new jobs in HMRC were created as a result of having a Scottish tax system but they were actually outwith Scotland.

  Michael Moore: These are operational matters for HMRC. I think it's hard to envisage a situation where it will not have people in Scotland, because it will have to work very closely with the Scottish Government. Equally, it will have to have people working with their colleagues here in London within HMRC. I would be prejudging and pre-empting the operational decisions by some margin, but I think that we can be reasonably confident that there will be additional roles for people in Scotland as a result of this.

  Chair: So that's a yes, then.

  Michael Moore: I think you heard my answer.

  Q652  David Mowat: Surely, it depends on how HMRC currently does its processing.

  Michael Moore: Among other things, including how it designs it and how it manages it—all those things. I am not an expert on all that, but at the appropriate time I am sure—

  Q653  Chair: There is no need to talk yourself down. I am sure that you are well on top of all this, but I think you can understand that if there are going to be jobs created, they ought to be in Scotland. That is a point that has been made to us, and it would be inappropriate for us not to reflect it back to you. Having obtained your guarantee, I think we're quite happy with that.

  Can I come back to the legislative consent motion concept? If the Scottish Parliament passes what could be described as a partial legislative consent motion, supporting some but not all of the proposals, what then happens?

  Michael Moore: We will reflect on the report when we get it, as indeed I am sure you will, and then we will work with colleagues to establish which bits of it we agree with and wish to reflect in amendments, either to the Bill itself or as clarifications of the Command Paper. I wouldn't want to prejudge whether the Parliament will take a different view to the report from the Committee—that's a matter for the Parliament—but we will have plenty of time for scrutiny and consideration.

  Q654  Chair: I understand some of that, but I am not sure I entirely grasp your answer. If the Scottish Parliament, which may receive options from the Committee, chooses options that are at variance with the Government's proposals at the moment, or if the Scottish Parliament fails to pass some elements of the Bill and provides a legislative consent motion, what happens when it arrives here?

  Michael Moore: We will still have plenty of opportunity here after the motion has been passed, and in the House of Lords as well, to reflect on the motion rather than on the report, if there is a material difference between the two. So I don't foresee a real problem.

  Q655  Chair: Can I just clarify what happens if the Scottish Parliament passes something that the coalition Government are minded not to support, or rejects something that the Government here are minded to support? Would the Government overrule that legislative consent motion?

  Michael Moore: Ultimately, we are responsible and accountable for taking the legislation through. We have not offered a guarantee that we will change everything in our Bill and in the processes attached to it—in the Command Paper—as a result of this process. What we've undertaken to do is to reflect very carefully indeed—

  Q656  Chair: It is very helpful to have that clarified, because there was some doubt as to whether the Scottish Parliament would effectively have a veto over the Bill and, by not passing something, would force the Government, either legally or morally, to abandon it.

  Michael Moore: If it came up with a fundamental issue about the Bill that it did not like and wished to change, we would clearly have to reflect on that and consider what it meant for the legislation. I am hopeful, based on my view of the work so far, that that's not a problem that we'll have; but, again, I don't want to prejudge the Parliament's work or the outcomes of the process.

  Q657  Chair: We feel obliged to some extent to comment on what might happen. If the Parliament decided that income tax, instead of being variable by 10p, should be variable by either 5p or 15p, what then would be the mechanism? Would you retain the right to ignore what it said and put through the 10p?

  Michael Moore: Yes.

  Chair: Fine. I think that that has the merit of clarity.

  Q658  Dr Whiteford: I want to move on to clause 12 of the Bill and the specific concerns that have been raised about the unintended consequences of the insolvency proposals. You'll be aware that the Scottish Federation of Housing Associations has made some very serious pleas about the risks of these proposals. Essentially, with housing policy being devolved and a very recent regulatory framework having been established in the Scottish Parliament through the Housing (Scotland) Bill 2010, its concern is that this would be a very retrograde step, which would create a lot of risk for housing associations and prevent some of the good measures in the Bill from taking effect. Essentially, it doesn't want to see fragmentation of the regulation from the policy-making procedure, which would be a consequence of clause 12 of the Bill. Given that its members own or manage some 47% of affordable housing in Scotland, I think it's something that we, as a Committee, need to take quite seriously, and I would be keen to know what room for manoeuvre there is on that issue in order to reach a more appropriate solution for housing and for social landlords.

