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Lord Mackie of Benshie: I would say to my noble neighbour that "leaping" to my feet is perhaps a slight exaggeration, but I would like to raise a point which has been rather passed over, in that Amendment No. 287 was grouped with Amendment No. 272. The noble Lord, Lord Mackay of Ardbrecknish, dismissed the question of lowering the rate of tax. He did bring it up, however,
and I think I would be justified in asking the Minister a question and putting the point that my noble friend Lord Thurso wished to put.He is conscious of the fact that the gross rate of return of tax does not depend so much on the rate of tax but on the prosperity of the economy. We have constantly seen Chancellors of the Exchequer with no money coming in; suddenly there is some prosperity and they have a surplus, which appears to have happened in the case of the present Chancellor. It might well not be fanciful at all therefore to lower the rate of tax in order to encourage investment in Scotland, and it might well be successful. At the present moment, however, it appears that the Government would simply nick the amount off, on some form of calculation, and that would be that. That appears a little unjust. The calculation can be made by the Inland Revenue. If that revenue comes in, it should not be taken off; or it should be repaid at a later date. It is a practical point. I should very much like to hear what the Minister has to say.
Lord Sempill: I support my noble friend Lord Mackay of Ardbrecknish. I echo his sentiments that the legislation is confusing for those of us with no accounting or finance background.
When the Minister responds to the amendment, perhaps he will answer this question. There was lengthy debate on the issue in another place which continued for nearly two days. The one question that kept arising was the extent to which the issue was restricted only to income tax. The Scottish Office Minister of State for Home Affairs, Devolution and Transport, Mr. Henry McLeish, denied that the Scottish parliament could raise taxes other than income tax. I thought that that was a fairly straightforward answer. I find it staggering that the issue continues to arise. People mention that additional revenues could be raised indirectly through other or new local taxes. Can the Minister clarify whether the response given by Mr. Henry McLeish is correct: that the 3p can be raised only through income tax?
Lord Sewel: First, I reply to a point made by the noble Lord, Lord Mackay of Ardbrecknish, in what was a general preamble to the specific amendment. He drew our attention to the views expressed by the Institute of Chartered Accountants of Scotland, and in particular its concern about reliefs. The institute's suggestion at that stage was based on a misunderstanding. Since the ICAS letter, Ministers have written to and met with ICAS to clarify the matter.
Let me stress that there is no question whatever that the Inland Revenue will deny reliefs that are legally due to Scottish taxpayers. Nor will it by executive decision ignore the effects of the Bill. That point was made to ICAS and has been accepted by it.
I accept completely that the noble Lord, Lord Mackay of Ardbrecknish, was giving voice to an earlier concern of ICAS that has now been addressed; and I believe that it has been addressed to the satisfaction of the institute.
I deal also with the point made by the noble Lord, Lord Sempill. The powers of the Scottish parliament to vary tax are limited to income tax, to the 3p variation;
and we shall stick to the 3p variation. I believe that a degree of misunderstanding may arise from the ability of the Scottish parliament to change and reform the basis of local taxation. Local taxation is not as set in stone now as it used to be. We have moved from rates to the poll tax--I should say, the community charge--to the council tax within almost the twinkling of an eye. That area of local government, local taxation, is within the legislative competence of the Scottish parliament. But in terms of the taxes raised at the hand of the Scottish parliament, that variation is limited to the 3p power, upwards or downwards.I turn to the interesting point made by the noble Lord, Lord Mackie of Benshie, about reducing tax. If the Scottish parliament decides to reduce the tax rate, it will forgo the income which the tax will raise. Therefore, that should feed through to the resources which it can commit to its programmes. It would be attractive if the parliament could reduce the tax and retain the same income. I would hurry to this House and move an amendment that we should limit it to 3p in the pound but that we should go all the way, declare a dividend and still enjoy the same level of services. However, we must recognise that that is not feasible.
If the parliament wishes to reduce the tax rate it will have to forgo that income. That point was made early in our debates on the referendum. The noble Lord, Lord Mackay of Ardbrecknish, pushed us to make that clear and we were happy to do so.
Lord Mackie of Benshie: The point that I was making was that it might well produce the projected loss, but if that turned into a profit for the Inland Revenue that would be totally unjust. The noble Lord, Lord Mackay of Ardbrecknish, looks puzzled. It is possible that it would stimulate the economy so much that the total income would rise by more than the fall in the rate of income. That happens a great deal, as I explained previously, but obviously the noble Lord was not listening. There are facts to prove that. Therefore, it is right that we should produce a method of repaying the money which has been lost to the Scottish Treasury when it put up the total revenue to the Inland Revenue.
