Subordinate Legislation
Non-Domestic Rate (Scotland) Order 2006 (SSI 2006/92)
Item 2 is subordinate legislation. For this item, we have with us the minister, George Lyon; Nikola Plunkett and Norman Macleod from the Scottish Executive; and Brian Monteith, who has lodged a motion to annul the Non-Domestic Rate (Scotland) Order 2006, which we will consider in due course.
Before we debate the motion, I give members an opportunity to ask any technical questions that they have for the minister or his officials. I will not ask the minister to make a speech at this stage because he will have the opportunity to do so in the formal debate.
I understand that the business rate poundage that is proposed for England is 43.3p, compared with the 44.9p that is specified in the order. What would be the effect on the budget if the order specified a poundage of 43.3p rather than 44.9p?
Nikola Plunkett (Scottish Executive Finance and Central Services Department):
To equalise the poundage would cost approximately £90 million.
That is the total cost of full equalisation in 2006-07 and 2007-08.
But the cost today would be half that sum. In other words, it would be £45 million.
It is costing us £90 million to halve the gap. It would cost us £180 million to equalise the poundage.
Is it the case that the total revenue from business rates is approximately £2 billion?
We estimate that it is about £1.9 billion.
That is based on the current rate poundage of 46.1p.
Yes.
So a cost of 1p would work out at approximately £42 million.
£1.9 billion is our estimate for 2006-07, but 46.1p is the poundage for 2005-06. That is the poundage that has just finished.
I will take your word for that. I thought that £1.951 billion was the forecast for 2005-06.
I do not have the forecast for 2005-06 with me, but I can confirm that in writing.
Anyway, you estimate that, to substitute the figure of 43.3p, which is the business rate poundage in England, for the figure of 44.9p, which is in the order, would cost an additional £90 million.
That is correct.
Will you clarify a couple of other technical points? The Scottish Executive is committed to introducing parity. My understanding is that, this year, the business rate for England was announced before the Scottish Executive announced the rate for Scotland. Is that correct?
I am not sure exactly when it was announced in England, but the poundage in England is tied to the September retail prices index. Once we know what the September RPI is, that gives us a way of calculating what we need to know. It usually becomes available in mid-October. I am not sure when England made a formal announcement.
I am trying to get to the point about parity. We started off with 46.1p and the poundage in England is 43.3p, so the difference is 2.8p, half of which is 1.4p. Have I got my sums right? The order proposes a change to 44.9p, which is a difference of 1.2p, so we are not actually going halfway in the current year. Is that correct?
What did you say the English poundage rate is?
My understanding is that the English poundage for 2006-07, which has already been announced, is 43.3p.
I think that it is 42.6p.
That is the figure that we have.
What did you say?
43.3p.
I think that that is the Welsh figure.
No, I think that that is 43.2p. That is my understanding.
The figures that we have are 42.6p for England and 43.2p for Wales. I think that you have got them mixed up.
If I have, I apologise. I will check that.
Will you clarify the timetabling? Who comes first, so to speak? In other words, how are you going to achieve parity next year, in terms of the relative announcements?
Once the September RPI figure is known, we will know what the English poundage is going to be, because England is tied to that through primary legislation. Unless it changes its primary legislation, we will know what the poundage figure will be in mid-October.
It will be predictable.
What would be the legal effect on the Executive's ability to raise its revenues of our not passing the order, as Mr Monteith recommends? Is there time for the Executive to lodge another order to achieve the objective and still raise the revenues required in the current year to finance services?
Are you referring to the parliamentary process?
Are you asking what would happen if the order was annulled?
If the order was annulled, would there be time for the Executive to lay an alternative order specifying a figure such as 43.3p in the pound, thereby guaranteeing the revenues that it requires, albeit that there would be £90 million less?
Are you talking about what would happen if the committee agreed to the motion in the name of Mr Monteith?
Yes. What would be the effect of our agreeing to the motion?
If the committee agreed to the motion, the decision would go to the full Parliament.
If the full Parliament adhered to the view of Mr Monteith and the committee, would there be sufficient time for the Executive to start the process again and raise all the requisite moneys, albeit that there would be £90 million less?
Norman Macleod (Scottish Executive Legal and Parliamentary Services):
It would be possible for us to make another order. The danger is that there could be a gap, which we would do our best to prevent.
But there is already a gap, because it is 18 April and the financial year started on 1 April.
The order came into effect on 1 April.
Sorry. The order is subject to annulment.
It is subject to annulment, so our view is that nothing that has happened in April would be affected.
If the Parliament annulled the order, the signal would be sent out that £1.9 billion would be stripped out of the local government settlement, unless we could make up the difference.
Are you saying that it would not be legally possible for the Executive to lay another order effective from 1 April to raise the same revenues, minus £90 million?
It is not possible to backdate the order. We could make another order setting out the same rate or a different rate.
