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Mrs. Laing: Once again, I agree with the remarks of the hon. Member for Linlithgow (Mr. Dalyell). He has made some serious points tonight that are often overlooked in the public debate about the Bill. He referred, in particular, to the difficulties of delineation and the problems arising from it. It is an understatement to say that the confusion and conflict that the problems will create are a lawyer's paradise. I know many lawyers, both north and south of the border, who must be rubbing their hands with glee at the thought of the business that will come their way in the next few years.

We begin to suspect that the Government have no wish to clear up the confusion in the Bill. We offer clarity through our amendments. The Bill would become clearer if the Government accepted the amendments. However, they will not, so we must assume that they wish to preserve the conflicts and the uncertainties that we have pointed out time and again.

This warning has been issued many times: if the conflicts that exist on the face of the Bill are not resolved, the Scottish people will not get what they voted for in September. They voted for a limited amount of devolution and a little variance on tax. If the conflicts are not solved now and the Bill is not clarified, devolution will not work. If devolution does not work, the Scottish people will get what Scottish National party Members want them to have: a separate Parliament and a separate Scotland. The Government have been warned about that time and again, but they constantly ignore our warnings.

Mr. Prior: It is likely that, in the not-too-distant future, a Budget will raise thresholds for paying basic rate income tax, so that the tax base in Scotland will fall. If it falls from £450 million to £350 million, for example, the Westminster Parliament will have to decide whether to extend the tax base in Scotland--that will be a clear example of the problem of delineation that the hon. Member for Linlithgow (Mr. Dalyell) mentioned. Until delineation between the two Parliaments is sorted out, problems over taxation will continue each year.

Mr. McLeish: It would be helpful to remind Conservative Members in particular of the intention behind the clause--to provide protection from the erosion of the tax base. Conservative Members have claimed that the clause is imprecise, but it is important to be flexible in these

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matters. We cannot be precise, as the future shape of the United Kingdom tax structure, in the context of which any change to present arrangements would be made, is not known. Any changes would be to the income tax system, not to any other form of taxation; they would maintain, as far as possible, the tax's current distributional effects--the same people will pay roughly the same amount of tax as they will under the proposals in clause 72.

It may also help if I briefly outline how what I regard as the fall-back power in clause 72 will work. The clause falls into two parts. Subsections (1) and (2) set out the process whereby any fall-back power would be introduced. In effect, what will happen in most foreseeable circumstances is that, first, the Treasury would internally develop a proposal to change UK tax arrangements. Secondly, if the Treasury assessed that that would significantly reduce or increase the Scottish tax take, it would, if it thought it necessary, again draw up internally proposals for changing the Bill's powers.

Thirdly, when the UK tax changes became public on Budget day or possibly in a Green Budget, the Treasury would be obliged, as soon as reasonably practicable, to lay before the House in a statement whether it believed that the Scottish power needed to be changed and what the changes, if any, should be.

In practice, the Treasury would be expected to consult the Scottish Executive before laying revised proposals before the House as soon as was reasonably practicable. Once a proposal had been laid before the House, it would be incorporated into the Finance Bill as an amendment to the Scotland Bill's powers.

Subsections (3) to (7) set parameters to any revised power--in effect, that roughly the same people should pay roughly the same amount of income tax as they would under the power that is currently proposed. Once any new power had been implemented, the Scottish Parliament would either stick with any tax resolution that it had already made under its formal powers or make a new in-year resolution under the new power.

Of course, we should note that the new power would need to include provision allowing an in-year resolution to be made in these circumstances. Under clause 70, such an in-year resolution would be considered.

I understand from the Conservative party's hostility to the referendum result in favour of a Scottish Parliament that it will exaggerate and distort; it can never regard an issue such as the one covered by the clause as simple and straightforward.

Mr. John Hayes (South Holland and The Deepings): Will the Minister give way?

Mr. McLeish: I shall not give way just now.

I respect what my hon. Friend the Member for Linlithgow (Mr. Dalyell) said; it was principled, and he, at least, has been consistent in his opposition over many years. However, on this and other clauses, the Opposition have tried to hide behind a smokescreen of distortions and exaggerated claims about a lawyer's paradise; in fact, their basic hostility creeps through on every possible occasion.

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The Committee's objective is to scrutinise the Bill and it is, of course, acceptable for hon. Members to make political points. However, let us not pretend that those are the same things.

Dr. Fox: Under the Bill, as drafted, would it be possible for the Treasury to increase Scottish tax-raising powers by more than 3p in the pound?

9.30 pm

Mr. McLeish: I repeat that the key purpose of the provision is to protect the tax take. It does not need a great deal of imagination or intellect to appreciate what that is. The Bill, which will become an Act, will have the ability to raise or lower the basic rate of income tax by 3p. In future, however, changes made by any Government or any Treasury could have an impact on the tax take. The clause provides an important fall-back mechanism for the Westminster-based Parliament and the Treasury to ensure that the level of tax take that we try to build into the Bill is taken forward in subsequent years. That is straightforward and common sense.

There must be flexibility, and that is provided by a fall-back power. Where would flexibility lie if the Chancellor of the Exchequer, in this place, changed the basic tax system? A fall-back power is essential because it will protect the Parliament, the tax take and the integrity of the tax-varying power. In addition, it will protect the taxpayer.

