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Lord Rowallan: My Lords, I rise to ask a question. In yesterday's debate the Minister said:

He went on to say:

    "We decided that the power should be limited to varying income tax because there was no practical alternative".--[Official Report, 30/7/97; col. 187.]
Is the Minister in disagreement with Ministers in the other place? If the Government wish to have the mention of income tax removed from the ballot paper, what other reason can there be, because they have said clearly to this House that that is all they want?

Lord Simon of Glaisdale: My Lords, the noble Lord, Lord Sewel, developed his argument with the skill that has commanded our admiration throughout. However, I am bound to say that it hardly stood up to examination on this issue. What, after all, was the thrust of your Lordships' amendment? It was precisely to state what the Government say they intend to be the ambit of the tax varying power. They intend to limit it to income tax, and they say so in the White Paper. They propose to limit it to a variation of up to 3p. either way. That follows the recommendation of the Scottish Constitutional Conference. I agree with the noble Lord, Lord Steel, that to give a parliament wide powers without financial responsibility is absurd. However, the amendment proposes to write into the ballot paper precisely what the Government propose.

Two arguments have been put forward. Today the noble Lord, Lord Sewel, repeated the argument that he proffered earlier; namely, that it is a question of principle. But he has never explained why one addresses a matter of principle when one asks, "Do you want to vary taxation?", but one does not do so when one asks, "Do you want to vary income tax?". They are equally matters of principle. The other argument was put forward by the other place; namely, that it wants to keep the ballot paper simple. It is not a simplification if what you intend is a variation of income tax to say precisely that.

I intervene as a devolutionist and a Cross-Bencher, but it seems to me that the argument put forward by the noble Lord, Lord Mackay, was overwhelming. If he had divided the House I would have followed him into the Division Lobby, as indeed I would on the earlier amendment. Not only is it futile for the Government to object to a formulation of exactly what they propose, but it is extremely dangerous. Beside the Government

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supporters in the Scottish parliament, there will be supporters of the Scottish National Party, which has a very different agenda. It proposes independence. Its tax varying powers will be utterly different; they will extend to Customs duty because the party will look forward to Customs houses along the Border, which will then be a frontier.

The Government appear to be utterly reckless in framing a question which can be distorted against them by those who are no friends of theirs--the Scottish National Party--who will say, "Yes, the question we put to the electorate was whether they wanted tax varying powers. That is what we want". It is no use the Government saying that in the White Paper they limited that to income tax varying powers, because the Scottish National Party will say, "Who reads a White Paper on holiday, even if it is selling profitably?". It is an utterly unreal argument and the Government are running a grave risk in resisting your Lordships' amendment.

Lord Sewel: My Lords, perhaps I may first reply to the point made by the noble Lord, Lord Steel. The reason for the second question is simply that we are of the opinion that the granting of a tax varying power should not be undertaken lightly. We believe that the people who will be subject to that power should be consulted specifically on the granting of it. We believe that that is the right and proper way forward and that is why we are giving the people of Scotland the opportunity to make a separate and specific decision on that point--

Lord Steel of Aikwood: My Lords, I am grateful to the Minister for giving way. I am listening to him with astonishment. Surely there is a stronger case for consulting on the change in the electoral systems. As the policy of Her Majesty's Government is later to consult the United Kingdom electorate on a change to the electoral system, I would have thought that a stronger case could be made for picking out that one item. As joint chairman of the Scottish Constitutional Convention, my objection is to cherry-picking particular parts of the proposals and sticking them in the referendum.

Lord Sewel: My Lords, I disagree with the noble Lord, Lord Steel. I believe that a tax varying power is a fundamental power that is given to a parliament. It impacts directly on the citizens and as they are subject to that power they ought to be consulted on whether the body that is being established should be able to exercise it. I believe that it is qualitatively different from other aspects of the package and that it is why it is right and proper to have a separate question.

The noble Lord, Lord Campbell of Croy, asked whether I could give an assurance that the tax varying power on central government taxation would be limited to income tax. I give him that assurance.

As regards the points made by the noble Lord, Lord Rowallan, and the noble and learned Lord, Lord Simon of Glaisdale, I can only repeat the argument that I and my noble friend Lord Williams have used. We have

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built this project on the basis of a White Paper which explains the detail and on a ballot paper which asks for approval in principle. That is where we stand. The people will be consulted and invited to make a decision on the two issues of principle. The detail comes through the White Papers.

I turn to the noble Lord, Lord Mackay of Ardbrecknish, and his usual bravura performance. I must refute entirely the argument that somehow he has teased something out of us in terms of the powers in relation to local authority taxation. It is absolutely explicit in the White Paper that the Scottish parliament will have the power to change the system of local government taxation. We have never tried to hide that. It is there; it is in black and white; and to say that it has been teased out is a total distortion.

Let us go along with the point made by the noble Lord, Lord Mackay of Ardbrecknish, about the £450 million. I shall try again to shed some light on that matter for him. The 3p. on the income tax at the moment, because of the tax structure, raises £450 million. The noble Lord says quite rightly that you cannot freeze the tax structure at one particular time and assume that that will continue for ever. Noble Lords who have been Chancellors of the Exchequer have tended to vary the tax structure from time to time and have quite understandably and quite rightly introduced different rates.

There may well come a time in the future when the tax structure changes so that 3p. on the basic rate does not raise £450 million, and I had better say for the sake of completeness, index linked at that stage. What happens then is that the Scottish parliament and Westminster agree the basis upon which the £450 million index linked can be raised--in other words, the shortfall matched--by going back to the income tax structure. That is not to be achieved by opening up the opportunity to raise a whole plethora of other taxes. That is not on. It is focused on and limited to income tax. The only changes which will occur will be a product in changes to the tax structure itself.

Throughout our debates on this issue the noble Lord, Lord Mackay of Ardbrecknish, has from time to time, at every opportunity, tried to run a scare story. The scare story is that, despite our explicit words in the White Paper, we are somehow opening the door to much wider tax-raising powers in relation to the powers conferred upon the Scottish parliament to raise taxes for its own purposes. We are not. That hare will not run; it cannot run; and to persist is irresponsible scaremongering.

Lord Mackay of Ardbrecknish: My Lords, I am grateful to the Minister for getting closer to giving me an answer to the question than either he or his noble friend has managed to do hitherto. But let me be clear. It is going to come from the income tax structure. To me that means that either the standard rate will have to be increased by more than 3p. in the pound or the 3p. will have to be extended into the 20p. rate or the 40p. rate. If it is to come out of the income tax structure of Scotland, it must come in one or other of those directions. I should be grateful to the noble Lord if he would indicate whether I am right about that. I am not asking him to look into the future and predict how it

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will be done. I merely ask him to agree with me that what I suggest is the way in which it will have to be done.

Lord Sewel: My Lords, no, I am afraid that the noble Lord is misconceived on that particular point. On the one hand, he is saying that the tax structure changes and then illustrates that point by saying that we should have to move to the 40p. rate or the 20p. rate. The only reason for any change in the 3p. would be if those rates and structures changed as well. It would not be a movement into 40p. or 20p. but would be as a result of changes in the tax structure, of which we know nothing and have no knowledge at the moment. It may be at some future point.

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