But that would mean that from the period 1 April until whenever another order was approved there would be no business rate levy at all.
No. I do not think that the annulment of the order would have retrospective effect. The order is valid from 1 April until annulment. Anything done under it would be valid.
I understand that. I am asking whether if the Parliament agreed to annul the order, it would be possible for the Executive to bring back an order specifying a lower business rate, which would raise broadly the same revenues, minus the £90 million that we have discussed.
It would be possible to lay an order specifying a lower figure.
Which would be backdated to 1 April.
No. It would be effective from the date it was made.
Could it be adjusted to raise exactly the same amount of revenue, less £90 million?
Are you asking whether it could be adjusted to take into account the money that had not been raised? In that case the rate would have to be higher.
The rate would be higher for nine months, but it would be lower for the year overall. Is that correct?
If that was thought to be necessary, which I question. I think that our views differ on the effect of the order.
The question that I am trying to get answered, which I think is reasonable, is what would happen if Parliament did not accept the Executive's policy and said that the effective business rate in Scotland for 2006-07 should be 43.3p in the pound and that we should achieve the Executive's policy objective one year early. Is it legally possible to achieve that result?
It must be possible.
Good. In effect, the argument that we have to accept the order because we cannot achieve the alternative is not correct.
I think that it would send all the wrong signals to business, local government and—
Never mind the signals. Legally, would it be correct?
I am not a lawyer.
That is why I am asking a technical question.
At this point, we are just asking technical questions. It is not about which arguments are right or wrong.
Exactly. I am asking a technical question. Is it possible to achieve that objective legally?
In the event that the order were annulled, we could make another one that set a rate. The rate would, again, be determined by ministers and could be set to have a certain mathematical effect.
In other words, it could reduce the business rate bill for the overall year by £90 million, which would achieve the same effect as starting at 43.3p as opposed to—
Yes. That is not to say that an annulment would have no effect.
No, but it would achieve the same practical result in terms of what people would pay.
There would be a cost associated with having two different rates for the same financial year.
There would not be two; one of them would have been annulled.
Well, there are bound to be administrative impacts; however, that is a different issue.
Why? Because people have sent out the bills in the expectation of an order being approved? I think that we could stand the cost of the postage to save £90 million.
We are where we are for this year. However, looking ahead to future years, given the theoretical questions that Mr McLetchie has raised about the order being annulled, would it not be sensible for the instrument to be laid earlier in order that any issues can be addressed before the start of the financial year?
I accept that that is a possibility.
There is no reason why we could not have debated the motion earlier. You have indicated that you were aware of the English figure from mid-October last year. It would have been possible for the order to have been laid earlier.
Yes. It would have been possible to bring it forward.
I am not concerned so much about the cost as about the timescale. If we were to agree today to annul this Scottish statutory instrument, it would take a couple of weeks before the matter came before the Parliament for debate, unless it was scheduled in for next week. We would then be at the end of April, and the minister would have to lay another SSI before Parliament for a month. We would then be at the end of May before a new order could be brought into being. What would be the cost to local government of that two-month period?
It would be a sixth of £1.9 billion. The annulment would have the effect that moneys that were expected to be raised from 1 April would not be raised from then. The two-month delay would result in a cost of a sixth of £1.9 billion.
How is the money from business rates paid to local government—in what tranches and when?
The announcement on the local government settlement has already been made. The matter has been debated and the order has been laid and approved by Parliament. That is the Executive's commitment. The money is collected into a central pool and redistributed through the formula. If the order was annulled and we were unable to collect that money, we would have to either claw money back from local government or cut other budgets to make up the difference to local government. I am not sure how that would happen, but money would have to be found somewhere to make up the difference that would result from annulment of the order.
So something in the order of £300 million—a sixth of £1.9 billion—would be lost to local government over those two months.
Yes.
I have just been informed that the non-domestic rate for England is 43.3p and that the figure of 42.6p reflects an adjustment of 0.7p for small businesses.
That is the business rate supplement; only larger businesses pay 43.3p.
But we are talking about the standard rate.
That is right.
The standard rate in England is 43.3p.
No; that is for larger businesses. The standard rate in England for this year is 42.6p. Bigger businesses pay a supplement, but the standard rate is 42.6p.
So the small business reduction in England is not based on the same principle as our small business reduction. We normally regard small business rate relief as a deduction from the standard rate, but you seem to suggest that, in England, there is a standard rate with an add-on for bigger businesses.
I am trying to remember how the small business rate relief scheme operates in England. I know that 42.6p is the standard rate, so the amount that you are quoting must be with the supplement, which is for larger businesses only. Smaller businesses pay 42.6p.
So you are telling me that England has a larger-business addition and we have a smaller-business reduction.
Sorry, but I do not see what you mean.
What we call a standard rate is subject to a deduction for small business relief.
