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Mrs. Margaret Ewing (Moray): What would happen if the Scottish Parliament decided to comply with EU directives where the United Kingdom had applied for derogation? That is very important for many Scottish industries.
Mr. Dewar: That is ingenious. I would want to write to the hon. Lady about that. [Interruption.] Well, this is a serious debate. I do not know whether that is possible. I can think of precedents, but I would want to check them. I think it is possible to have derogation for an area within a member state, but before I say something that could be quoted against me--quite fairly--I should like to check.
It is important that we recognise the virtue of fiscal powers in a situation such as this. In tiers of government--whether it is local or central Government--there are powers to vary the revenue, and that seems right for the Scottish Parliament. We were influenced in this by the Conservative party's attacks on the "constitutional irresponsibility" of a body that did not have such powers, at least on the margins. I say that, because I ought to make it clear that the powers we are suggesting are comparatively modest, as against the block-and-formula arrangements for allocating on an agreed basis the resources of the United Kingdom to Scotland. I accept that that is an interesting and testing process.
We have added to the process the right to reduce or increase income tax at the basic rate by up to 3p in the pound, producing a levy at current terms of a maximum of about £450 million. That seems to me to be right, because it asks the Scottish Parliament to face real financial choices and makes it, in a sense, more directly accountable to the people it represents. The important point is that we are trusting the people of Scotland to make choices on their own behalf. After all, Scots elected to the UK Parliament and to local government are trusted in that way, and the new Parliament should be as well.
We have built in two specific safeguards with which the House will be familiar. First, income from savings and dividends will not be affected by the tax-varying powers. We were influenced heavily in reaching that decision by the need to have a level playing field for the financial services industry in Scotland, which is particularly important in insurance and pensions. Secondly, if the Parliament's power to raise the £450 million--which will be index-linked to preserve its real value--were eroded at some hypothetical future date by changes in the United Kingdom tax structure, an alternative base with the same sort of impact in terms of distribution would be provided by the Treasury.
It is important to recognise that the power may be used to deal with some special project or difficulty. I do not expect that it would simply be added to the block- and-formula sum that is negotiated as a continuously available additional revenue support. I believe that that would constitute a misuse of the power--although, of course, it would be a matter for the Scottish Parliament. The power must be seen in the context of the United Kingdom direct taxation system as a whole. Moreover, I am advised by the Treasury that, of those who currently pay tax in Scotland, 29 per cent. would not have been affected if it had applied this year. That 29 per cent. consists of those with the lowest incomes in the tax system.
Mr. Gerald Howarth (Aldershot):
While the Secretary of State is on the subject of the tax-raising powers and the revenue of £450 million, will he explain something in the White Paper? Paragraph 7.13 states:
Mr. Dewar:
It would not represent more than 3p in the pound. I can imagine the hon. Gentleman attacking me with some vim and vigour on the ground that, at some stage, the basic rate might contract and become so narrow that no significant revenue could be raised. He produced his question as if it were a trick question that I was trying to avoid, but, in fact, I have spent quite a bit of the last few minutes referring to the possibility, and explaining why we had built the machinery into the system. If the hon. Gentleman thinks about it, he will probably see that it is fair and reasonable.
Mr. Dalyell:
Mine is not a trick question. Yesterday in the House, I asked:
Mr. Dewar:
I know that my hon. Friend has been talking to Ernst and--[Hon. Members: "Young."] Ernst and Young--a small accountancy firm that has an office in Glasgow.
Since my hon. Friend first raised the point, I have checked the figures again. The exemption of savings income is almost de minimis. It does not raise very much, but an alternative arrangement would greatly complicate the system and cause the difficulties in relation to the financial services industry to which I have already referred. I am assured by the Inland Revenue that, on the basis of the 1997-98 figures, it is satisfied that £450 million would be the proper figure. I am talking about the use of the power at its maximum. There is a tendency to assume that it will always be used at its maximum, but that is not necessarily true. Indeed, the power may not be used at all in any given year.
