HC Deb 16 November 1998 vol 319 cc641-8

Lords amendment: No. 88, in page 27, leave out line 33

5.30 pm
The Minister for Home Affairs and Devolution, Scottish Office (Mr. Henry McLeish)

I beg to move, That this House agrees with the Lords in the said amendment.

Mr. Deputy Speaker (Mr. Michael J. Martin)

With this, it will be convenient to discuss Lords amendments Nos. 89 to 112, 180 to 183 and 291.

Mr. McLeish

The amendments deal with a range of matters concerning finance and the tax-varying power. The main areas covered are accounting arrangements for cross-border public authorities, the independence of the Auditor General for Scotland and financial arrangements for the Registers of Scotland. On the tax-varying powers, the group contains amendments that provide for the reimbursement of expenses involved in administration of the power and a revised definition of "Scottish taxpayer". The other amendments are technical.

The technical amendments ensure that references in the Bill to "enactment" include the Scotland Act itself. Amendments Nos. 88, 89, 99 and 101 cover that point. Amendments Nos. 88, 89 and 99 make consequential amendments to clauses 62, 63 and 66. Amendment No. 186, in an earlier group, provides that references to "enactment" include future enactments and subordinate legislation. Amendment No. 111 therefore removes a redundant provision in clause 75. Amendment No. 103 is partly consequential on the revised definition of "enactment". With amendment No. 96, it restructures and simplifies definitions in clause 66 about "Scottish legislation" and "other legislation".

Government amendments Nos. 90 to 93, 95 to 98, 100 to 102 and 104 are largely technical and designed to clarify the intention of the Bill. The main substantive point concerns cross-border public authorities, which may, by virtue of an order under clause 84, receive part of their income directly from the Scottish Consolidated Fund. In those cases, the Bill's current provisions could well mean dual accounting and dual auditing.

It may be sensible for such bodies to provide only one account with, if necessary, an apportionment to Scotland as well, of course, as the other parts of United Kingdom, and for that account to be audited only once by, for example, the Comptroller and Auditor General. Such an arrangement may suit the needs of both this Parliament and the Scottish Parliament, and could be put into place under clause 84. The effect of amendments Nos. 96, 97 and 98 is to make it clear that such agreed arrangements in relation to a cross-border public authority are not duplicated or superseded by the provision that the Parliament is required to make under clause 66.

The other amendments clarify the provisions on the Auditor General for Scotland and the competence of the Parliament to provide for the accountability of persons receiving sums derived from the Scottish Consolidated Fund, even where those sums are used for functions in relation to reserved matters.

Dr. Liam Fox (Woodspring)

It seems a very long time since we started this Bill. We have finally got to the final day, and I imagine that a couple of bottles may be broken open this evening. I look forward to the Minister's invitation, given the extortionate salaries that exist under this Government.

The Minister briefly alluded to amendments Nos. 90 and 93, which remove the term "independent" from auditors other than the Auditor General for Scotland who may be asked to examine expenditure made by the Scottish Executive or other public bodies in Scotland. Does that mean that an audit could be conducted in-house and so not independently of the Scottish Executive? I hate to bring a discordant note to the final day of the Bill, but the accounting methods of some Labour councils in Scotland have left much to be desired. We want an assurance that this is not simply a way of allowing previously independent procedures to be done in-house.

Amendment No. 91 removes the words or by the Scottish Ministers", when defining the functions of the Auditor General for Scotland in respect of investigating the economy, efficiency and effectiveness of spending by others paid out of the Consolidated Fund. In other words, those who are paid directly from it can be audited, but those who are paid from it via a Scottish Minister need not be. Why is such a watering down of the comprehensive range of powers available to the auditor necessary? This is a change from what was originally in the Bill. We have a right to ask why it is needed.

Will the Minister say more about amendments Nos. 106 to 108 on existing debt? Some parts of the Bill defy attempts to get to the bottom of the amendments. With the best will in the world, I require the Minister to make this clear so that we know what is intended.

It is a particular joy at the end of the Bill to be able to welcome amendments tabled by the Government. Amendments Nos. 109 and 110 on tax-varying powers fall into that category. We are delighted that the Government have accepted that there was a serious anomaly in the practical implementation of those powers. We welcome the U-turn because we welcome sinners who repent at any time, even on the final day of an 18-month marathon.