We do not reduce the poundage in Scotland for small businesses; we give them a certain percentage relief on their bill. Larger businesses in Scotland pay a supplement, which is 0.4p over the standard poundage, whereas small businesses have their rates bill reduced.
I am not wholly convinced about that, but we will come back to the matter once we have read the Official Report of the meeting.
Will the minister confirm that we are discussing the retention of a system that requires local authorities to administer the scheme completely? Is it the case that you give an instruction to local authorities, but they administer completely the collection and payment to the Scottish Executive and the Scottish Executive plays no role in the collection or other administration of the scheme? If so, is the Executive considering relocalising non-domestic rates in line with the Local Government Committee's recommendation in 2001?
You are correct that local authorities collect the rates. Ministers have no plans to give back to local authorities the power to make decisions on business rates.
In light of that, what is the estimated net loss to the city of Glasgow from the retention of the centralised scheme? How much, net, will the city of Glasgow lose, from what it pays in to what it gets out?
I do not have the details of all the backwards and forwards, but I can send that to you.
We can certainly furnish you with the information.
For the past few years, the figure has been more than £60 million. Do you estimate that it will be much less or more than that?
I cannot say.
It will be in line with that.
So you will send us the guesstimate.
Yes. It should be pointed out that we have introduced the city growth fund in response to concerns about councils' ability to raise business rates and spend. The scheme has been in place for the past two or three years and has been welcomed by the cities that qualify.
To be absolutely clear, do you admit that the city of Glasgow will lose out from the scheme in net terms?
Do you mean from the centralisation and redistribution of the rates?
Yes.
That has always been the case, just as other councils benefit from that redistribution.
I am asking about the city of Glasgow.
I understand that, but others have interests, too.
As there are no more questions, we will move on to the formal debate on motion S2M-4112, in the name of Brian Monteith.
I am glad to see from the questions that have been asked about technical matters that my motion has already provoked a great deal of interest. That was my purpose in lodging it. I feel as if I am leading the charge of the Light Brigade in as much as even if I win the arguments—take the cannons—I will undoubtedly lose any vote and be politically slaughtered.
I lodged the motion because I think that it is important to test the Executive's policy in a variety of ways. I am sure that it will be mentioned that a possible effect of agreeing to the motion would be a temporary or even a permanent loss of income that would result from the non-collection of non-domestic rates, which we commonly refer to as business rates. Even were my motion not to be agreed to—although I have no doubt that the full Parliament could agree to what I propose—I have no doubt that, as David McLetchie has been testing, it would be possible to introduce other arrangements.
I have lodged a similar motion in the past and I felt that it was important that I do so again. Some five years ago, Jack McConnell, who was then the Minister for Finance, abandoned the policy of having the same business rate as the rest of the United Kingdom and imposed a rate poundage on Scottish business that was just over 10 per cent higher than that in England. The differential has been roundabout that level ever since.
I welcome the Executive's proposal to close the gap over a two-year period and to achieve equalisation with England in April 2007. I think that the Executive is going in the right direction and I thank Nicol Stephen for prodding it along that path. However, it is too little, too late. Scottish firms have paid some £838 million more than their English counterparts since the Executive began setting the business rate. Even if full equalisation had been achieved this year rather than in 2007, Scottish firms would have been at a competitive disadvantage over the preceding period.
I will explain why the competitive disadvantage from which Scottish business suffers is not just theoretical. Scottish economic growth has consistently lagged behind that of the UK. As the Enterprise and Culture Committee reported last month, Scotland lags behind its UK and Organisation for Economic Co-operation and Development country competitors when its economic performance is measured against a number of key factors.
The Executive's figures on business start-ups show that, with a VAT registration rate that was 26 per cent below the UK average in 2002, Scotland was ninth out of 12 UK regions. According to the Executive's data on small and medium-sized enterprises becoming larger companies, in 2004 Scotland had only 12 firms with value added figures of between £250 million and £1 billion, which represents about 5 per cent of the total of 221 firms of that size in the UK. Last month, David Watt, who is the director of the Institute of Directors in Scotland said:
"If you look at our business start-up rate and our economic performance, it doesn't seem to be improving comparatively".
That word "comparatively" is important. He went on to say:
"The performance has not been what we all hoped for, if you look at the figures."
David Bell, who is a professor of economics at the University of Stirling, has calculated that the private sector in Scotland has grown by only 12.8 per cent since 1998, while the public sector has expanded by 19.3 per cent, which means that Scotland's private sector is stuck in the slow lane. According to an article in The Scotsman, Professor Bell's figures reveal that
"The public sector GVA has grown by 20.7 per cent in the UK and 19.3 per cent in Scotland. But the private sector has risen by 20.1 per cent in the UK, against just 12.8 per cent in Scotland."
