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Lord Hoyle: My Lords, I beg to move that the House do now adjourn during pleasure until 8.45 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 8.43 to 8.45 p.m.]

Referendums (Scotland and Wales) Bill

House again in Committee on Clause 1.

Lord Mackay of Ardbrecknish moved Amendment No. 5:

Page 1, line 6, after ("and") insert ("income").

The noble Lord said: As a result of the amendment and the others grouped with it, the question will be related to the income tax-varying powers of a Scottish parliament. I shall be reasonably brief, but the history is interesting.

The final document of the Constitutional Convention was clear on the agreed position between the parties to that convention. I quote from the paragraphs headed, "Secure and stable finances". The document states:

As regards the variation of income tax, it states:

    "The Scottish parliament will have the power to increase or cut the basic rate of income tax for Scottish taxpayers by a maximum of 3p. in the pound. This will give it a greater degree of independence".

I am not entirely sure about that argument, but five lines further up the document states:

    "Scotland will no longer be directed by Scottish Office Ministers who lack popular support".

I wonder how that applies to the current incumbents of the Scottish Office. I would have thought that they had reasonable popular support. But, there you are, the powers that be obviously never thought for a minute that the party opposite would regain power. I thought that myself for a while, but you live and learn.

The basic point is that the Constitutional Convention was perfectly clear: increase or cut the basic rate of income tax for Scottish taxpayers. The Labour Party's manifesto, which about four weeks ago I was advised to keep beside my bed in order to know all the answers to all the questions, varied from that. It stated:

    "In the Scottish referendum we will seek separate endorsement of the proposal to create a parliament, and of the proposal to give it defined and limited financial power to vary revenue".

There is a bit of a difference between the position in the document of the Constitutional Convention, which was to vary the basic rate of income tax, and the manifesto of the party opposite, which was simply to vary revenue.

I do not know whether there is any significance in that. No doubt the noble Lord, Lord Sewel, will tell me whether or not there is. The noble Lord, Lord Ewing of

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Kirkford, in his intervention in a previous debate said that he was clear in his mind that if the Scottish parliament attempted to vary any tax other than income tax--I am not sure about that and may return to the question in a moment--that would be outside its powers. It would not be able to do it. If I heard the noble Lord, Lord Sewel, correctly, he made it clear that this proposal was solely about income tax. I see that he agrees with my memory about what he said. The proposal is solely about income tax.

Although this amendment may not be the proper place to explore it, there is a problem concerning the basic rate of income tax. There is a huge difference between varying the basic rate of income tax by plus or minus 3p and varying the 20p or the 40p rates of income tax. I wonder whether one of the problems attendant upon this issue, which I referred to earlier, as reported in The Scotsman by Mr. Peter MacMahon, is that the Treasury may be saying that they might not always have a basic rate of income tax. Given modern technology I have little doubt that it would be possible to have rates of income tax of 10p, 20p, 30p and 40p, let us say. Perhaps the Labour Party will go higher than that but I think they said in their manifesto that they would not. Therefore none of these rates would be defined, as we currently define the 23p rate, as the basic rate of income tax. I do not ask the question with any great expectation of an answer, but it would be interesting if the noble Lord, Lord Sewel, when he answers, would deal with this point. Perhaps, in the interests of open government, he will tell us whether or not this is a bit of a problem.

If you define powers relative to the basic rate of income tax, it becomes rather difficult if at some stage in the future the basic rate of income tax ceases to have any meaning because the rates have been changed. Also, if it is based on the basic rate of income tax it is pretty regressive, because only a small portion of the Scottish electorate will be taxed. Obviously all taxpayers will pay 23 per cent. or above, but the tax will fall most heavily on those who only pay 23 per cent. Those who pay 40 per cent. will not have 3p added to their tax. Therefore, I should like to have confirmation as to the basic rate.

Turning to the purpose of my amendment, during the last debate in answer to the remarks of the noble and learned Lord, Lord Simon of Glaisdale, the Government Benches, both Front and Back, said that they were in no doubt that the tax was to be income tax and anybody who suspected that VAT or excise duty would be varied, or perhaps a property tax could be added to the existing council tax, or any other variation, was quite simply wrong and indulging in scare tactics. I would never do that, but I wonder why, if it is as clear cut as I am being told, the matter is not being put clearly.

