ACCOUNTING FOR ADDITIONAL SCOTTISH TAX (Hansard, 23 February 1998)

§ Mr. Bernard Jenkin (North Essex)
I beg to move amendment No. 399, in page 32, line 35, at end insert 'provided that all costs incurred by the Board and the Inland Revenue in collecting such amounts shall be defrayed from the Scottish Consolidated Fund.'.

§ The Chairman of Ways and Means (Sir Alan Haselhurst)
With this, it will be convenient to discuss the following amendments: No. 400, in page 33, line 13, leave out 'may' and insert 'shall'.
No. 401, in page 33, line 17, at end insert—
'(5A) Arrangements under subsection (4) shall not include provision for the adjustment of the amounts paid into the Scottish Consolidated Fund under this section on the basis of changes in the taxable income of the generality of Scottish income tax payers deriving from economic fluctuations in the United Kingdom as a whole. (5B) Arrangements under subsection (4) shall include provision for the adjustment of the amounts paid into the Scottish Consolidated Fund under this section on the basis of changes in the taxable income of the generality of Scottish income tax-payers deriving from economic fluctuations attributable to previous resolutions of the Parliament.'. 125 No. 402, clause 74, page 33, line 37, at end insert, 'together with all costs incurred by the Board and the Inland Revenue in receiving such payments.'. No. 403, in page 34, line 13, leave out 'may' and insert 'shall'.
No. 404, in page 34, line 17, at end insert— '(5A) Arrangements under subsection (4) shall not include provision for the adjustment of the amounts paid from the Scottish Consolidated Fund under this section on the basis of changes in the taxable income of the generality of Scottish income tax—payers deriving from economic fluctuations in the United Kingdom as a whole. (5B) Arrangements under subsection (4) shall include provision for the adjustment of the amounts paid from the Scottish Consolidated Fund under this section on the basis of changes in the taxable income of the generality of Scottish income tax—payers deriving from economic fluctuations attributable to previous resolutions of the Parliament.'.

§ Mr. Jenkin
Clause 73 concerns the treatment of the revenue raised from the SVR—or Scottish variable rate, as we must now learn to call it. Amendment No. 399 merely clarifies the fact that the costs of collecting the tax should fall not on the United Kingdom taxpayer but on the Scottish consolidated fund, in line with paragraph 7.18 of the White Paper. The substance of the amendment may lie elsewhere in the Bill; we merely ask for clarification.
The other amendments, including Nos. 400 and 401, are much more substantive. They are probing, but they are for serious consideration. Clause 73(3) specifies that the Inland Revenue should pay into the Scottish consolidated fund an amount equal to the estimated yield from the additional tax to be paid by Scottish taxpayers. I am bound to say that that cannot have been the expectation of people reading the White Paper, which clearly guaranteed £450 million. The main burden of the clause, however, is to ensure that the yield from the tax is paid into the consolidated fund.
Clause 73 leads to the need for the legislative gyrations in clause 72. Clause 73 on its own would not guarantee the £450 million promised from the full yield of the tax referred to in paragraph 7.13 of the White Paper. Should the £450 million guarantee apply in all cases? Clause 73(5) says that the Treasury may make adjustments to estimates of the tax yield in the light of the initial estimate being wide of the mark. The operative word is "may". Our amendment No. 400 suggests that the word should be "shall".
The Bill establishes the principle that the extra revenue that is gained or forgone by the Scottish Parliament should reflect the tax yield. If it emerges that the Treasury or the Board has made a mistake, whichever is responsible should put it right. It would not be right for the Scottish consolidated fund to collect money that has not been raised for it, just as it would be wrong for the Parliament to forgo funding that has been raised on its behalf. That is the principle that the amendments seek to establish.
Amendment No. 401 proposes an exception. The White Paper was clear about the effects of changes in the tax system, but not clear about the effects of changes in economic circumstances. The amendment proposes two new subsections. Where possible, the Scottish Parliament deserves stability in its funding because it is not to be given the kind of borrowing powers that will enable it to deal with cyclical fluctuations in economic activity. 126 Our proposed subsection (5A) is intended to protect the Scottish variable rate tax yield from the effects of economic fluctuations in the UK economy.
We do not think that the Scottish Parliament should be immune from the effects of its own decisions. Our proposed subsection (5B) would mean that any increase or decrease in the yield from the Scottish variable rate as a result of the Parliament's decisions would be reflected in payments to the Scottish consolidated fund. For example, if there were a big increase in the business rate poundage in Scotland or if the tartan tax drove people away from Scotland or was levied at the higher marginal rate, as suggested in clause 72, it could have a detrimental effect on Scotland's economic activity. It would reduce the tax yield in line with what is called the Laffer curve and that loss of revenue should be borne by the Scottish Parliament.
There is an alternative scenario. If the policies of the Scottish Parliament took Scotland well ahead of the rest of the UK so that employment rates were higher there, the yield from tax increases would be greater and the Scottish Parliament would be able to collect the dividend of its policies or perhaps levy for the same yield with a lower SVR rate. I commend the amendments to the Committee.

§ Mr. Dalyell
I have a short question. What happens if there is a shortfall in relation to the yield and the estimates of the Scottish Treasury or the Treasury in London are not achieved? It is a question of contingency planning for a shortfall and for what happens thereafter.

§ Mr. McLeish
Amendments Nos. 399 and 402 seek to ensure that the costs that are incurred by the Board and the Inland Revenue of running the tax-varying power are met by payments from the Scottish consolidated fund. I give the Committee the absolute assurance that the Inland Revenue's costs will be met by the Scottish Executive. However, it is a matter for administrative arrangement rather than for statutory provision.
Amendments Nos. 400 and 403 seek to strengthen the provision to review the arrangements for estimating what income tax receipts should be paid by or to the Board if the tax-varying power is applied. No such strengthening is needed, as the current wording permits the Board to take into account any adjustments to those arrangements that may be necessary.
Amendments Nos. 401 and 404 seek to ensure that the estimate of income tax receipts paid into the Scottish consolidated fund is not affected by changing economic conditions unless those changed conditions are the result of previous applications of the tax power. The amendments are at odds with all the principles of the overall income tax system of which the Scottish Parliament's tax-varying powers are an integral part. There is no convincing argument for making the proposed adjustments. Even if there were, it would be impossible to disentangle economic effects from other effects on tax take or, more particularly, from the effects on the economy of past Scottish tax changes or from a welter of other influences. The amendments are unhelpful and unworkable. I hope that they will not be pressed.

§ Mr. Jenkin
The Minister's reply leaves the question of the £450 million guarantee more confused than ever, but, in view of the pressure of time, I beg to ask leave to withdraw the amendment.