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Scotland Bill

3.20 p.m.

The Parliamentary Under-Secretary of State, Scottish Office (Lord Sewel): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.--(Lord Sewel.)

On Question, Motion agreed to.

House in Committee accordingly.


Clause 69 [Power to fix basic rate for Scottish taxpayers]:

Lord Mackay of Ardbrecknish moved Amendment No. 279B:

Page 30, line 42, leave out subsection (2) and insert--
("(2) Where this section applies to any year of assessment, the Income Tax Acts shall apply in relation to the total income of Scottish taxpayers liable to basic rate tax, subject to subsection (3),

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as if there were substituted for any rate determined by Parliament to be the basic rate for that year a rate increased or reduced in accordance with the resolution of the Parliament.").

The noble Lord said: I beg to move Amendment No. 279B and I shall speak also to Amendments Nos. 281A, 281C and 281D. It feels as though we have not been away, but perhaps in the intervening two months the Government have given some thought to the points raised in this important Bill and there will be some government amendments taking them on board.

The amendments in this group all deal with additional tax to be raised in Scotland if the Scottish parliament so desires. The first amendment looks at Clause 69, which starts the tax bearing powers in subsection 2, and replaces the words used by the Government with a variation which spells out exactly what is intended. I hope that the Minister can respond to one of the difficult issues this afternoon. If the Scottish parliament decide to add 3p in the pound to the basic rate for those who live in Scotland--and we will come to who does and who does not live in Scotland later--will that new rate be the basic rate? Will all tax law look to the Scottish rate as the basic rate, or will it be the basic UK rate plus an additional impost of 3p in the pound from Scotland so that where the Inland Revenue rules refer to the basic rate, it will be 23p and not 26p?

This is a very important issue that will affect a number of organisations; for example, charities and the pension industry which is greatly concerned that it may have to keep very complicated records of all the people who are paying into pension funds. Some people may be receiving tax allowances at 23p in the pound and others at 26p in the pound. Some may feel that it would be unfair to give the Scottish taxpayer the advantage of an extra 3p discount over their fellows in the rest of the United Kingdom. Can the Minister give the Government's interpretation of subsection 2 and state why it is necessary?

Amendments Nos. 281A and 281C are very much clearer. They include what must be magic words in legislation:

    "For the avoidance of doubt, and notwithstanding any other provisions of this Act, the Parliament shall not vary any tax except the basic rate of income tax."
Those words are repeated in Amendment No. 281C, which states that the parliament shall have no power to retrospectively vary taxes, and that again is stated to be for the avoidance of doubt.

The amendments would make it absolutely clear that it is only the basic rate that can be varied and that there can be no retrospective tax increases in Scotland. I believe that that honours the second question which was posed to the Scottish people in the referendum. It ensures that any shortfall in the amount of money raised by the 3p can only be obtained by manipulation of the basic rate of income tax. At the time of the referendum the Government stated that 3p in the pound would raise £450 million. They now tell us that 3p in the pound would raise only £420 million, so £30 million has disappeared in the few months since the referendum.

If the £420 million cannot be raised by the 3p because something has been changed in UK income tax regulation, for example a narrowing of the band, the

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Government have said that somehow, magically, a way will be found to make up the difference. I use the word "magically" because we have never received an explanation of how that would be done.

We have been told on a number of occasions that promises made in the Scottish parliament, the White Paper and the referendum are not to be questioned and that we must not make any changes that will go back on those promises, even if we find that the detail will lead the Government into a daft position. The promise was quite clear, that it would only be the basic rate of income tax that would be changed. I am now giving the Minister the opportunity to clarify the position during this Committee day. I gave him the opportunity on the last day to solve part of this problem by getting rid of the 3p concept altogether and by saying that the £420 million was the base line. However, the Government would not listen and they have got themselves into a real problem. They could get themselves out of the hole by stopping digging, but they will not.