I cannot believe that my amendment is not perfect so far as the parliamentary draftsmen are concerned. Even I could not get the drafting of an amendment of this degree of simplicity wrong, and so I hope that the noble Lord might remember what he said earlier in the debate and do what he has assured the Committee is the Government's intention: that is, only to have variation on income tax. I see no difficulty at all in the noble Lord accepting my amendment. It would certainly be the most

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amazingly pleasurable start to my brief time in opposition if I were to have an amendment accepted by the Government at this early stage. I beg to move.

The Earl of Balfour: My concern about income tax is that it is a tax based upon where you are employed, as against, say, council tax, which has to do with one's home. I am not an expert on taxes, and in fact I employ an accountant to look after my tax affairs and have never attempted to do that myself. For example, I was for a while employed by an English company and my tax returns went to the office close to Bishop Auckland in County Durham. What concerns me to some extent is that, if we are talking about income tax, I would have thought it would be fairly easy for many companies to move their registered office to England and perhaps avoid paying some of the tax. Equally, if a person is domiciled in England but working for a Scottish company whose registered office is in Scotland, are they not likely to pay Scottish income tax rather than English income tax? That is one of my concerns. I quite realise there is going to be an income tax.

Also there is the question of corporation tax. Does that come into the calculation? As I understand it, the basic rate of income tax is 23 per cent. whereas corporation tax is about 40 per cent. These are the sorts of problems which concern me as a Scot domiciled in Scotland. I may be wrong, but I have always felt that your tax was based on your place of employment and not necessarily on where you live. That is one of the things that worries me about the tax-varying powers, particularly in connection with income tax.

Lord Sewel: I do not intend to repeat the points I made in reply to the debate on the earlier amendment, but perhaps I could take up a couple of the points raised by the noble Lord, Lord Mackay of Ardbrecknish, and the noble Earl, Lord Balfour. Let me make it absolutely clear that we will obviously be producing our details on taxation in the White Paper. The noble Lord, Lord Mackay, makes the point that we may move in time from the concept of a basic rate. I accept that is possible: the concept may actually evolve and disappear. That is why we are taking time to make sure that the White Paper is sufficiently detailed to cover this sort of point and that is why I am not being as detailed and explicit as in some cases the noble Lord, Lord Mackay, wishes me to be at this time. These are matters which need a degree of thought and precision built into them.

As to whether the tax will be raised on the place of work or the place of residence, I have to say that all the thinking is in terms of place of residence. Where you live will actually determine whether you are liable to the additional power of the Parliament. These amendments, like those we discussed earlier, are intended to clarify the nature of the tax-varying powers of the Scottish parliament upon which the electorate will be invited to vote in the referendum. The purpose is to change the reference from tax-varying powers to refer specifically to income tax.

During the Second Reading debate my noble friend Lord Williams of Mostyn assured the noble Earl, Lord Lindsay, that the only tax-varying power that the

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Government have in mind for a Scottish parliament relates to income tax and that it would be confined to 3p in the pound. That is the point I tried to make clear in my reply to the earlier debate. The noble Lord, Lord Mackay, and also the noble Lady, Lady Saltoun, proposed that this should be reflected in the Bill. While I fully understand and appreciate the intention behind these amendments, I do not believe they are necessary. Like the group of amendments that we considered earlier, they fundamentally misunderstand the process whereby our proposals for tax-varying powers will be enacted.

As I have already explained, the proposition to be put to the people in Scotland in the referendum is one of principle and principle alone: should a Scottish parliament have tax-varying powers? In responding to that proposition, I should stress that voters will have the benefit of the White Paper which will set out our proposals fully and clearly, including our detailed proposals on how the tax-varying powers may operate. I believe that that covers the point made by the noble Lord, Lord Mackay.

As I said earlier, the combination of the clear statement of principle in the propositions in the ballot paper, together with a clear reference in the preamble to the Government's proposals (also detailed on the ballot paper) and the details of our proposals as set out in the White Paper is, in our view, a fair and sensible way to proceed.

I return to the point that I made earlier. It is not the detail upon which the people will be voting; it is the principle. Assuming a positive outcome to the referendum--and I do not have the slightest doubt about that--the details of how such a power will operate will be contained in the main devolution legislation. Therefore, there is no possibility of a Scottish parliament somehow abrogating to itself additional powers to tax. Indeed, that will be defined and limited in the Bill which sets up the Scottish parliament. That legislation will be subject to full scrutiny both in this Chamber and another place. The noble Lord, Lord Mackay of Ardbrecknish, indicated that his amendment was a relatively small one. However, on this occasion I have to tell him that, although it may be small, it is not quite perfectly formed.

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