There is not a great deal of difference between the figures for the public sector, but there is a significant difference between those for the private sector. Professor Bell said:
"The gap between rates of growth in the UK and in Scotland is almost entirely explained by the gap in performance of the private sector."
He warned that given the slow-down in the amount of money that Scotland will receive from the Treasury,
"future growth will be dependent on increasing the economic health of Scotland's private sector".
That is the kernel of my argument. We need to equalise business rates. Although I welcome the Executive's progress in that direction, I only wish that changes were being made immediately. We need to create a competitive advantage by reducing business rates. I know that this might be challenging to some committee members, but I would go so far as to say that we should have a programme to phase out business rates altogether. If the Parliament or this committee were to meet me even halfway, it would give Scottish businesses a significant competitive advantage because altering business rates is one of the only levers that this Parliament currently has at its disposal to help the economy.
Before we argue for control over more taxes, it is incumbent on politicians in the Scottish Parliament to look at what powers they have already and to start exercising them. It would be worth supporting my motion at least to take the debate into the full chamber where further debate can be had and the Executive's policy can be tested.
The technical matters that we discussed earlier could indeed have an effect on the budget. If I am fortunate and my motion succeeds, I will provide more detailed figures to explain how accommodations might be made. Other members could do the same so that we can have a full debate on how we could afford such changes.
There could of course be another effect—business growth in the private sector resulting in the creation of more businesses and more revenue from their taxes.
I put it to the committee that it is worth while to test the Executive's policy, to take this debate to the chamber and to analyse why we cannot at least have full equalisation in the current parliamentary year, and if not, to go further at a later date to create a greater competitive advantage.
I move,
That the Local Government and Transport Committee recommends that nothing further be done under the Non-Domestic Rate (Scotland) Order 2006 (SSI 2006/92).
I have no doubt that Mr Monteith's arguments have provoked a great deal of interest and I welcome the debate.
I will expand on the rationale behind the current poundage order. Few would challenge the proposition that the key to our future prosperity is a successful economy—Mr Monteith strongly supported that notion—populated by successful businesses that drive our economic growth.
It is interesting to note that independent forecasters monitored by the Executive predict at or above-trend growth in 2005 as a whole. The predictions for the current year are that we have drawn level with, if not done better than, the UK economy.
It is the Government's role to create the right conditions in which businesses can grow. Businesses have told us that the business rates that they pay can impact on their profitability and they have argued for a level playing field with their competitors south of the border.
We announced last year that from 1 April 2006, we would reduce by half the existing gap between the Scottish and English poundage rates and that we would close the gap completely from 1 April 2007. I welcome Brian Monteith's acknowledgement that that is a substantial step forward, albeit that we might disagree about the timescale. That measure not only equalises the poundage but delivers a significant competitive advantage to Scottish businesses because valuations in Scotland tend to be lower than those in England and Wales. Therefore, equalisation of the poundage rate will deliver competitive advantage to Scottish business, which we would all welcome.
Business organisations have publicly welcomed that announcement and the poundage set by the order fulfils our pledge and the expectations of business.
Mr Monteith raised concerns about the competitive position of business. If we look at total business tax revenues as a percentage of gross domestic product, 9.2 per cent of Scotland's GDP comes from business tax revenue, while countries such as Sweden, France and Finland report figures of 14.6 per cent, 15.1 per cent and 16.5 per cent. On the basis of the total business take, only the USA and Ireland have a competitive advantage. That is the appropriate measure of the competitiveness of the business environment in Scotland.
If Mr Monteith's motion were agreed to, it would damage Scotland. Businesses have based their business plans for 2006-07 on the provisional poundage rate of 44.9p. Agreeing to the motion would introduce uncertainty for the business community and local authorities. Action could be taken in Parliament to address the consequences of the motion, but only after a gap of at least two months, as Mr Crawford outlined. Councils have already issued rates bills for 2006-07 and any changes to the poundage rate would require them to issue revised bills to every non-domestic ratepayer.
If the motion were agreed to, the Parliament would debate the order. If the Parliament decided not to approve the order and no replacement order were made, local government would lose income in 2006-07 of about £1.9 billion. Local authorities would be unable to collect that amount and the Executive would be obliged to make up the shortfall through additional revenue support grant or to seek parliamentary approval for paying a reduced sum to our councils.
If the Executive made up the shortfall in full, we could do so only at the expense of other programmes. I will put that into perspective. We would have to cut national health service spending by one fifth, the budget for enterprise and lifelong learning by almost two thirds, or the entire transport budget. That is the scale of the budget readjustment that would be required.
On the other hand, if we sought parliamentary approval to pay councils a reduced sum, that would be broadly equivalent to closing half of all primary and secondary schools, spending nothing on social work—including community care—or wiping out the combined budgets of the police and fire services. That is the scale of the proposed changes.
To back his proposal, I suggest that Mr Monteith should identify where the cuts that he appears to seek should fall. That might give us a better idea of how he sees the way forward.