I want an assurance from the Minister today, the best assurance being to accept Amendments Nos. 281A and 281C, that the Bill cannot be used to increase or decrease any tax other than the basic rate of income tax. That was the promise in the White Paper, that was the promise in the referendum and that is the promise I want to see reflected in the Bill.

Lord Steel of Aikwood: Can the noble Lord clarify what he means by Amendment No. 281A? Does he exclude the possibility that the Scottish parliament could raise new taxes entirely of their own devising?

Lord Mackay of Ardbrecknish Yes, I do, because that was the promise made to the Scottish people and that is what is in the White Paper: it is only the basic rate of income tax that can be varied. The noble Lord, Lord Steel of Aikwood, probably knows more about this than Ministers do, and he indicates that I am wrong about that and that the Scottish parliament may be asked to raise more new taxes. If that is so, please may I hear about them; please may we all hear about them, and then some of us can decide whether we want to stay in a country that would rapidly become the most overtaxed part of Europe? If the ticket is a free one, I may take it!

The intervention by the noble Lord, Lord Steel, is even more worrying. He is part and parcel of this constitutional convention which is the other part of the Holy Grail, in addition to the referendum and the White Paper, that I omitted to mention. He has increased my concerns. Is it true that the Bill would allow the Scottish parliament to raise other taxes? If that is right, then I want to know about it and we will return to it at Report stage with a vengeance.

However, if, as I believe, it is only the basic rate of income tax that will be varied by the Scottish parliament, as the Minister and his colleagues have said, then why is it not on the face of the Bill? The Minister, whom we trust, will then have his position clear on the face of the Bill; and the noble Lord, Lord Steel of Aikwood--whose position perhaps we do not trust, having heard it--or his colleagues will not be able in

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the future to impose taxes other than on the basic rate of income tax on the people of Scotland. I think that we should know.

As regards Amendment No. 281D, I wonder why we need subsection (6) of Clause 70. It states:

    "A tax-varying resolution shall not be passed so as to have effect in relation to any year of assessment before the year 2000-01".
Clause 70(2) already states that any tax-varying resolution,

    "must be expressed so as to relate to no more than a single year of assessment beginning after, but no more than 12 months after, the passing of the resolution".
Under the powers of Clause 70 there does not seem any possibility for the parliament to do what it seems to be forbidden to do in subsection (6). However, that is a minor matter. The major matter into which we slightly stumbled is whether or not the parliament will be able to increase taxes other than the basic rate of income tax.

3.30 p.m.

Lord Renton: It seems to me that Clause 69 is one of the most important provisions in the Bill. Whenever we are legislating we should try to avoid uncertainty, especially when legislating on tax matters. I go further. When we are delegating the powers of the United Kingdom Parliament to a devolved parliament, again it is vital that we should avoid uncertainty; and vital that we should avoid uncertainty on tax matters.

The amendments moved and spoken to by my noble friend have the great advantage of removing uncertainty. If the Government do not agree to those amendments, or something like them, they will be inviting us to fail in our parliamentary duty.

Lord Steel of Aikwood: I hesitate to intervene again on this matter. However, it seems to me that the official Opposition, the Conservative Opposition--I remind them that they do not exist in Scotland but, unhappily, exist here, so we have to listen to this plea--seek to curtail the powers of the Scottish parliament. When the Government refer to the taxation matter being limited to the basic rate of income tax, they are referring to those taxation powers that are reserved. Income tax is a reserved matter. The only exception to that will be a variation of up to three pence. Value added tax is also a reserved matter. All that is clear in the legislation.

However, on those matters devolved to the Scottish parliament, the Scottish parliament itself must be left to decide what, for example, is the system of local government taxation, and other charges that they may from time to time decide in their wisdom. If they were a Conservative Government, they might introduce all sorts of new taxes. That is a matter for the Scottish parliament. I hope that in this House we shall resist any attempt to write into the Bill words that could be construed as curtailing the powers of the Scottish parliament when it comes into being.

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