HL Deb 31 July 1997 vol 582 cc318-25

2 Clause 1, page 1, line 6, after ("and") insert ("income")

The Commons disagreed to this amendment for the following reason—

2A Because it is desirable to keep the questions to he asked in the referendums as simple as possible.

Lord Sewel

My Lords, I beg to move that the House do not insist on their Amendment No. 2 to which the Commons have disagreed for their reason numbered 2A. In moving this Motion I should like to speak also to Amendments Nos. 15 and 16.

The people of Scotland will be asked whether they agree that there should be a Scottish parliament and that a Scottish parliament should have tax-varying powers. The amendment to which the Commons have disagreed would require a specific reference to "income" tax-varying powers. The key to this is to understand what the people of Scotland are being asked to agree with. It is not some vague notion of an independent Scotland or some never-never promise of better things to come from the party opposite—a never, never, never, never, never promise. The people of Scotland will be asked whether they agree with the Government's proposals. It says so on the ballot paper.

The Government have set out their proposals in the White Paper Scotland's Parliament which was published on Thursday of last week. Chapter 7 of the White paper sets out the financial arrangements for the parliament, including the tax-varying powers. No doubt noble Lords are familiar with it. I quote from Chapter 7: Subject to the outcome of the proposed referendum on this issue the Scottish Parliament will be given a power to vary tax … The Government propose that the tax varying power should operate on income tax". It is crystal clear that the tax-varying power on which the referendum asks the people of Scotland to give their views is the power to vary income tax.

Lord Campbell of Croy

My Lords, I thank the Minister for giving way. The White Paper which was published only a week ago uses the words "operate on income tax". What the White Paper does not say is that the tax-varying power would, for central government taxation, be confined to income tax. It just says that it "should operate on". That wording does not reflect what has been said on the Government Benches.

Lord Sewel

My Lords, in all honesty, I do not understand the distinction that the noble Lord is trying to make. It is: operate on the income tax system". It is as simple as that. We have no hidden agenda. We are being straight, honest and clear over this. The chapter goes on to describe in some detail how the system would operate; the amount by which tax could be varied; who would be liable to pay it; what would happen in the event of the UK income tax structure changing in future. We have argued consistently that the questions to be put to the people should be at a level of principle, backed up by the detail contained in the White Paper.

If we add the word "income" why not also include the 3p in the pound limit; or the definition of who should pay the tax? We could keep on adding qualifications until the questions on the ballot paper ended up half a page long. Similarly, we are not asking on the ballot paper whether the Scottish parliament should have powers in Scotland over the health service, social work, housing or any of the other areas set out in the White Paper. The points put to the people of Scotland, through the questions on the ballot paper, are the simple issues of principle that are then backed up and illustrated through the details contained in the White Paper itself.

I accept that a balance has to be struck between keeping the question simple and giving voters enough detail so that they are clear as to what they are voting for. We believe that our original wording is right. The tax-varying power is a sufficiently important aspect of the powers of the parliament to warrant a separate question, but it is not necessary to specify every aspect of the powers in question. That is done by and through the White Paper.

To add the word "income" would create a false sense of precision, because it is limited. There are other factors that go beyond income in terms of the level of the income tax; what is and what is not covered in terms of savings and dividends; and who is liable to pay it. The referendum in Scotland will seek consent for the Government's proposals for a Scottish parliament with tax-varying powers. The people of Scotland will well understand what they are being asked to approve.

Moved, That the House do not insist on their Amendment No. 2 to which the Commons have disagreed for their reason numbered 2A.—(Lord Sewel.)

Lord Mackay of Ardbrecknish

My Lords, that argument was just about as pathetic as the argument on the first amendment, just as the reasons given by the Commons are pretty pathetic: Because it is desirable to keep the questions to be asked in the referendum as simple as possible". Having said that, I agree with the Minister that we should agree with the Commons. I recommend that to the Government. However I shall explain the true reason. It is that if we put "income" into the question, we should be asking a deceitful question, because the proposition before the Scottish people, contained in Chapter 7, goes a good deal wider than income tax. That we teased out yesterday.

If it comes about, it gives the Scottish parliament power to vary and to change the form of local authority income. The council tax could be increased of course. It could be replaced or added to by a local income tax, a sales tax, or, according to the Government's partner in these operations, the noble Lord, Lord Steel of Aikwood, by charges. A charge by any other name would sound as sweet, I suppose. We know that the cat has been let out of the bag on this.