  David Mundell: I respect the concerns that have been raised, but it is exactly to avoid the issue of fragmentation that the re-reservation in relation to insolvency is happening. It would be inconsistent with that for registered social landlords to remain the only part of insolvency legislation that was still devolved. Any interpretation of this being a back-door way of undermining the legislation and policies that the Scottish Parliament has pursued is not correct. It's perfectly possible under the new arrangements for the Scottish Government to work with the UK Government to have specific arrangements in relation to registered social landlords in Scotland. Indeed, I understand that officials have already had that sort of dialogue, so it isn't a way of undermining those policy decisions. There are lots and lots of areas where we, in both the coalition Government and the previous Government, have worked with the Scottish Government to ensure that the reserved elements of responsibilities were actually dovetailed with the policy objectives of the Scottish Government. That is an undertaking that we continue to give and would want to give.

  Q659  Chair: We understand the thrust of what you're saying, but the SFHA still seems to be greatly exercised. Have you or any other Government Minister met people from the SFHA to discuss the detail of its anxieties and to see whether there is a way round this? That would perhaps not be by legislation, but through other assurances.

  David Mundell: I would certainly be happy to meet it. I have been in correspondence with Alex Neil—the Housing Minister in the Scottish Government—who broadly relayed the same issues that Eilidh Whiteford set out.

  Q660  Chair: But could you consider maybe meeting the people directly? Why don't you just see them directly? They came down here and spoke to a number of Members, and I think most of us lost the will to live after a certain period, because it was so complicated, and we thought that someone like you would be able to sort this out.

  David Mundell: We would be happy to undertake that and, following this discussion, we will proactively contact them to make that happen and report back to the Committee.

  Chair: Fine. That would be very helpful. That is the best way of dealing with this.

  Q661  Fiona O'Donnell: I know that it is a tight time frame, but, in terms of our report, it would be very helpful if that could happen before the publication of the report, because we may be voicing concerns that you may already have reassured them about.

  David Mundell: Next week, because Parliament is in recess, the Secretary of State and I will be in Scotland for a significant part of that, and we could perhaps make sure that that happens.

  Chair: You'll be looking for things to do, so there you are.

  Michael Moore: An uncharacteristically unfair thing to say.

  Q662  Chair: Antarctica is the next section to which we wish to turn. People in my constituency speak of little else. Clause 14 allows various things to take place where there seems to have been omissions and so on. Have you checked the 1998 Act to see whether there are any other omissions? By what process did this omission of Antarctica come to light? It's a fairly big place, and I would have thought that somebody in the Scotland Office would have noticed it.

  David Mundell: It was interesting that when it came to light there were people who immediately thought it should fall within the responsibilities of the Scottish Parliament, having never previously set out that concern. I know it's easy to be flippant about this matter, although I would never accuse you of such a thing—

  Chair: Very wise, if I may say so.

  David Mundell: It came to light because Edinburgh University wished to undertake a major expedition in Antarctica, and appropriate licences must be granted in relation to that. There are now obviously serious concerns about activities in areas like Antarctica, and that was the basis on which it came to light. There was to be legislation, which may still go forward in this Parliament, in relation to wider regulation of Antarctica and particularly drilling activities. It was clear that the position wasn't covered in the Scotland Act.

  Your second question is rather like the one raised on possible taxes. It is impossible to list areas that we don't know.

  Q663  Chair: This is the unknown unknowns.

