Lord Forsyth demands new Holyrood referendum

Published on Monday 27 December 2010 18:12

A REFERENDUM could be held on plans to hand massive new tax-raising powers to the Scottish Parliament, as critics warn that the "botched" reforms are being swept in by politicians without any regard for their "damaging" impact on the economy.

• Put this taxing question to the Scottish people urges Forsyth, pictured

Former Scottish secretary Lord Forysth of Drumlean is to table amendments in the House of Lords for a nationwide Scottish referendum on the so-called "Calman" reforms, on the grounds the public has a democratic right to decide whether to transfer powers over income tax from MPs to MSPs.

In a fierce critique of the handling of the bill by the Conservative/Liberal Democrat coalition, the Tory peer says the reforms would trigger numerous unintended consequences, including a flight of businesses fearing higher tax rates north of the Border and a potential collapse in Scotland's block grant.

He says the reforms belong to "the Walter Mitty school of politics", warning that support for the plans among the three unionist parties - Labour, Tories and Lib Dems - has led to a fatal lack of scrutiny or public debate.

"In my experience of politics, where there is a consensus, it always leads to chaos," he said.

Lord Forsyth says there is a clear principle for a referendum on the plans, pointing to the 1997 referendum question which asked whether the country wanted to hand MSPs power to vary income tax, subsequently set at plus or minus 3p on the basic rate.

The new plans are far wider, allowing MSPs to keep income tax 10p lower than the rest of the UK or to raise it by as much as they like.

The row centres on reforms recommended by the independent committee led by Sir Ken Calman, which have formed the detail of the Scotland Act published by the UK government in November.

Under the plans, a new Scottish rate of income tax will be created 10p below the UK rate. The sum to which it equates will be removed from Scotland's 30 billion block grant.

MSPs will then be able to use their own top-up rate of income tax to fill the hole by as much or as little as they choose. The idea is to ensure responsibility for income tax rates are split between Holyrood and Westminster.

Lord Forsyth, who coined the phrase "Tartan Tax" to describe the earlier powers, said: "When the bill comes before the Lords, I will table an amendment that requires them to have a referendum on the tax-raising powers.

"I think if you are going to do something like that, those in favour have to put their case."

• The Key Points to note

• Lord Forsyth: Thatcherite who rose through the Tory ranks

He went on: "This is being pushed by a handful of MSPs who don't even have the support of their back-benches in some cases. It seems to me that if they are having a referendum on AV, then they can't argue that this isn't an important issue.

"I don't know how you could argue against it. The principle was previously established to have a referendum on the Tartan Tax. What was granted in 1997 was the power to vary the basic rate of tax by 3p in the pound.

What is being proposed here is the right to set the basic rate of tax and the rate of tax at the higher rate, and also the right to set stamp duty.

"That is a huge extension, and if it was right for the modest tax-raising powers to be put to a referendum, then it must be right that there is a referendum on these powers as well."Critics of the bill say that, just as so-called "non-doms" - those not resident in the UK - escape UK tax, so higher rates of income tax could see people and businesses leave Scotland for other parts of the UK.

Lord Forysth said the reforms would also lead inevitably to the ending of the Barnett Formula, the 30-year-old method of setting public spending in Scotland, which has historically produced higher-than-average sums for north of the Border.

He said: "I think (Chief Secretary to the Treasury] Danny Alexander has walked straight into a Treasury trap.

"For as long as I can remember, the Treasury has wanted to get to a position where they can replace Barnett and move to a system based on need. As Scottish secretary, we were briefed up to the eyeballs not to ever contemplate moving to a system based on need because it would mean a huge reduction in the Scottish budget.

"The idea that you could cut the income tax rate in Scotland then people wouldn't start questioning Barnett is ridiculous."

Lord Forsyth said his Conservative colleagues, along with the Lib Dems and Labour, were also helping the SNP's cause for independence. "Politically, I think they are creating an opportunity for the SNP," he said. "The SNP quite rightly argues that you can't just limit it to income tax and stamp duty if you want to manage the economy.

"You can't play golf with just one club. You need to set corporation tax and others. But that is called independence and it is surprising that the unionist parties are going down that road."

He added: "It is a botched scheme that would not work and which will be very damaging and, faced with the SNP saying the answer is full fiscal autonomy, that will be very hard to argue against when you have conceded the principle.

"The right political response to the Nationalists was to call their bluff on the referendum.

"This is the Walter Mitty school of politics. I was no advocate for the Scottish Parliament, but I really do think people are entitled to expect a bit more in terms of strategic thinking, in terms of long-term policy.

"The fact that the three unionist parties all seem certain that it is the right thing to do ensures that there is no argument."

A spokesman for the Scotland Office said: "The creation of the Scottish Parliament and the ability to vary income tax have already been endorsed by the Scottish people in a referendum.There is no need for a second referendum.

"The Scotland Bill will enhance the financial accountability of Holyrood, making sure MSPs raise more of the money they spend."

If they choose to use their new powers in such a way that does cause business to flee, then they will have to bear the consequences of that.