The amendments change the definition of what constitutes a day's residency in Scotland for tax purposes. In the original Bill, a person was deemed to be resident in Scotland for tax purposes if he was in Scotland at the beginning or end of the day. That would have resulted in an anomaly for someone who worked for a financial service company in Edinburgh and who lived there, but spent the week working in London, who got the plane to Heathrow on Monday morning, stayed in London during the week and flew back on Friday evening. Because he spent part of Monday and Friday in Scotland, he would have been deemed to have been in Scotland for four days of out of seven and so liable to pay tax. That was a ridiculous anomaly, and I am delighted that the Government decided to remove it. There are still anomalies in the tax definitions. Some of the most pertinent are in clause 71 and concern definitions of principal home, place of residence and main place of residence that have not been used before in United Kingdom tax legislation. What discussions has the Scottish Office had with the Treasury on those definitions? For example, an employee of a Scottish company who has a house in Edinburgh, but is seconded to London for a year where he stays in a rented flat would be considered a Scottish taxpayer because he has a principal home in Edinburgh even though he performs no employment duties in Scotland for an entire year. What constitutes a place under this legislation? That is not contained in UK tax law. Does it include hotel rooms, company flats, train compartments, the cabs of heavy goods vehicles or oil rigs? We would welcome clarification.

I would like the Minister to clarify two other points. Under the national tax rules relating to UK residents, anyone resident in the United Kingdom for any part of the year is resident for the whole year and liable to UK tax on the full income, even if he leaves the UK to live abroad for part of the year. By concession, the tax yield is split and income arising after departure is not in practice subject to tax. It is not clear whether the split-year concession will apply to Scottish tax if a Scottish taxpayer moves to England part way through the year.

The Minister mentioned cross-border authorities but on cross-border commuters, will a person who is resident in England who works in Scotland every day and returns home at night be not liable to Scottish tax because he will not have spent any days in Scotland according to the new definition? His work mates who live in Scotland will be liable. If English residents work night shifts, they will be liable to Scottish tax because technically they will be present in Scotland every day. How will those and other anomalies be ironed out? With some of the other problems that we mentioned earlier, they introduce unnecessarily discordant notes into an improved and rewritten part of the Bill.

Mr. Tam Dalyell (Linlithgow)

I know, as others do, that the Law Society has had discussions with the Scottish Office and its lawyers on the issue and range of definitions. May we have a brief assurance from my hon. Friend the Minister that the Law Society is reasonably satisfied—I cannot say completely satisfied because no one is ever completely satisfied on these matters—with the answers that have been given, or can we anticipate that there will be great difficulty in the courts when the matters come to be tested, as undoubtedly they will?

Mr. McLeish

Let me first deal with the point raised by my hon. Friend the Member for Linlithgow (Mr. Dalyell) about discussions with the Law Society of Scotland. The Law Society has been involved in every step of very productive discussions and is satisfied with the progress that is being made. However, as I shall explain to the hon. Member for Woodspring (Dr. Fox) in a moment, the discussions are on-going and the Law Society will continue to be involved. At present, the Law Society is satisfied and I can reassure my hon. Friend that any issues before the Confederation of British Industry, the Law Society and ourselves will continue to be discussed at every opportunity.

I now return to some of the main concerns that have been raised this evening. Amendments Nos. 90, 91, 92 and 93 concern the Auditor General for Scotland. Let me briefly explain their implications. Amendments Nos. 90 and 91 are consequential to amendments Nos. 95 and 92 respectively.

The amended subsection proposed in amendment No. 95 provides for the independence of persons appointed by the Auditor General for Scotland to undertake audits or value-for-money studies.

Amendment No. 92 is technical. It clarifies that the Parliament is able to legislate for the accounting and auditing arrangements of bodies receiving money indirectly from the Scottish Consolidated Fund. Such bodies might include non-departmental public bodies funded by a grant from the Scottish Ministers. This makes the words or by the Scottish Ministers in clause 66(2)(d) unnecessary. The Parliament should be able to make accounting and auditing provisions even if the bodies' functions include reserved matters.

That point is what the provision is intended to make clear. Clause 66 already makes it clear in relation to bodies such as the Scottish Ministers and the Lord Advocate, to whom sums are voted directly out of the Scottish Consolidated Fund, by requiring the Parliament to legislate for their accountability. Of course the Parliament can legislate to provide for the accountability of persons and bodies, whether or not they receive funds derived from the Scottish Consolidated Fund, where the funding of those persons and bodies is otherwise within the competence of the Parliament.

Amendment No. 93 clarifies that the Auditor General for Scotland will be an individual, natural person and cannot be a corporate body or even a group of individuals. While on its own, the amendment might seem to remove the requirement for the Auditor General to be independent, this very important requirement is now catered for in the new subsection (6) proposed in amendment No. 95. That should give the hon. Gentleman the reassurance that he requires about the absolute independence of the Auditor General.