Lord Lyell: Perhaps I may be of some assistance to my noble neighbour. I remember figures which were capable of proof in discussion in your Lordships' House, in the Red Book and so forth. The Conservative Government reduced the high rates of income tax which existed in 1979. Although I did not go through every single pound, I understand that the revenue rose.
The noble Lord, Lord Mackie of Benshie, is failing to look at the other side of the argument. The lowering of the tax rate was accompanied by a removal of many of the allowances, which I shall deal with in one of my amendments. That meant that the taxes were not crazily high in theory, but in practice persons with a taxable income and a marginal rate of 83 per cent. did not pay them, as the noble Lord, Lord Bruce of Donington, who is not here tonight, told me. When the top tax rate was lowered to 50 per cent., the allowances and concessions given by the Inland Revenue were withdrawn.
The noble Lord is on the ball there, but I do not believe that the Scottish parliament, thanks to the Bill before us tonight, will have the power to do that. It may be able to lower the rates, but it will not have the power to remove some of the allowances and concessions, thereby increasing the tax. The Inland Revenue as part of the United Kingdom may do so, but I do not believe that the Scottish parliament will do it. I believe that that is the essence of my noble neighbour's argument.
10.30 p.m.
Lord Sewel: I understood it slightly differently because I thought that I could see where the noble Lord was getting to. If the whole of the Scottish parliament's income, the revenue available to it, a fixed amount of resource, was raised through a tax which it controlled, then a situation such as the noble Lord indicates could arise when, as a result of increasing prosperity, increased population and more people being employed, the same amount could be raised at a lower poundage, effectively.
But that is not the case and is not the way in which the parliament is being funded. It is being funded predominantly by grant and the 3p is an extra top-up on that. Therefore, it loses or gains income only in relation to the 3p adjustment. It is not responsible of taxing on its own basis for the majority of its income, which comes by way of grant.
Baroness Carnegy of Lour: I believe that the whole point of the intervention made by the noble Lord, Lord Mackie, is that when the noble Lord, Lord Lawson, lowered taxes, the tax take went up enormously. If the Scottish parliament increases the tax take by lowering tax in Scotland, it will not get the benefit. I believe that is what he is saying. He should have said it for himself and I apologise for saying what he was about to say.
Lord Mackie of Benshie: I accept that that is the intention at the moment but I am saying that it is not either just or sensible.
Lord Selkirk of Douglas: Can the Minister enlighten us on the point made by the Prime Minister? It is my understanding that, when the Prime Minister when to Scotland, he was arguing for a very low Scottish variable rate. Will the Minister confirm that those provisions conform with the Prime Minister's wishes?
My noble friend raised the point that lower taxation can lead to a bigger take for the Treasury. But, of course, if people have more money to spend, they spend it through indirect taxation, so the take can be bigger. Perhaps the Minister will also answer the point made by my noble friend Lady Carnegy that, if we understood the Minister correctly, he was saying, that if there is a lower Scottish variable rate, it will not necessarily mean that the take will be bigger.
Lord Sewel: Perhaps I may reply to the points made by the noble Lord, Lord Selkirk of Douglas. I agree with what the Prime Minister said. The explanation is that there is a world of difference between a power and a policy. We are giving the parliament the power. We
have said also that for the lifetime of this Parliament, my party will not use that power. That is the policy. Let us make absolutely clear the difference between the power and the policy. This Parliament has the power to bring in tax rates at whatever level it wishes. That may be the power but, clearly, an excessive rate is not the policy of any party at present.I deal next with the point made by the noble Lord, Lord Mackay of Ardbrecknish. That is important because it relates back to the substance of the amendments; that is, the difference between the two figures--£450 million and £420 million. I shall read out the reference to that in the White Paper, which states:
- "The Scottish Parliament will have the power to increase or decrease the basic rate of income tax set by the UK Parliament by a maximum of 3p".
That is the first, primary statement. It then goes on in explanation and exposition to say:
- "Since each 1p change would currently vary revenue by around £150m, the Scottish Parliament would be able to levy or to reduce income tax for basic rate taxpayers in Scotland by up to around £450 million".
It is fair to say that the best estimate that we had at the time from the Inland Revenue was, indeed, that lp produced £150 million and that 3p produced £450 million. That was the best estimate that the Inland Revenue could give. However, because the tax take is dependent on so many things--for example, general prosperity, the number of people in work, the size of the population and the number of people paying tax--the latest estimate, which is now 11 months old, is that 3p raises £420 million.
I believe that a more recent estimate is due in the very near future, but it is not possible to predict. I understand perfectly what the noble Lord, Lord Mackay, is advocating, but the practicalities are simply not there. That is why I have to move away from the apparent attractiveness of the guaranteed additional revenue figure; it effectively puts the cart before the horse.
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