  David Mundell: It is. If we were to bring forward a provision that said, "and everything else that no one has ever thought of before", we would suffer criticism. If there are areas that people—

  Q664  Chair: So there is nothing else you are aware of. If something else comes to light, how is it dealt with? If the Bill had gone through and wasn't a vehicle to deal with the Antarctica question, how would the next—

  David Mundell: There are procedures within the existing Scotland Act called section 30 orders, which allow for changes within the environment. There have been a number of significant changes between 1999 and the present day, and in my time in the Scottish Parliament, the most significant was in relation to railways and the regulation of that environment.

  Q665  Chair: So if this Bill had not been coming forward, there would have been another mechanism to deal with Antarctica?

  David Mundell: Indeed. There was a mechanism that was thought about in relation to Antarctica, but doing it in the Bill makes it much more straightforward.

  Chair: That is a great weight off everybody's mind, as I'm sure you will appreciate. We turn now to the question of the Crown Estate.

  Q666  Mr Reid: Several witnesses have criticised clause 18 on the Crown Estate. They describe it as deeply flawed and say that the whole Crown Estate should be devolved to the Scottish Parliament. What is your response to that?

  Michael Moore: First, following on from the principle that we were seeking to implement—the Calman report and its provisions—we believe we have done that faithfully in the provisions here. It looked at the issue and invited evidence, and there was a range of opinion—I will not dispute that—but in terms of a fully worked-up suggestion as to what you do with the Crown Estate, there was no consensus. Do you devolve the Scottish interests? Do you specify more clearly the governance arrangements and the requirements to consult and interact with the Scottish Government? There was a whole range of opinion on that but there wasn't a consensus when the commission was taking evidence.

  I have looked at it again because the Scotland Office has a direct interest in the Crown Estate, and I am very conscious that we ought to be more engaged. Since my appointment as Secretary of State, I have met with the Crown Estate formally three times, and I plan a further meeting with it in the near future, which will specifically focus on its activities on renewables. It gave evidence to the Scottish Parliament LCM Committee—I apologise that I do not know whether it has given direct evidence here. However, in my time dealing with the Crown Estate, it has shown a great willingness to make itself available to the Scottish Parliament and to present evidence on any issues that might be of concern to MSPs. It has considered establishing a memorandum of understanding with the Scottish Government. There have been discussions, although obviously I understand that the Scottish Government have different views on this.

  The Crown Estate is making strenuous efforts to ensure that it is accountable in Scotland, and I am making efforts as Minister to work very closely with it to ensure that it is focused on Scotland and its interests. I have now had two meetings with Justine Greening, who is the Treasury Minister with direct responsibility for the Crown Estate. We will have further discussions in the near future. However, I am satisfied that the provisions in the Bill reflect, first, what came from Calman and, secondly, our broader interests, and that we can make the Crown Estate continue to work well for Scotland.

  Q667  Mr Reid: A lot of the evidence that we have received is that coastal communities in some of the more remote parts of Scotland will want to carry out some developments—say harbour developments or perhaps renewable developments—but they feel that they have no stake in those developments because of the way that the Crown Estate operates currently. What is your response to that?

  Michael Moore: Because I have had plenty of representations from colleagues who represent coastal communities—more so than from those who represent landward areas—I am conscious that people in those coastal communities think, from time to time, that the Crown Estate has got that wrong. The Crown Estate needs to look very carefully at how it engages with those communities. My judgment so far is that, with a little bit of guidance and interest from Ministers and others, the Crown Estate can be perfectly pragmatic about some of these decisions. I have said to the Committee in the Scottish Parliament—I am happy to repeat it here—that we will reflect on all the evidence that comes to us and we will continue to keep the operation of the Crown Estate under active review.

  Q668  Mr Reid: There were recommendations in Calman that have not been taken forward. Why is that?

  Michael Moore: In terms of the power of direction, specifically?

  Mr Reid: Yes.