Given the fundamental weaknesses of Mr Monteith's motion, I hope that the committee will reject the motion and allow the order to be approved.
I oppose Mr Monteith's motion, not because of some of the arguments that we have heard, but because of the timing issue and local authorities' preparation for providing essential services. If the motion had been lodged earlier, it might have been given more consideration without the loss of essential moneys from local authorities.
It is unedifying to hear a Liberal minister discuss the centralisation of business rates and tell us that the Executive has no plans to relocalise business rates, although that is Liberal Democrat policy and despite the recommendations of the previous Local Government Committee's inquiry and of the Westminster local government inquiry. It is well past time to return to local authorities the power to set business rates. When opposing my Council Tax Abolition and Service Tax Introduction (Scotland) Bill, many members talked about the need to promote and retain local democracy, but they are more than silent about returning the setting of business rates to local democracy. A member's bill on that subject has been proposed and I hope that it will come to the committee.
I reject wholly the idea, presented by Brian Monteith and the minister, that business rates are somehow or other an essential element of competitiveness for business. I have seen no comprehensive evidence that business rates determine whether businesses locate themselves or are established in a local authority's area. Indeed, Mrs Thatcher's Government tried desperately to find evidence that business rates were such an influencing factor but had to conclude that an area's proximity to markets, level of public service provision and road and public transport networks were much more important than the business rates. That has to be borne in mind during this discussion.
I support Brian Monteith's motion. It is instructive that the minister's comments, which were financial scaremongering about the catastrophes that would befall us if the motion were approved, were obviously written before the answers that were given by his advisers today. That was particularly evident with regard to the answers to my questions, which established conclusively that it would be perfectly possible for the Parliament to put in place a mechanism for the levying and collection of non-domestic rates for the current financial year that would yield a total of no more than £90 million less than is currently posited on the basis of the figure that is in the order. Although the Scottish Executive and the Parliament might have to jump through the odd legal hoop to achieve that result, it is, nonetheless, a legal possibility. We should bear that in mind.
Regardless of whether it would cost the Scottish Executive £90 million or—as I believe—£70 million, the point is that we could achieve effective parity now. That would be a small price to pay, given the fact that, as Brian Monteith said, the business community has paid more than £800 million more in business rates than would have been the case had parity been maintained after 2000. With regard to the businesses that the minister said had based their business plans on paying more, I cannot imagine that they will shed many tears if they get a revised bill telling them that their costs for running their business in 2006-07 will be less than they thought that they would be. That is the sort of news that is welcome to businesses rather than being a source of anguish or a cause of complaints about having to tear up plans and start again.
Mr Lyon and Mr McCabe are working on plans that will deliver something in the order of £745 million to £900 million-worth of cash-releasing savings in 2007-08. I think that it is remarkable that we can, apparently, conjure up such savings in the next financial year but cannot produce £70 million or £90 million in this financial year in order to achieve parity now. It strikes me as incredible that not a penny can be saved for this purpose in 2005-06 but, all of a sudden in 2007-08, £745 million can be released like a financial cascade of bounty.
The argument about affordability does not stack up. There are more than enough resources to enable us to achieve effective parity now. The convener's questions drew out the fact that it would be far better if we were to debate the orders in January or February in the calendar of parliamentary activities rather than having to debate them in a belated fashion after the financial year has commenced.
What I have heard today leaves me in no doubt that the policy of having parity now is affordable and legally achievable and I believe that, therefore, the committee should support Mr Monteith's motion.
I support the Executive's attempts to get the business rate poundage down to parity. However, I also absolutely support the idea that we should be trying to ensure that we have an edge on our competitors, which means that we must bring the rate down below that which is in place in England and in other countries with which we compete.
I do not accept some of what Tommy Sheridan said. Although the effect might be marginal, I am pretty sure that lowering business rates would increase wealth. It would of course be useful to get more evidence on that.
It is a pity that even if, through lowering the rate, we did get the Scottish economy growing more, and if the taxes flowed in from all those businesses that were doing so well, we would not see any of the benefit in Scotland, given that it would not come to us through the Barnett formula, which would remain at the same level. It has always struck me that Scotland is a bit of a basket case in the sense that we can destroy our economy or grow our economy as much as we like, but we get roughly the same amount of money. It is affected only marginally by what happens in Scotland. A more radical step needs to be taken to grow the Scottish economy more successfully. That goes beyond the matter of business rates. Members would expect me to say this, but it is more a matter of the fiscal powers that are available to this institution to get the job done properly.
David McLetchie has spoken about odd legal loopholes being filled and the legislative action that is being carried out here to ensure that. That odd legal loophole would last for two months. David McLetchie will find that the SSI was laid at the beginning of March and came into force on 1 April. It took a month to get the SSI through. It is now almost the end of April and, by the time we get the instrument through this process, it will be almost the end of May. One sixth of £1.9 billion would be the real cost of the measure. The sum would be £316 million or thereabouts, if I have done my sums correctly. That is more than just an odd legal loophole that would have to be filled.
