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Lord Renton: My Lords, if that is so, why not state it in the Bill?

Lord Sewel: My Lords, I shall come to that point later. It will be stated in the devolution Bill, but I shall come to the reason why it is not stated in this Bill. First, I wish to make it clear that we have said throughout that the powers to vary tax will relate to income tax. I do not believe that noble Lords opposite will be able to come forward with any contrary quotation from members of the Government. I am happy to repeat that and I hope that it clarifies the situation definitively.

Furthermore, that power will be to vary the basic rate of income tax set by the UK Parliament by up to 3p. That is an important constraint and an important factor. Liability for the varied tax rate will be determined by residence in Scotland. That is a second important factor. If that power were used, the resources available to the Scottish parliament would increase or decrease

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accordingly, as pointed out by the noble Lord, Lord Mackay of Ardbrecknish. I do not believe that there has ever been any secret about that.

Noble Lords opposite propose that the fact that the tax is income tax should be reflected in the Bill and I understand some of the arguments and intentions behind the amendment. However, not only is it unnecessary, but such an amendment, while appearing to offer precision and clarity, would actually deceive. The inclusion of the words "income tax" does not explain the Government's proposals in sufficient detail. The Government's proposals are limited to varying income tax by up to 3p. That is a variation of income tax paid by people in Scotland. If that range of explanation is not in the question, the statement "varying income tax" is a complete distortion. It removes two of the fundamentally important constraints around which the power to vary income tax is based.

We have adopted an approach which was well explained by my noble friend Lord Ewing. It is based on limiting the questions to the two matters of principle: "Do you want a Scottish parliament?"; "Do you want that parliament to have tax-varying powers?". We decided to adopt that approach for the reasons which my noble friend Lord Ewing identified.

Once we move away from principle into detail, we are not presenting the electorate with a question on the ballot paper; we are presenting it with an essay. It would go on and on, spelling out the precise detail of the composition and powers of the proposed Scottish parliament. It would spell out the precise limitations and reservations on tax varying. As I said in Committee, there would be a ballot paper which looks more like the ballot paper used in elections in the United States of America which go on and on. That is not the way forward. We must have simple, clear propositions of principle.

Let us return to the point made by the noble Lord, Lord Mackay of Ardbrecknish, that somehow lurking in the political undergrowth of Scotland or this Government--not that this Government have a political undergrowth--there is some deeply worked-out, conceived plot that at a certain time in the future we shall hold up a piece of paper which says, "Ah, the Scottish electorate voted for tax-varying powers. Okay boys, we will extend them. We will give them a whole raft of different tax-varying powers".

The way to deal with that particular question is to look at the ballot paper because the ballot paper, as contained in the schedule, refers specifically to the Government's proposals which are the proposals upon which the electorate, in the referendum, is being invited to vote. The Government's proposals in the White Paper will spell out their proposals in relation to income tax and the limitation to 3p. That is what the Government's proposals are all about. That is why it is unnecessary to have a spurious degree of detail in the question. But more important, that alleged detail will deceive and lead to imprecision and lack of clarity.

The way forward is to stick to the two propositions of principle. Assuming a positive outcome in the referendum, the details of how such a power will operate will be contained in the main devolution legislation.

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Details about the tax-varying powers, the 3 pence in the pound variation and how it will operate, will be embedded obviously and necessarily in the main legislation. Therefore, there is no need for spurious amendments at this stage. On reflection, I hope that the noble Lord will withdraw the amendment.

Lord Mackay of Ardbrecknish: My Lords, the longer the noble Lord, Lord Sewel, went on, the less I thought that my amendment was spurious. Indeed, as the debate went on, it became clear that the amendment is far from spurious.

Half way through, the noble Lord, Lord Ewing of Kirkford, intervened and asked me why I should select only taxation for a special position in the referendum. I have not chosen the questions for the referendum; I have not chosen a referendum; I have not even chosen that policy. That is the Government's policy and those are the Government's questions. They are not my questions at all.

I do not believe that there is a particularly compelling reason for having a second question. If the first question encompasses the whole of the White Paper, it seems to me that we do not need a second question.

The noble Lord, Lord Ewing of Kirkford, knows more about the referendum issue than most of your Lordships. I was intrigued by what I thought was his attempt to rewrite history. He said that the reason for the second question is because of some scare story by Sir Bruce Pattullo, the Governor of the Bank of Scotland, about the damage in relation to varying or increasing income tax.

Lord Ewing of Kirkford: My Lords, just before the noble Lord winds down his misleading path, perhaps I may clarify matters. The point that I was making was in relation not to the second question at all but in relation to the noble Lord's amendment. He latched on to Bruce Pattullo's coat-tails and I was hoping to prise him off them before he goes any further down that road.

Lord Mackay of Ardbrecknish: My Lords, I am always glad of enlightenment and an indication that my understanding was not correct. I shall read the noble Lord's speech with some interest because I was sure that he was referring to the general question. But if he says it was only about my small addition to the general question, that saves the noble Lord being reminded that the volte face on having a referendum was performed by the Labour party in June 1996 and brought about the resignation of the noble Lord, Lord Ewing, from the joint convenorship or chairmanship of the Scottish Constitutional Convention. However, I should say to the noble Lord that I did not devise my amendment with Sir Bruce Pattullo's speech in mind, but that is an added argument to my case for looking specifically at what those tax-varying powers should be.

