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Lord Mackie of Benshie: Perhaps the noble Lord, Lord Mackay of Ardbrecknish, can explain why he needs Amendment No. 286A. Clause 72(3) begins,
- "Any proposals for amending the Parliament's tax-varying powers that are laid before the House of Commons by the Treasury".
Lord Mackay of Ardbrecknish: I believe I am right in saying that many things are laid before the House of Commons which are not statutory instruments. There is a difference. I invite the noble Lord, Lord Mackie of Benshie, to look at the Order Paper. He will see that there are things laid before this House which are not statutory instruments. There are usually lines and lines of them on the Order Paper. That is why I have put the matter in the way that I have.
Baroness Carnegy of Lour: I hope that the noble Baroness is going to look seriously at Amendment No. 286A, if my noble friend is right and the noble Lord, Lord Mackie of Benshie is not correct. When people voted in the referendum for the tax-raising powers they certainly had no idea that the arrangements for those powers, and the level of the amount of tax to be raised, might be decided in the House of Commons. I do not think that people realised that. It could be a source of enormous friction. It may look alright to the Government now. They visualise dominating the Scottish parliament and also Westminster. No doubt that cannot go forever: they may not even last very long. It
is therefore important that this matter should be formalised and that there should be proper discussions and a vote. That is the way it should be done.
Lord Mackay of Ardbrecknish: The noble Baroness may be very worried. I believe that inadvertently I have confused Amendments Nos. 286D and 287D. I apologise for that. Given the state of the Marshalled List I think I can plead for forgiveness. We shall come to Amendment No. 287D later. I wonder why I put it in this group. I should have spoken to Amendment No. 286D and I shall leave Amendment No. 287D for a later time.
Amendment No. 286D is about Clause 72(5), which is an astonishing subsection. It states,
- "The second condition so mentioned is that the proposals would not enable the Parliament's tax-varying powers to be exercised for any year of assessment so as to have an effect on the levels of the after-tax income of Scottish taxpayers generally that would be significantly different from the effect their exercise could have had in any previous year of assessment".
When I read it, my reaction was, "Sorry, say that again." If that means that the after-tax income will be changed very much, you cannot do that, so I ask myself why they have been given the power to do it at all. If taxes can be increased by up to 3p in the pound, that will affect the after-tax income. That is inevitable.
What does that amazing subsection in Clause 72 mean? If it means that the other taxes (which the Treasury has suggested might take the place of that 3p in the pound) may impinge heavily on Scottish taxpayers, that cannot be allowed. I do not understand how they can impinge more heavily on Scottish taxpayers than would a tax of 3p in the pound if both are to raise £420 million. Perhaps the noble Baroness could explain what that means. I apologise to her for probably giving her a slight flutter of the heart because she might have wondered which amendments I was talking about.
7.15 p.m.
Baroness Ramsay of Cartvale: I shall endeavour to explain. Yes, that did cause me some consternation and my noble and learned friend the Lord Advocate will deal later with some of the points that were raised, to my horror, a few minutes ago.
This whole subject is, of course, a very complex business. I shall try to put our points as clearly as I can and allay some of the fears or apprehensions that might have been aroused by a lack of understanding about what lies behind some of the provisions.
Amendments Nos. 286A, 286C, 286D and 286BA concern the proposals for an alternative tax-varying power which the Treasury, as we have already discussed, is required to make in the event that changes to the UK income tax system would have a significant effect on the tax-varying power. That sets the scene.
Amendment No. 286A would require that the proposals be presented in the form of a statutory instrument, which would be subject to an affirmative resolution. I assume that this amendment is prompted by a very proper desire to ensure proper parliamentary
scrutiny of any changes. Indeed, the noble Lord, Lord Mackay, confirmed that. But Clause 72 sets out only the parameters which the Treasury might follow in drawing up proposals. Any change in the tax-varying power would require a change in primary legislation, most likely through provisions made in the annual Finance Bill. The use of a statutory instrument would leave changes to the tax-varying power subject to less, not more, parliamentary scrutiny than we intend and believe is embodied in the Bill as it stands. In any case, the proposal provided for in this clause would not be a suitable instrument for making such a statutory change.Amendments Nos. 286B, 286BA, 286C and 286D are concerned with the parameters for the replacement power. The key point is that, as it stands, Clause 72, just like Clause 69, is based around the tax rate--the maximum 3p variation--rather than the tax product. As I hope that I explained in our debate on Amendment No. 279A, this must be the correct approach if we are to avoid the situation of fewer people having to pay more tax.