The Executive has offered one way to sort out the situation. It could also give local authorities the power to add a supplementary council tax element to fill the gap, but that would be at considerable cost to the council tax payer. If it wished, it could make alternative proposals, such as the one that the minister has suggested. Of course, if the instrument was annulled by the Parliament, the business poundage rate that would need to be brought in to fill the gap would be higher than it was when we started.
For 10 months.
Exactly—for 10 months. The overall sum might be the same, but the actual business poundage rate, which would need to be set to cover the gap for the two months, would become higher. That would be the only way to get the books to balance in the end. It is all well and good David McLetchie sitting there, shaking his head and agreeing with everything that Brian Monteith has said. Not being the leader of the Conservatives has obviously given him a bit more freedom; not being in the Tory party has given Brian Monteith even more freedom to suggest this ridiculous way of trying to run our country.
We might accept some of the principles of what those members want to do, but the mechanics that they propose to use would either put the council tax payer in severe jeopardy or result in services being cut all over the place. I hope that the Tory party is on the road to Damascus as far as this is concerned. To sort the matter out, the Scottish Parliament needs full fiscal powers to get the economy growing in a proper way and for us to benefit from that growth.
This committee and its predecessors since the creation of the Scottish Parliament in 1999 have examined local government finance on a number of occasions. We recently considered the potential consequences of Tommy Sheridan's Council Tax Abolition and Service Tax Introduction (Scotland) Bill. Regardless of all the points that have been made by Brian Monteith, David McLetchie and Tommy Sheridan, which are all legitimate issues for debate, concerning how we use businesses to help grow the economy, the one thing that has always emerged in our consideration of local government finance—aside from the labyrinthine ways in which formulas are concocted and funds are distributed—is the need for stability. Local authorities need to know how much money they will receive and when they will receive it, so they can maintain their services with a regular income. Businesses have also said that they require stability to plan ahead. They need stable interest rates, inflation and all the other things that people want to be as stable as possible. That is what we should be aiming to achieve.
I can understand Tommy Sheridan's wanting to turn things over, coming from the perspective of revolutionary socialism, but today's call for revolutionary conservatism takes us beyond anything that we have heard before. Never before have Conservatives come to the Local Government and Transport Committee intent on dismantling the stability that local authorities and local businesses will need in the next couple of years, no matter how we have debated the issue of local government finance. I never expected to hear politicians say at this committee that we should annul a non-domestic rates order and create economic and financial instability for local authorities and local business communities. For that reason, I will not support Brian Monteith's motion.
I will make a few brief comments. I will resist the temptation to get into a debate with Bruce Crawford about fiscal autonomy or fiscal freedom—or whatever he wants to call it this week. I am sure that we will debate that issue on some occasion in the chamber.
The sooner the better.
Mr Monteith was one of the leading advocates of the no-no campaign that did not want this Parliament in the first place, so it is astonishing that he now wants to push the Parliament's boundaries and abolish non-domestic rates. Even Margaret Thatcher's Government and, indeed, Michael Forsyth did not choose to take such action when they were in power. I appreciate that the official Conservative line, which Mr McLetchie expressed, is to have the same rate as that in England, but Mr Monteith made it clear that he wants a move towards the abolition of non-domestic rates altogether. The impact of that would be a substantial hole in the public finances that have to pay for much of the investment from which business as well as members of the public benefit, such as investment in transport infrastructure or the school and higher education systems. Another impact could be a transfer of the non-domestic rates burden from the business taxpayer to the individual council tax payer.
Mr Monteith did not make it entirely clear which of those possibilities he favours. Nonetheless, he seems to adhere to the position that what Scotland did not like about Thatcherism was that it did not get enough of it, so he advocates more Thatcherism as the solution. I suspect that if the Conservative party proposed such a solution it would not see a sudden resurrection in its performance at the polls that would take it beyond having only one single Scottish MP.
On the issues about the economy that Brian Monteith raised, many people in Scotland would not want to return to the days of Conservative rule and the difficulties that the economy suffered then. Currently, Scotland has high levels of economic activity, some of the most highly educated people in the European Union, low and stable interest rates and low and stable inflation. Many in the business community and many individuals in Scotland would have wished to see such factors during the period of Conservative rule, but sadly they were missing for that whole period. The current levels of employment were not even dreamed of or aimed for by the Conservative Governments—never mind achieved—during their period in power. I do not think, therefore, that we need lessons from Mr Monteith on how to run the economy.