I believe that our White Paper tackles many tough issues. We have tried to face up to some of the fundamental criticisms of the 1978 package. I have been talking about the powers, but other issues have prompted controversy and difficulty over the years. One, obviously, is the electoral system.
Saturday was a rather unusual day for me. I left Glasgow at about 11 am after some engagements, and returned to Glasgow at 9 pm via Stornoway and Kirkwall. That was almost certainly the only day in my life when I shall do that. I did it because it is important to recognise that Scotland is a different community with many facets. In 1979, the voting patterns in the referendum were different.
I was glad of the opportunity to go to the Western Isles and Orkney to discuss some of the problems with the people there. I was able to tell them that the proportional voting system that we advocate should mean that all strands of opinion will be fairly represented, not just in the north-east and in the highlands but in the central belt, where minority opinion has sometimes found it difficult to make a breakthrough. That is controversial in terms of my party and its short-term interests, but with a new start, it is right to tackle the issue. We did not shirk tackling it.
The reasoning that I have outlined also applies to Westminster representation, although I do not wish to expand on that. When the restriction, which has artificially boosted the number of Scottish Members above the population ratio, is removed, the boundary commission will look at the matter. That examination will be subject to the geographical and community tie arguments, which are currently part of the statutory criteria.
We have also tackled the problem of consent, which was again mentioned a few days ago by Conservative Members. I understand the force of the statement that we cannot say why people vote in general elections. Right, let us face that and have a referendum. We shall have a hard-working and perhaps an occasionally nervous summer, but the issue will be settled and a decisive yes on both counts will enable us to go forward with authority and added impetus.
Mr. Jonathan Sayeed (Mid-Bedfordshire):
Will the right hon. Gentleman give way?
Mr. Dewar:
Perhaps the hon. Gentleman will let me finish this point.
I should like to draw attention--I almost said "pay tribute", but that could get me into trouble throughout the House--to the interview with the Leader of the Opposition on "The World This Weekend" on 27 July, in which the right hon. Gentleman dealt significantly with the issue. At times the interview was somewhat confused, but I imply no criticism, because I have great sympathy for people who find themselves at the wrong end of an issue that has been made awkward by what has been said with great virulence for months or years.
The tone of the interview was important. Speaking about the people of Scotland and Wales, the right hon. Gentleman said:
I and, I think, many Scottish voters were worried that the issue could become a political punchball and that, if the Conservatives were elected on a national swing in four or five years, they would, as a matter of prejudiced policy, simply dismantle the Parliament on the basis of the evidence of the moment. The Leader of the Opposition has laid that fear to rest. In a way, he is giving enormous legitimacy to the referendum by saying that, if people vote yes, the Opposition, and presumably a Conservative Government elected under his leadership, will recognise that that must be worked with.
"It is of course possible that future changes to the UK income tax structure might reduce the value of the product of the Scottish Parliament's tax-varying power. In these circumstances, the Parliament's ability to raise or forgo up to £450 million through the tax system will be preserved."
Does that mean that, if taxation in the United Kingdom--led by a Conservative Government--went down, the Scottish Parliament would still be able to levy £450 million on the Scottish people, which could well represent more than 3p in the pound?
"If the tax produces only £250 million, what happens then?"--[Official Report, 30 July 1997; Vol. 299, c. 374.]
As was explained by the accountants Ernst and Young, the £450 million figure given by the Treasury was calculated on the basis of earned income and saved income. As I understand that we are dealing only with earned income, the amount could be very much less than £450 million. Will there not be a problem in making good the shortfall?
"If they vote for it in the referendum then they will get a Scottish Parliament and a Welsh Assembly and we will have to respect that for the future . . . if it's clearly stated we will listen to it. If the public approve that idea in the referendum then we are not going to be able to say and we might want to say . . . we can get rid of these things in a few years time".
That is an important decision by the Leader of the Opposition. He says that he will give some stability to the system and a fair run. I do not suggest that that is set in concrete and that it can never be altered or improved.
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