The figure of £450 million, which appeared in the White Paper, was a preliminary estimate of the maximum amount which could have been raised or forgone under the proposed tax power, had this provision been in operation in 1997-98. It was right that we included it in the White Paper because it allowed people to see the order of magnitude of the revenue generated or forgone by a 3p rate variation. The White Paper made it very clear that that was just an estimate, albeit that it looks likely to be quite an accurate one.
The key point is that it would be inappropriate to tie the product of any future power to any fixed figure, whether it was a preliminary estimate or any other figure. The correct approach is to concentrate upon the tax rate--the amount which people will have to pay. This approach will ensure continuity for taxpayers (ensuring that their individual tax liability does not change dramatically as a result of any new power); and it will actually deliver year on year continuity of the tax product more effectively in this context than the setting of a fixed product. A fixed product--whether £450 million or whatever--may differ significantly from the actual product of the previous tax year if the tax base had shifted over the years, upwards or downwards, and this could mean a significant discontinuity between years. Incidentally, the £450 million suggested in Amendment No. 286C could also be very different from the "guaranteed additional revenue" figure, which was proposed in Amendment No. 281BA. We think that Amendment No. 286C is fundamentally misguided.
I appreciate, of course, that Amendment No. 286BA falls naturally out of the approach being proposed by the noble Lords opposite. If one concentrates on tax product, the GDP deflator would be the correct indexation approach. However if, as we propose, we concentrate on the tax rate and the effect upon individual taxpayers, the RPI, which is the main measure of inflation as it affects taxpayers, is the appropriate mechanism for indexation.
Turning to Amendment No. 286D, Clause 72(5), which the noble Lord, Lord Mackay of Ardbrecknish, said was pretty difficult to get one's mind around--he did not put it quite like that, but that is certainly what I feel about it, and about certain other clauses--requires that any proposed replacement power has a similar impact on individual taxpayers to the existing power. This is to ensure continuity with any future replacement power. It would prevent, for example, the extension of the replacement power to those who pay income tax only at the lower rate; or any major concentration of the tax burden in future on a particular income group. I am sure that it is not the noble Lord's intention to encourage proposals for any replacement power which would have an undue impact on any group of Scottish taxpayers, but we think that that would be the unfortunate consequence of the amendment.
The noble Lord referred to the point about subordinate legislation being made in Committee rather than on Report. I am advised that it was always intended to table these amendments in Committee and not on Report. I am also advised that there was an error in the layout of the annexe to the letter to which the noble Lord referred, which may have caused some confusion. As I was not aware of that, I can only apologise to the noble Lord for that and for any confusion that was caused. I hope that in the light of all these explanations the noble Lord may feel able to withdraw the amendment.
Lord Mackay of Ardbrecknish: I do not blame the noble Baroness for the confusion, but perhaps she can help me in this regard. If the letter has gone to my noble friend Lord Alexander of Weedon and the Select Committee on Delegated Powers and Deregulation and if it has told them that these amendments will be tabled on Report, I presume that they will be working to report to the Committee before Report. We shall now have to discuss the amendments on Thursday. Is there any possibility that the Select Committee will be able to consider those matters before our next Committee, on Thursday? If not, it seems to me that the error in the letter to my noble friend is a serious mistake by the Government. Although I do not expect the noble Baroness to answer this now--I am merely pointing it out--if the delegated powers committee cannot consider the letter and report to this Committee before Thursday, then the Government should withdraw the amendments and bring them back on Report. That was the clear intention not just in the annexe to the noble Lord's letter: the actual body of the letter referred to the Report stage.
I am pretty clear in my own mind that the body of the letter itself mentioned the Report stage. I should just like to lay that point on the table. I do not necessarily expect an answer but, if there is one, I should be delighted to hear it. It appears that there is no answer from the noble Baroness. That is not very satisfactory.
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