The noble Lord, Lord Sewel, should have listened--and I hope did listen--carefully to two of his noble friends and one noble Lord on the Cross-Benches who put forward the proposition, which is sensible in its own argument, that if tax-varying powers are given to a Parliament, why should that be limited to income tax? The noble Lord, Lord Monson, from the Cross Benches

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pointed out correctly that in Delaware and Rhode Island it is possible to do a good deal more than that; and asked why the Scottish Parliament should be any different.

The noble Lords, Lord Desai and Lord Peston, both distinguished economists, put forward an argument which, if this parliament comes about, the people in it will hear from Scottish economists, although none will hope to be as distinguished as the noble Lords, Lord Desai and Lord Peston, especially the noble Lord, Lord Desai. He had some interesting views on the economic policy of his own party when it was in opposition and very positive views on the economic policy of the then government. However, I shall be rebuked for straying from the narrow point in relation to the questions in the referendum.

The noble Lord, Lord Desai, rightly drew to the attention of the House the question as to whether this parliament should be tied down as to the kind of tax it is permitted to raise. He put forward the proposition that the broader the tax-raising base, the better. I believe that I have heard the noble Lord, Lord Desai, on that subject on a number of occasions in the UK context and I am not surprised that he made it in this context.

I assure the noble Lord, Lord Peston, that I still oppose devolution. I hope that the parliament does not have tax-raising powers because I believe, like Sir Bruce Pattullo, that it would be damaging to the Scottish economy and that it would put up taxes in Scotland. Frankly, I do not believe for a moment that the parliament would ever put the taxes down because I read the Scottish press and I see a litany of the words "under-funded" this and "under-funded" that and so on. Therefore, I believe that those of us who live in Scotland will have to face an increasing tax burden.

The noble Lord, Lord Peston, pointed out that the correct tax to raise may not be income tax. To some extent, the noble Lord, Lord Peston, and his noble friend Lord Desai have let the cat out of the bag and are endorsing my argument that if you have a parliament with tax raising powers, there may well be an argument that that should include a lot more than the variation of income tax. Therefore, I do not believe that the noble Lord, Lord Sewel, was helped in that regard by the interventions of his two noble friends. Nevertheless, what they said should carry a lot of weight when it comes to the general proposition as to why that question is drawn so broadly when the noble Lord, Lord Sewel, is so determined in his contributions both today and in Committee to define it very narrowly.

In Committee he said that the only tax varying powers that the Government have in mind for a Scottish Parliament relate to income tax, and that it would be confined to 3p in the pound. He seems to be worried that the insertion of the word "income" would still make it too broadly based. Therefore, I have devised another amendment and, if the noble Lord indicates that he would accept the amendment on Third Reading, I shall happily withdraw my amendment this afternoon and bring forward a different amendment on Third Reading. The question would then read:

    "I agree that a Scottish Parliament should have the power to vary the basic rate of income tax upwards or downwards by up to 3p in the pound".

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That is not dissimilar from the amendment tabled by the noble and learned Lord, Lord Simon of Glaisdale, who unfortunately cannot be here today but who indicated that had he been here, he would have been keen to discuss those issues. I grant your Lordships the fact that that amendment would add a few words, but it would not add significantly more words to the question than appear in the Welsh question, where, of course, the words are doubled because they are set out in both English and Welsh. So the Minister's argument is not a very good one. I had hoped that the noble Lord would indicate his willingness to accept that amendment on Third Reading, but, unfortunately, I see that he is not willing to do so.

I return, therefore, to my main point. I do not see why the words "income tax" should not be clear to the electorate in Scotland, myself included. It should be clear that people are voting for or against income tax being varied, and only income tax. Indeed, that could make a huge difference to the votes of people who do not pay income tax and who may be happy to vote for increasing income tax, but who would not be happy to vote for an increase in excise duty or VAT.

I am trying to be helpful to the Government in helping them honour their election pledges. They are having some difficulty in Scotland because everyone thought that there would be no tolls on Skye Bridge after the new dawn had come on 2nd May; but there are still tolls on that bridge. Moreover, no one thought that there would be any private prisons, but there are to be such prisons. I return again to the manifesto--I have almost reached the stage where I can remember it off by heart because I am so often reminded of it--which refers to law-making powers,

    "including defined and limited financial powers to vary revenue".

As the question stands, I submit that it is very widely defined and that it certainly is not limited. It is not limited as to the scope of the kind of tax which may be imposed. I suggest that my word added to the question would improve the definition and the limitation of that financial power. It would, therefore, help the party opposite to fulfil their manifesto commitments. In that spirit, I should like to test the opinion of the House.

5.2 p.m.

On Question, Whether the said amendment (No. 4) shall be agreed to?

Their Lordships divided: Contents, 149; Not-Contents, 132.

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