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Lord Campbell of Croy: My Lords, I thank the Minister for giving way. The White Paper which was published only a week ago uses the words "operate on income tax". What the White Paper does not say is that the tax-varying power would, for central government

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taxation, be confined to income tax. It just says that it "should operate on". That wording does not reflect what has been said on the Government Benches.

Lord Sewel: My Lords, in all honesty, I do not understand the distinction that the noble Lord is trying to make. It is:

    "operate on the income tax system".
It is as simple as that. We have no hidden agenda. We are being straight, honest and clear over this. The chapter goes on to describe in some detail how the system would operate; the amount by which tax could be varied; who would be liable to pay it; what would happen in the event of the UK income tax structure changing in future. We have argued consistently that the questions to be put to the people should be at a level of principle, backed up by the detail contained in the White Paper.

If we add the word "income" why not also include the 3p in the pound limit; or the definition of who should pay the tax? We could keep on adding qualifications until the questions on the ballot paper ended up half a page long. Similarly, we are not asking on the ballot paper whether the Scottish parliament should have powers in Scotland over the health service, social work, housing or any of the other areas set out in the White Paper. The points put to the people of Scotland, through the questions on the ballot paper, are the simple issues of principle that are then backed up and illustrated through the details contained in the White Paper itself.

I accept that a balance has to be struck between keeping the question simple and giving voters enough detail so that they are clear as to what they are voting for. We believe that our original wording is right. The tax-varying power is a sufficiently important aspect of the powers of the parliament to warrant a separate question, but it is not necessary to specify every aspect of the powers in question. That is done by and through the White Paper.

To add the word "income" would create a false sense of precision, because it is limited. There are other factors that go beyond income in terms of the level of the income tax; what is and what is not covered in terms of savings and dividends; and who is liable to pay it. The referendum in Scotland will seek consent for the Government's proposals for a Scottish parliament with tax-varying powers. The people of Scotland will well understand what they are being asked to approve.

Moved, That the House do not insist on their Amendment No. 2 to which the Commons have disagreed for their reason numbered 2A.--(Lord Sewel.)

Lord Mackay of Ardbrecknish: My Lords, that argument was just about as pathetic as the argument on the first amendment, just as the reasons given by the Commons are pretty pathetic:

    "Because it is desirable to keep the questions to be asked in the referendum as simple as possible".
Having said that, I agree with the Minister that we should agree with the Commons. I recommend that to the Government. However I shall explain the true

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reason. It is that if we put "income" into the question, we should be asking a deceitful question, because the proposition before the Scottish people, contained in Chapter 7, goes a good deal wider than income tax. That we teased out yesterday.

If it comes about, it gives the Scottish parliament power to vary and to change the form of local authority income. The council tax could be increased of course. It could be replaced or added to by a local income tax, a sales tax, or, according to the Government's partner in these operations, the noble Lord, Lord Steel of Aikwood, by charges. A charge by any other name would sound as sweet, I suppose. We know that the cat has been let out of the bag on this.

Despite the best endeavours of the noble Lord, Lord Williams of Mostyn, to answer my question, I am still just a little bit at a loss to understand the answer as to the consequences of what will happen if the parliament cannot raise £450 million. Let me try once again, but for the last time. If the parliament is to be allowed to raise £450 million as its upper limit (index linked), that is fine. At the moment, that is equivalent to having an additional 3p in the pound on income tax for those of us resident in Scotland.

Let us assume that the Chancellor decides to narrow the tax base of the 23p rate. Then obviously the tax take will reduce. Let us say that it goes down to £400 million. So £50 million will have to be raised from somewhere else. Is it to be raised from breaching the 3p in the pound, or--this is the rub, and why the word "income" must come out, as the Commons have rightly suggested--is it to be raised by some other tax?