Mr. Gerald Howarth: Does not the clause and everything that the Minister has said confirm that we are talking about tax-raising powers? We are not talking about tax-varying powers. The clause, and the Bill in general, is geared towards increasing the tax burden on the Scottish people. Will the Minister not come clean about that?

It is not only the hon. Member for Linlithgow (Mr. Dalyell) who has principles about these issues. It is the duty of the Committee to point out to the Minister the practical consequences of what could arise for the Scottish people, as drawn from a detailed study of the Bill.

Mr. McLeish: With great respect, that is complete and utter nonsense. The situation has been well discussed in Scotland, in the publication of the White Paper, in the referendum and in the publication of the Bill. It is interesting that the Conservative party used to help the business community through some of its difficulties. Nowadays, however, only the Conservative Opposition see the perceived dangers--they make them up as they go along--as we consider the Bill in Committee.

Mr. Hayes: Will the Minister give way?

Mr. McLeish: No. I am not giving way at this stage.

No self-respecting Parliament with a working tax- varying power could avoid a fall-back position. That having been said, I shall deal with the specific amendments.

Mr. Dalyell: Neither my hon. Friend the Minister nor I is a tax lawyer. Rather than asking my hon. Friend to answer the question that I posed on cumulative accumulation of tax, may I suggest that a tax expert from

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the Scottish Office gets together with Martin Jones of Maclay Murray and Spens and the Law Society's tax committee to sort out this issue? I suggest that my hon. Friend writes to us or returns to the House with a closer definition on Report.

Mr. McLeish: Inland Revenue and Scottish Office officials are in consultation with many groups about the rules and duties that will be taken on board through the tax-varying power. I take my hon. Friend's suggestion on board, but consultation is taking place.

The group of amendments is concerned with what,for convenience, I shall term the fall-back power. Amendments Nos. 381 and 409 would remove from the Treasury the duty to start taking steps to consider a replacement tax-varying power in circumstances where it was obvious that it should be doing so. The circumstances in question would be where it looked likely that a major change to the UK tax structure was likely to be enacted, but, for some reason, that had not been formally proposed or published by the Treasury or Inland Revenue. Thus, for example, the Treasury would not be under an obligation to act when, as has happened, the Government accepted an amendment to income tax provisions during the passage of a Finance Bill, but had not formally proposed or published the policy enshrined in that amendment. That would plainly be absurd, and I hope that the amendments will be withdrawn.

The purpose behind amendment No. 382 is to put a figure on the trigger for clause 72 coming into play. The Bill as drafted leaves that undefined; this is deliberate. If we were to determine a particular figure, whether a 5 per cent. increase or decrease in potential tax take, or some other figure, that could easily trigger the clause when it was in the interests of nobody to trigger it. Alternatively, it could deprive the Scottish Parliament of an important opportunity to enter negotiations with the UK Government.

I simply do not accept arguments that a lack of definition will lead to conflict. Of course, there may have to be negotiation in particular circumstances, and I have no doubt that those negotiations may sometimes be tough, but I would argue that is a much more stable and mature arrangement than sticking an arbitrary, non-negotiable statutory marker in the ground. Therefore, I do not accept the need for the amendment.

Amendments Nos. 384 and 385 bring those of us who are accustomed to the work of Standing Committees on to familiar territory--the respective merits of a requirement to do something as soon as "reasonably practicable" or within a particular, specified time frame. Amendment No. 384 at least has the merit of making sense, although I do not accept that, in all circumstances, it would be desirable to require the Treasury to lay material before the House within a month of publishing or proposing a tax change. Amendment No. 385 should be rejected.

Amendments Nos. 387 and 390 are an attempt to provide that any replacement power should apply only to the basic rate of income tax. The deletion by amendment No. 390 of one of the particular conditions that any replacement tax would have to meet is, I assume, intended as being consequential, but that requirement is itself

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potentially completely unworkable. It is precisely for that reason that we have not limited the replacement power, but nevertheless have included the detailed provisions at clause 72(4) and (5) to ensure that, under any future power, broadly the same people would end up having broadly the same liability for the Scottish variable tax.

Amendments Nos. 392 and 393 are not acceptable. Amendment No. 392 seeks to put a precise figure on the tax that any replacement tax power should be capable of raising.

Amendment No. 393 attempts to provide relative precision in an area where a more broad-brush approach is the only practical way forward. The design of any replacement tax system will inevitably have to take into account a whole range of factors.

Amendment No. 396 strives for too great a degree of precision. The clause makes it quite clear that Parliament expects the effect of any new tax power generally to be broadly similar, as it affects individuals, to the power currently in the Bill. Again, precision is the enemy of the setting of sensible, workable parameters. The amendment should not be accepted.

Amendment No. 397 attempts to establish 5 per cent. parameters--this time on the effect of any replacement tax power on individuals' income after tax. Because of the way in which it has been drafted, it would prevent any new after-tax income level coming within 5 per cent. of previous levels. I suspect that that is not something any of us want.

This has proved to be a wide-ranging group of amendments, testing the fall-back power provisions. The Government's approach in relation to that power has been to put into statute the general framework of how any replacement power would be designed, in accordance with the undertakings that we gave in the White Paper. I am convinced that that is the right approach, given that we cannot begin to predict the specific circumstances in which the power will operate. Therefore, I ask the Committee not to accept the amendments.


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