Amendment No. 95 clarifies the independence of the Auditor General for Scotland and of persons appointed by him. The sole exception is that the new subsection (6A) of clause 66 would allow the Parliament to provide for the direction of the Auditor General in relation to the preparation of his own accounts. In other words, the Parliament could provide for the Auditor General's accounts to be prepared in a particular format and in a particular manner.

In all other respects, the Auditor General will be free from the direction and control of any Member either of the Parliament or of the Executive, and any persons appointed by him—for example, firms of accountants—will be similarly free of such direction or control when they are undertaking audit or value studies of the Executive or its subsidiary bodies.

The other points raised were in relation to amendments Nos. 105 to 108, which are also technical amendments. Their purpose is to allow provision to be made to ensure that the outstanding debt owed by the Registers of Scotland trading fund to the national loans fund is repaid after devolution when the Registers of Scotland becomes part of the Scottish Administration. For further clarification, the keeper of the Registers of Scotland is responsible for maintaining various registers, the main ones being the land register and register of sasines in which titles to land and other heritable property are registered. He exercises these functions through the Registers of Scotland Executive Agency which operates as a trading fund under the existing trading fund legislation. That legislation will cease to apply to the Registers of Scotland when it ceases to be a UK Government Department and becomes part of the Scottish Administration on devolution. This would leave the outstanding debt owed by the trading fund to the national loans fund somewhat in limbo.

The amendments will enable the Secretary of State to order that the existing debt which is deemed to be owed by the trading fund to the national loans fund should be treated as an advance from the Secretary of State to the Scottish Ministers. The amount is just over £5 million. The Scottish Ministers will have to continue to repay the debt on the existing terms and conditions; and the Secretary of State will pay the proceeds into the national loans fund. That will ensure that the outstanding debt can continue to be repaid to the fund. I am sure that that very simple clarification will suffice to answer the hon. Member for Woodspring.

Of course it will be for the Parliament to decide on the permanent financial regime for the Scottish Administration, including the Registers of Scotland, and the current review of the registers' operations will assist both them and the incoming Executive in doing so. In the transitional period, we want to ensure that the registers can continue to operate broadly as now.

5.45 pm

I now turn to the questions that the hon. Member for Woodspring asked about tax. Again, he was largely complimentary that the Government had clarified an important matter that was raised in the House previously. I also refer to a point that was raised by my hon. Friend the Member for Linlithgow.

There have been good discussions with representatives of the Law Society of Scotland, the Confederation of British Industry and the Institute of Chartered Accountants in Scotland. Following debate in Committee in another place, my noble Friend Lord Sewel, the Minister for Agriculture, gave undertakings to look again at the drafting of clause 71, and a useful meeting with the representatives of the three bodies concerned took place on 21 October. Proposals for basing the definition of a Scottish taxpayer on the concept of residence were discussed. While there were a number of differing views around the table, there was recognition that applying the concept of residence in this context could give rise to some very serious anomalies, which had been raised previously in the House.

There was, however, also a general acceptance that most of the difficult cases that had been identified could be removed or substantially diminished if the Government were to amend the definition of a "day spent in Scotland", so as to remove the double counting which can arise under the current provision in clause 71(4)(a).

That provision says that a day spent in Scotland means any day in which a person is in Scotland at the beginning or end of the day. It was pointed out that, for example, a lorry driver who spent 92 non-consecutive nights in Scotland in his cab could qualify as a Scottish taxpayer because of the double counting. I am pleased to say that the Government have listened to those concerns and amendments Nos. 109 and 110 address precisely this issue. They will ensure that if a person is in Scotland at midnight, he will only clock up one day spent in Scotland. Therefore, assuming that a person spends the entire year in the UK, he would have to spend 183 nights in Scotland before qualifying as a Scottish taxpayer. The three organisations involved were content with the amendments on the basis that they substantially address their concerns about clause 71 and I hope that the House will agree.

In reply to the hon. Gentleman's final points, the Scottish Office is working very closely with the Inland Revenue and the Treasury on tax powers, which will continue until the infrastructure is in place. Any outstanding issues will not only be discussed by the Scottish Office, the Treasury and the Inland Revenue, but will involve the organisations referred to by the hon. Member for Woodspring and by my hon. Friend the Member for Linlithgow. I hope that I have adequately responded to the concerns that have been expressed.

Dr. Fox

I am grateful to the Minister. On his final point, which is a matter of some concern, I raised three terms: principal home, place of residence and main place of residence. On-going discussions with the Treasury will have to be structured as any change in UK tax law in respect of those definitions will obviously have an impact on Scottish taxpayers for UK taxes. Is this one of the areas where the Government intend to have a concordat? Will there be a formal mechanism of discussion and if so when might we see it?