Finally, I will respond to Tommy Sheridan's point about Glasgow losing out on the non-domestic rates front. It is important when we consider local government finance that we consider all contributions to it rather than only one element, such as non-domestic rates. Glasgow City Council receives the highest local authority funding per capita of any mainland council. That is right, given the social and economic challenges that the city of Glasgow faces. However, it is not right to focus on just one element of the contributions to Glasgow City Council's finances—the non-domestic rates element. If we took the purist approach that each local authority should obtain all its income from non-domestic rates and that there should be no balancing factor, some poor parts of Scotland would lose out considerably and some fairly wealthy parts would benefit considerably. I would not expect Mr Sheridan to want that sort of outcome.
We must consider local government finance in the round. Non-domestic rates and their contribution to local authorities' ability to regenerate and invest in their communities must be taken into account alongside central Government financing of local government and, indeed, the amount of money raised from council tax.
I will oppose Mr Monteith's motion because its intention is to try to destabilise the Government. In fact, it is a rather shoddy attempt to get headlines for Mr Monteith. I am sure that committee members will comprehensively reject his arguments when we come to a vote.
I will make just a couple of points. Mr Sheridan rejected the idea that business rates influence competitiveness. It is unfortunate that he has chosen to leave before we have got to the end of the debate. We all understood from his speech in the stage 1 debate on his Council Tax Abolition and Service Tax Introduction (Scotland) Bill that he is not worried at all about how many businesses shut up shop and leave the country. He said that he does not care. That says everything about his view of business and whether business rates add to their competitiveness or otherwise.
Mr McLetchie made a substantial speech, but my problem with it is that he spoke to a motion that he wished was before the committee, not the motion that is before the committee. Mr Monteith's motion is a motion to annul the order, not to reduce business rates or equalise them in one fell swoop. We are responding to that motion, which would result in the annulment of business rates. Although Mr McLetchie might try to say that there are all sorts of legal issues about retrieving the situation, the fact is that, if the motion is agreed to, business rates will be lost to the Executive and appropriate action will have to be taken.
Michael McMahon was correct to say that we should support the plans that the Executive has laid out well in advance, which create stability and certainty for local government and businesses, not confusion and uncertainty. If the committee were to support Mr Monteith's proposal, it would create confusion and uncertainty as to what the business rate would be for the forthcoming financial year and, on that basis, I ask committee members to reject his motion and support the Executive position.
I ask Brian Monteith to sum up and indicate whether he wishes to press or withdraw the motion.
I will press the motion and respond to a number of points that members have made. I will leave Tommy Sheridan's points to last in case he comes back, as I realise that he was called out by a note.
I respond first to an inaccurate comment by Bruce Crawford, which was essentially a cheap, political point-scoring argument that, because I am no longer in the Conservative party and David McLetchie is no longer the leader, neither of us has a particular interest in the matter. I point to the Official Report, which shows that I have taken an interest in the matter previously. Indeed, I brought before the committee a motion to annul a similar order in, I think, 2004 and forced the matter to the vote. The Scottish National Party member who was then on the committee voted against that motion based on arguments that were not about the economics but about the procedures, which did not seem to fit easily with his party's policies, just as the arguments that Bruce Crawford has made are a contortion of his party's policy. The fact is that I am proposing something for which I have argued consistently for a number of years. When I brought it before the committee in 2004 I was the Conservative finance spokesman, and I did so with the authority and approval of David McLetchie as leader. Therefore, my approach is entirely consistent, as is David McLetchie's, although I do not wish to put words in his mouth.
Michael McMahon commented on the stability of local government. That is an important issue and I do not wish to demean it, but the argument is false. We know that non-domestic rates are collected by local authorities, go to the Treasury and come back from there to the Scottish Executive in addition to the block grant. That is really where the relationship with local authorities ends, because we know that what local authorities receive bears no relation to what they raise in business rates. What is important to local authorities is the Scottish Executive's calculation of how much they should get, but that bears no relation to how much they raise. People want to make the comparison for the obvious reason that many MSPs and people in local authorities are concerned that there is a disparity between what local authorities raise and what they receive. Those people hark back—as Tommy Sheridan and no doubt others do—to the time when there was a clear link. That is a separate argument. If people believe that local authorities should collect domestic and non-domestic rates, fair enough, but the idea that the motion is about destabilising local authority finances is wrong. Were the money from non-domestic rates not to be available to the Scottish Executive, it would be for it to find a solution, which would not necessarily involve the funding that it presents to local authorities. The argument does not hold water.
The convener focused on my time as campaign manager for the no-no campaign. His point was rather facile, for the simple reason that on many occasions he has heard me say, both privately and publicly, that the Scottish people have crossed the Rubicon—the Parliament is here to stay—and he has heard me advocate greater powers for the Parliament. It does not hold water to say that it would be unexpected or hypocritical of me to propose that we should be able to vary or, indeed, abolish non-domestic rates. I am not alone in thinking that. People such as Professor Sir Donald MacKay, the former chairman of Scottish Enterprise who is often courted by the Executive and by others for economic advice, has written a number of papers advocating the phasing out of business rates. That is what I advocate: the phasing out of business rates over eight to 10 years—a period in which that could be gradually achieved. It is not such a revolutionary idea. It is about giving Scottish businesses a real advantage.