Frankly, I did not understand the answer that I received last night from the noble Lord, Lord Williams of Mostyn. I do not think that anyone bar the noble Lord understood his answer. I have tried to simplify it to see whether I can, at last, obtain an answer from the noble Lord, Lord Sewel. If I cannot obtain an answer--I just warn the noble Lord, Lord Sewel--he will be receiving correspondence from me during the Recess in which I shall be keeping at this issue.

It seems absolutely clear to me that that parliament will have a lot more powers over revenue than just income tax. I am pleased to see that the noble Lord, Lord Desai, agrees with me, because he said clearly, and rightly as an economist, that it is foolish to tie a parliament's hands to just one form of raising its revenue. That is why the Government want to overturn your Lordships' amendment. As I said on the previous amendment, a little honesty and integrity would be welcome, and we would know where we were.

When I come to vote on this question, I shall not be voting "No" just to stop the parliament from raising my income tax. I shall be voting "No" to stop it raising a whole raft of taxes on me, my fellow Scots, and the Scottish economy. I commend the amendment to your Lordships. Without meaning to be, the Government are being refreshingly honest.

Lord Steel of Aikwood: My Lords, I think that the noble Lord, Lord Mackay of Ardbrecknish, referred to me as the partner in crime, or something, of the

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Government. Let me assure him that on this issue I have no sympathy whatever with the Government. They have made a rod for their own back with the second question on the referendum. If the referendum itself was thought by many of us to be entirely unnecessary, the second question is thought by most of us to be totally absurd.

Why on earth Her Majesty's Government should pick out one aspect of the proposal and invite the people of Scotland to pass comment, I do not know. Why did they not choose the electoral system and ask, "Do you or do you not approve of that?"? Why did they not choose the relations with Europe, referred to in the White Paper? They have invented the second question for reasons best known to themselves. It is certainly not approved of by me or my colleagues on these Benches. The question of whether the word "income" is or is not included seems to me to be relatively unimportant. However, I have to say that the White Paper is clear, whatever the reasons behind it.

Chapter 7, page 21, of the White Paper states:

    "the Scottish Parliament has a defined and limited power to vary central government taxation in Scotland and alter its overall spending accordingly".
That is the point. The proposals which will be brought forward in the legislation will constrain the Scottish parliament on those matters that affect central government taxation only; for example, income tax, VAT and national insurance contributions. Those cannot be varied. However, as I said yesterday, the Scottish parliament can do whatever it likes, apart from those matters which are reserved to the Westminster Parliament.

If the Scottish parliament, in its madness, were to decide to tax caravans, hotel beds or whatever, it can do that. That is within its powers. Where I differ from the noble Lord, Lord Mackay of Ardbrecknish, is that I have a basic confidence in the common sense of the Scottish people and in the politicians whom they will elect, even if they were to elect Conservatives.

At the end of the day, whatever the parliament does, it will have to answer to the Scottish people. The idea that we shall have a parliament in Edinburgh running amok, putting taxes on all over the place, is just Cloud-cuckoo-land. The noble Lord, Lord Mackay of Ardbrecknish, should be a little more trustful of the people of Scotland.

My final point to the Conservative Party is that I well remember the arguments on this very issue in the 1978-79 period. I well remember the Conservative Party in general, and the late Lord Home in particular, arguing against the proposals in 1979 on the ground that the Scottish parliament had no fiscal responsibility. Now that fiscal responsibility is being given to it, it objects again. The truth is that it remains against the whole scheme, and it might as well be honest about it.

12 Midday

Lord Campbell of Croy: My Lords, I rise to thank the noble Lord, Lord Sewel, for courteously giving way in his opening speech. I intervened because I thought

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that it was the right moment to ask about the key words which he was reading. He stated that the varying power would operate on income tax.

My noble friend Lord Mackay of Ardbrecknish pointed out that local authority taxation--that is, council tax and so forth--will be separately within the power of a new parliament. However, as regards central government taxation, again I ask whether the Minister can give an assurance that the varying power will be restricted to income tax?

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