  Michael Moore: That issue was very seriously examined by the Treasury Committee in the previous Parliament. I know that a lot of evidence was gathered about the legal power, such as what the Secretary of State for Scotland can do to direct the Crown Estate's activities? We have revisited this issue since the election and the legal advice that we have had is that it is not feasible to distinguish between directly Scottish interests and the interests of the rest of the UK, and that the power of direction remains a kind of power of last resort if there are some very serious problems within the Crown Estate. The power of direction is not an invitation to the Secretary of State to micro-manage how the Crown Estate operates.

  However, I hope that I can give you an assurance. The engagement that I have had with the Crown Estate already and my commitment to maintain that level of engagement will give reassurance to you and others that I understand the importance of the Crown Estate in Scotland, and the Crown Estate ought to understand how seriously we as a Government take its activities in Scotland.

  Q669  Mr Reid: What message would you have for coastal communities? I am thinking in particular of Tiree, where there are plans for a large wind farm offshore, and there is fear within the community that their views do not count and that they will not be involved in the process in any way. What sort of assurance could you give a community like that?

  Michael Moore: I would be very surprised if the Crown Estate did not engage directly with the community, although I am not prejudging whether the community will be satisfied with the outcome of that engagement. However, I am very happy to discuss that issue further with you as necessary.

  Q670  Chair: It is fair to say that this is one of the proposed changes in the Bill that to some extent caught us unawares. I don't think that we were quite expecting the strength of opinion that has come forward on the Crown Estate, and that is probably true of Calman as well. Indeed, it admitted that when it was in front of us. I will perhaps seek some guidance from you, but the choice for us is whether we say something about what ought to be done in the Bill, or whether we get some sort of assurance from you that after the Bill has gone through there will be some ongoing dialogue about how this issue will be pursued with a greater degree of urgency. As I said, we don't want to let this go, given that so many people have raised so many good points about it with us, but we don't want unnecessarily to cover conflict about the Bill, because I'm not sure that it's actually the right vehicle for this. It's a convenient vehicle, but I'm not sure it's the right vehicle.

  I'm also not sure I agree entirely with your analysis of the power of direction as a nuclear option. I think that a power of direction, particularly in consultation with the Treasury, would become an immensely subtle element of your armoury to get a change in the practice and operation of the Crown Estate Commissioners, since you are renowned for your subtlety in these matters—[Interruption.] I'm sorry to hear you laugh at that. It seems to me that it's something we could discuss after the Bill, if that's acceptable to you.

  Michael Moore: I'm very happy to do that. I actually think the Crown Estate would welcome that too, because I sense some frustration that a lot of efforts that it has been making to engage, particularly in Scotland, haven't always necessarily been very obvious. But it is aware that not every community in Scotland is exactly thrilled by how it operates. There's lots of improvements that could be made to that. Obviously, it's your decision about whether you wish to cover it in this report or come back to it, but I'd be very happy to come back to this at some future stage.

  Fiona O'Donnell: That's a really good idea for a way forward. Can I suggest that the Committee should look at conducting a separate inquiry and taking evidence, given the strength of feeling that is out there? Otherwise, it's going to feel like they weren't listened to. We could assist the Secretary of State then in responding.

  Q671  Chair: Your enthusiasm for that would be total, would it?

  Michael Moore: Complete and utter.

  Q672  Chair: Don't overdo it, but thank you. That's very helpful. It probably is a more constructive way forward than some of the suggestions and proposals that we've had, and it would be longer term as well.

  Can I turn to the question of implementation of international obligations in clause 23? It has been pointed out to us that the necessity for the provision in clause 23 "is not clear, nor is it clear whether this measure is in fact proportionate to the problem which it purports to address". What's the point of this clause?

  David Mundell: It provides for UK Ministers to be able to make orders that Scottish Ministers could make in relation to matters before the Scottish Parliament and within its responsibility. It doesn't require them to make those orders.

  Q673  Chair: But what's the point? What's the need?

  David Mundell: There are circumstances where it may be more appropriate to proceed on a UK-wide basis than simply on the basis of individual orders within Scotland or here at Westminster. That's the purpose of it.