I come to Tommy Sheridan's points. First, the issue is not so much the timing of the motion as the timing of the order. That is beyond my control. My motion is timed according to the timing of the order. I am sure that members will appreciate that I would have lodged the motion if the order had been laid sooner. If the only thing that comes out of this meeting is that the committee is able to bring pressure to bear so that such orders are laid earlier, I will be pleased.
In turning to the minister's points, I shall take up Tommy Sheridan's point about competitiveness. I have three areas to pick up on, the first of which is affordability. It is clear that the minister's proposals—the ones that I have welcomed, half-hearted though they are—are being made possible by efficiency gains. I have no doubt that efficiency gains could be used to stretch them further. That argument has been put by David McLetchie. However, I point out—perhaps the committee has forgotten—that there were times when the projected income from non-domestic rates was less than what was taken. Was the non-domestic rate reduced the following year to return some moneys to business? No, it was not. The Scottish Executive pocketed the money and went on either to raise the non-domestic rate or to keep it as before. The idea that the Scottish Executive does not have the means to fund a greater cut in the non-domestic rate does not hold water. Equally, the valuation argument, which was previously used as a defence for having a higher non-domestic rate, is not an adequate argument for now cutting it.
Competitiveness is important. In the competitiveness tables, sponsored or published—I cannot remember which—by the Financial Times, I recollect that England is 16th and Scotland is 22nd. That means that when cross-border decisions have to be made, and employment law, taxes, the availability of graduates or a skilled workforce, and the infrastructure are equal—and they often are—other things, such as business overheads, come into play. I have never argued that rates are the main or the only factor, but they are a factor, so it is important that we give Scottish business a degree of competitiveness in that area.
It was interesting to hear the minister's international tax comparison figures. The two countries above Scotland are the United States of America and Ireland. We all know that the projected economic growth rates of those two countries are far higher than those of Scotland and the UK.
On competitiveness, I point out to members that the leader of the Liberal Democrats has pointed out that further cuts in non-domestic rates might be on the agenda. Recently, the Scottish National Party leader included the cutting of business rates to below parity in the plans for the first 100 days of a future SNP coalition government.
It never fails to tickle me that those who campaigned for the Parliament throw up their hands in horror when a member who was against it quite rightly uses parliamentary procedure to try to effect change. I support the Parliament's existence. It is important that we use its procedures, and those procedures allow us to make this change.
I have no doubt that even if my motion is passed by this committee, the Parliament will never pass it. For that reason, I appeal to members such as Bruce Crawford and Andrew Arbuckle to consider that it would be worth while taking the issue to the chamber, where a fuller discussion could be had of the merits and demerits of cutting rates.
Thank you. Mr Monteith indicated that he will press the motion.
The question is, that motion S2M-4112, in the name of Brian Monteith, be agreed to. Are we all agreed?
No.
There will be a division.
For
McLetchie, David (Edinburgh Pentlands) (Con)
Against
Arbuckle, Mr Andrew (Mid Scotland and Fife) (LD)
Crawford, Bruce (Mid Scotland and Fife) (SNP)
Jackson, Dr Sylvia (Stirling) (Lab)
Martin, Paul (Glasgow Springburn) (Lab)
McMahon, Michael (Hamilton North and Bellshill) (Lab)
Muldoon, Bristow (Livingston) (Lab)
The result of the division is: For 1, Against 6, Abstentions 0.
Motion disagreed to.
That will be reported in the committee's report to Parliament. I thank Mr Monteith for his attendance.
Transfer of Property, Rights and Liabilities from the Strathclyde Passenger Transport Authority and the Strathclyde Passenger Transport Executive to the West of Scotland Transport Partnership Order 2006 (SSI 2006/111)
Item 3 is consideration of three orders.
On the first order, no motion to annul has been lodged and no points have been raised by members or by the Subordinate Legislation Committee. Are we agreed that there is nothing to report on the order?
Members indicated agreement.
Strathclyde Passenger Transport Area (Variation) Order 2006 (SSI 2006/112)
As with the first order, no member has raised any points. The Subordinate Legislation Committee raised a point and there is an extract of its note with the order. No motion to annul has been lodged. Are we agreed that we have nothing to report?
Members indicated agreement.
National Bus Travel Concession Scheme for Older and Disabled Persons (Eligible Persons and Eligible Services) (Scotland) Order 2006 (SSI 2006/117)
No motion to annul has been lodged. The Subordinate Legislation Committee has not raised any points and no member has raised any points. Is it agreed that we have nothing to report on the order?
Members indicated agreement.