Mr. McLeish

The answer is, no, there will not be such a mechanism in respect of those issues. In the circumstances, I shall assure the hon. Gentleman first, that the discussions, both those between the Treasury, the Scottish Office and the Inland Revenue and those with the key organisations I have mentioned, are on-going; and, secondly, that I shall write to him and other Opposition leaders detailing the current state of play on the matters that have been raised. I am sure that the contents of that correspondence will reassure the House that everything possible is being done to ensure a smooth transition to the infrastructure required for the new tax-varying power.

Mrs. Eleanor Laing (Epping Forest)

May I ask the Minister for further clarification on a few points? Amendments Nos. 90 and 93 relate to the audit of expenditure by the Scottish Executive. I am sure that the Minister will agree that it is an extremely important point of principle that the Auditor General and anyone carrying out an audit should not only be independent, but be seen to be independent. In answer to my hon. Friend the Member for Woodspring (Dr. Fox), the Minister said that he considered that those matters were dealt with in amendment No. 95 and new subsection (6), but I do not think that they clarify the point. Therefore, I ask the Minister for an assurance that independence is assured for anyone who carries out an audit in those terms.

On amendment No. 106 and the question of who pays for the general register of sasines and the land register, is the Minister saying that it will certainly be the Scottish taxpayer who pays directly, rather than the matter being paid for out of national taxation; or is the effect of his answer that they will still be paid for out of national taxation, but accounted for in a different way so that they appear to be taken account of in the Scottish block?

On amendments Nos. 109 and 110, it is good to see that the Government have taken account of some of the points that Conservative Members have insisted are anomalous since the beginning of the Bill's passage. Many matters have caused us to be concerned that, subsequent to the enactment of the legislation, the Parliament would be unable to operate because of the in-built anomalies. I hope that the Minister will pay tribute to the work done in another place, where the anomalies have been smoothed out. Many times when we raised such anomalies in this place, the Government ignored us. I hope that the Minister will commend the work of the other place, which has been extremely valuable, although I do not expect him to go so far as to say that he hopes that the other place will continue in its present form. If the work had not been done in the other place, the Bill would not work.

Mr. Deputy Speaker

Order. I did not want to stop the hon. Lady while she was in full flow, but I should point out that we are discussing Lords amendments, not the Bill in its entirety.

Mr. Robert Syms (Poole)

I intend to make only a brief speech, dealing mainly with amendments Nos. 109 and 110. I welcome the amendments, because they clarify points raised in earlier debates. I was interested in the Minister's comments about a person having to be in Scotland for 183 days at midnight before qualifying for taxation. How are tax inspectors to police that provision? In addition, Deloitte and Touche has raised a point about split-year concessions, which are possible under United Kingdom tax law. How would that be applied to Scotland? The clarification provided by amendments Nos. 109 and 110 is welcome because the Bill contained major problems.

To re-emphasise what my hon. Friend the Member for Epping Forest (Mrs. Laing) said about audit, I am a little worried about the term "independent" being removed, because its presence would strengthen the power of an auditor. To remove it might well weaken the hand of the person doing the audit and strengthen that of the Executive. I am therefore a little wary of amendments Nos. 90 to 93, and I should like a little more reassurance from the Minister.

Mr. McLeish

On the last point, the hon. Gentleman has my total reassurance. As the note in my hand says—it is more generous than the official advice—the removal of the word "independent" is an illusion. Amendment No. 95 covers it entirely.

The members of the consultative steering group have been determined to build on the auditing procedures used in this House. Hon. Members will find that a combination of the legislation, which is tough, and the work of the steering group, which is putting flesh on the bones, satisfies them that the issues are being taken seriously. Independence means independence. I hope that that also covers the first point raised by the hon. Member for Epping Forest (Mrs. Laing). The amendments are technical, but the main principle behind them is not a technicality—independence must be guaranteed.

The adjustment in respect of the register is, in a sense, a technical one in terms of debt and the loan fund. The important point is that fees pay for the whole amount, so it does not fall as a burden either on the taxpayers of England, Wales and Northern Ireland, or on those of Scotland. That should clarify the hon. Lady's point.

The other issues raised relate to amendments Nos. 109 and 110. The amendments have clarified and helped to resolve a problem that was troubling many hon. Members, which is why the Government took it seriously. On the other hand, many of the comments made about taxation have been unnecessary—to describe them as distorted or exaggerated would be going too far. They have been taken care of in the discussions with the Inland Revenue, the Treasury and the expert organisations to which I referred. We do not foresee any problems arising, because we have a great body of UK tax legislation and the experts are working with the Scottish Office to ensure a smooth transition from the current position to the implementation of the tax-varying power, if the Parliament decides to use it after the elections on 6 May.

Lords amendment agreed to.

Lords amendments Nos. 89 to 112 agreed to [some with Special Entry].

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