  Q674  Chair: Sorry, I don't understand that. What does that mean?

  Michael Moore: If there are international obligations placed on us by a European treaty, or other obligations we've taken on internationally, the UK, as the member state of the relevant organisation, is responsible for ensuring compliance within its borders. If the UK Government then pass the necessary implementation procedures here, that covers only England and Wales at present—sorry, England; I am not sure about Wales. It doesn't cover Scotland. In the gap between implementation for England and the Scottish Government Ministers covering this for Scotland, the UK is at risk of non-compliance. This is a facility to enable the UK Government to make the order for the whole country and implement it appropriately. Beyond that—

  Q675Chair: There is a paranoid tendency out there. Some are worried that this is an insidious intrusion into Scottish Parliament powers. Why is it necessary? Surely the Scottish Parliament wouldn't want to do something that would put it at risk anyway.

  Michael Moore: The Scottish Government are not the one at risk of non-compliance; it's the United Kingdom, which is the member of whatever organisation it is.

  Q676  Chair: So the Scottish Government could put the UK in danger of being enormously fined by the bad boys in the European Union and just sit back and enjoy it, and we would have to pay.

  Michael Moore: I would never accuse them of wishing to do that, but that, conceivably, would be the case. I have a very good technical example. The European Union Military Staff (Immunities and Privileges) Order 2009, S.I. No. 887, was made for England, Wales and Northern Ireland on 8 April 2009. The European Union Organisation for Astronomical Research in the Southern Hemisphere (Immunities and Privileges) Order 2009, S.I. No. 1748, was made for England, Wales and Northern Ireland on 8 July 2009. The Scottish equivalent—the International Organisations (Immunities and Privileges) (Scotland) Amendment Order 2010—was made on 11 May 2010, a long time after the original orders had been made for England, Wales and Northern Ireland.

  Q677  Chair: Why was that, then?

  Michael Moore: That is a matter for the Scottish Government, and they will have other priorities.

  Q678  Chair: What penalties would have followed from that?

  Michael Moore: You're trying to catch me out. The next page of the brief doesn't actually tell me that.

  Q679  Chair: I think we understand. So there is a clear understanding that there is nothing else behind this.

  Michael Moore: No, there isn't. I'm slightly at a loss to imagine what kind of evil thing the UK might wish to implement in Scotland.

  Q680  Chair: There is, as I've said before, a healthy—or unhealthy—degree of paranoia out there among some folk; they just look at something and assume the worst.

  Michael Moore: I hope those of that disposition are reassured by what I've said.

  Q681  Chair: I certainly hope that they would be, although there is no guarantee, of course.

  The final point I wanted to ask about was Government amendments to the Bill. Are any lined up at the moment, apart from technical things? We would not want to be having our sessions and discussing what you have come forward with only to find out that you had on the stocks a whole string of amendments to which we were not able to respond.

  Michael Moore: We have some technical amendments, which will be introduced as early as possible. The teams are working on that at present. The only substantive one is on section 57(2) of the Scotland Act, which is to do with the powers of the Lord Advocate and the way they are treated. As you will be aware, the Advocate-General consulted on that. That has yet to come forward, so that is one area.

  Q682  Chair: But my understanding is that the Scottish Government were willing to see a legislative consent motion on that come back after the election, so they were dealing with that as a different matter.

  Michael Moore: We made it clear in the Command Paper that this was still work in progress. We will make sure that—

  Q683  Chair: Right. I think we accept that, but there is nothing else?

  Michael Moore: Obviously, we await with interest your report and the report from the Scottish Parliament.

  Chair: Now that we are aware that you will generally accept our amendments, we will obviously put a great deal more effort into them than might otherwise have been the case. Do colleagues want to raise any other points? No? Okay, thank you very much. It's always a pleasure to see you before us.

  Michael Moore: Thank you very much.

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Prepared 21 March 2011