Scotland Bill

My Lords, I support the amendment of my noble friend Lord Forsyth. Like him, I am concerned about the constitutional aspect of it. Here is part of a structure to set out a tax-levying power within the Scotland Bill which represents an abrogation by the United Kingdom Government of their obligation to promote financial stability, efficiency and good government across the whole of the United Kingdom. Of course, it is one thing to devolve a tax-raising power to a specific area, as is contained in the Bill; I have my own views about that, which I will say a little about in this context. However, it is also the duty of the United Kingdom Government to ensure that the policies which they espouse and the priorities that they hold for the good financial and economic government of the kingdom should be as capable of implementation in Scotland as in the rest of the United Kingdom. The capacity of any Government of any complexion to fulfil other, broader financial and economic obligations against the background of the impact of the tax provisions specifically contained in the Bill is seriously jeopardised. I see the whole Bill as a Trojan horse. I think that the commission and those who prepared the Bill and brought it forward were, perhaps, not fully aware of the potential damaging impact on the Scottish economy. It will create major challenges. I raised a couple earlier in the passage of the Bill, at Second Reading and again in Committee. The first is the situation affecting the tax base. The Scottish tax base will be smaller and weaker than the tax base on which provision for Scottish expenditure is currently based. Scotland's economy has a higher proportion of company failures and a lower proportion of company formation. It has a smaller and weaker entrepreneurial class. It has a higher proportion of public sector employment. All these points have been made already, but they have to be made again because they feed into this problem of lower growth and expansion and a weakening private sector. However, it is on that weakening and small private sector, relative to the rest of the United Kingdom, that the impost of the 10 per cent tax rises will fall. The study to which I referred earlier showed that the United Kingdom public expenditure base had expanded by 94 per cent in the previous 10 years, while the Scottish tax base, which will form the basis of this 10 per cent tax, had expanded by only 48 per cent. That may not be continued at the present time when the Government's public expenditure programme is much more disciplined, but what will happen in a future Parliament, in future circumstances, when the economy nationally—by which I mean across the United Kingdom and, indeed, in the world at large—is expanding and once more on an efficient growth track? That is when the divergence will reappear. At that stage, of course, if Scotland were separate from the United Kingdom, the added burdens of dependency on a volatile oil price and reducing oil production, which are now generally agreed to be likely for the next few years, would come to bear. The 10 per cent tax rate would have to take a massive degree of strain. This is where the gearing feature comes into it, just as we have seen with local government taxation where the bulk of funding comes from the United Kingdom Exchequer and only a small proportion is raised locally by local councils. So, if a local council wants to make a 2 per cent increase in spending, it would have to increase taxation by a multiple of that, perhaps a large multiple. I remember the referendum that took place in Quebec about 10 years ago. When I was in Toronto last year, it was pointed out to me that, although the referendum to separate Quebec from the rest of Canada failed, the economy of Quebec went into a grey, dismal period from which it has not yet emerged. I was even told that the Bank of Montreal had moved its headquarters to Toronto in Ontario. That is an example of the kind of problem that we may face. We talk about the importance of inward investment but, against this kind of background, in the future we will have to talk about the loss of existing companies from Scotland—outward investment. Where will the major Scottish companies choose to locate against the background of the economic troubles that will develop within Scotland? Where will the Royal Bank of Scotland choose to locate? Where will Standard Life go? These companies have 95 per cent or 98 per cent of their business outside Scotland, and they will be thinking very carefully about their future taxation residence. Corporation tax, which the Scottish Administration at present claim they want to reduce, is already coming down very sharply. It is 24 per cent now and there is a plan to reduce it further. If the Scottish economy in a separate Scotland were to try not only to keep up with but to exceed that, it would find that the Laffer curve does not work as efficiently as might be hoped in an economy that is otherwise deeply strained, and that it faced a race to the bottom. It would be extremely difficult and very serious. The danger there is that, against the background of this Bill and these tax provisions within it, people in Scotland would demand further taxation concessions, and so one more step down what we used to call the slippery slope but is now called the continuing process of devolution would take place. It is not devolution that is a continuing process—it is separation. The salami slicing of Scotland's place as an equal partner in the United Kingdom is taking place. The Government should give an answer as to why, against that background, they have put these tax provisions in the Bill without contemplating the effect they will have in reality. I have not had an answer to the questions I raised earlier; my noble friend Lord Forsyth also raised them. I see that we are privileged to have my noble friend Lord Sassoon from the Treasury in his place. I hope that he may be able to enlighten us or, if nothing else, admit that there is a problem and say, ““We accept it and we regret it but we have abrogated our position as Her Majesty Treasury for the United Kingdom””. I support the amendment.