Despite the best endeavours of the noble Lord, Lord Williams of Mostyn, to answer my question, I am still just a little bit at a loss to understand the answer as to the consequences of what will happen if the parliament cannot raise £450 million. Let me try once again, but for the last time. If the parliament is to be allowed to raise £450 million as its upper limit (index linked), that is fine. At the moment, that is equivalent to having an additional 3p in the pound on income tax for those of us resident in Scotland.

Let us assume that the Chancellor decides to narrow the tax base of the 23p rate. Then obviously the tax take will reduce. Let us say that it goes down to £400 million. So £50 million will have to be raised from somewhere else. Is it to be raised from breaching the 3p in the pound, or—this is the rub, and why the word "income" must come out, as the Commons have rightly suggested—is it to be raised by some other tax?

Frankly, I did not understand the answer that I received last night from the noble Lord, Lord Williams of Mostyn. I do not think that anyone bar the noble Lord understood his answer. I have tried to simplify it to see whether I can, at last, obtain an answer from the noble Lord, Lord Sewel. If I cannot obtain an answer—I just warn the noble Lord, Lord Sewel—he will be receiving correspondence from me during the Recess in which I shall be keeping at this issue.

It seems absolutely clear to me that that parliament will have a lot more powers over revenue than just income tax. I am pleased to see that the noble Lord, Lord Desai, agrees with me, because he said clearly, and rightly as an economist, that it is foolish to tie a parliament's hands to just one form of raising its revenue. That is why the Government want to overturn your Lordships' amendment. As I said on the previous amendment, a little honesty and integrity would be welcome, and we would know where we were.

When I come to vote on this question, I shall not be voting "No" just to stop the parliament from raising my income tax. I shall be voting "No" to stop it raising a whole raft of taxes on me, my fellow Scots, and the Scottish economy. I commend the amendment to your Lordships. Without meaning to be, the Government are being refreshingly honest.

Lord Steel of Aikwood

My Lords, I think that the noble Lord, Lord Mackay of Ardbrecknish, referred to me as the partner in crime, or something, of the Government. Let me assure him that on this issue I have no sympathy whatever with the Government. They have made a rod for their own back with the second question on the referendum. If the referendum itself was thought by many of us to be entirely unnecessary, the second question is thought by most of us to be totally absurd.

Why on earth Her Majesty's Government should pick out one aspect of the proposal and invite the people of Scotland to pass comment, I do not know. Why did they not choose the electoral system and ask, "Do you or do you not approve of that?"? Why did they not choose the relations with Europe, referred to in the White Paper? They have invented the second question for reasons best known to themselves. It is certainly not approved of by me or my colleagues on these Benches. The question of whether the word "income" is or is not included seems to me to be relatively unimportant. However, I have to say that the White Paper is clear, whatever the reasons behind it.

Chapter 7, page 21, of the White Paper states: the Scottish Parliament has a defined and limited power to vary central government taxation in Scotland and alter its overall spending accordingly". That is the point. The proposals which will be brought forward in the legislation will constrain the Scottish parliament on those matters that affect central government taxation only; for example, income tax, VAT and national insurance contributions. Those cannot be varied. However, as I said yesterday, the Scottish parliament can do whatever it likes, apart from those matters which are reserved to the Westminster Parliament.

If the Scottish parliament, in its madness, were to decide to tax caravans, hotel beds or whatever, it can do that. That is within its powers. Where I differ from the noble Lord, Lord Mackay of Ardbrecknish, is that I have a basic confidence in the common sense of the Scottish people and in the politicians whom they will elect, even if they were to elect Conservatives.

At the end of the day, whatever the parliament does, it will have to answer to the Scottish people. The idea that we shall have a parliament in Edinburgh running amok, putting taxes on all over the place, is just Cloud-cuckoo-land. The noble Lord, Lord Mackay of Ardbrecknish, should be a little more trustful of the people of Scotland.

My final point to the Conservative Party is that I well remember the arguments on this very issue in the 1978–79 period. I well remember the Conservative Party in general, and the late Lord Home in particular, arguing against the proposals in 1979 on the ground that the Scottish parliament had no fiscal responsibility. Now that fiscal responsibility is being given to it, it objects again. The truth is that it remains against the whole scheme, and it might as well be honest about it.

12 Midday

Lord Campbell of Croy

My Lords, I rise to thank the noble Lord, Lord Sewel, for courteously giving way in his opening speech. I intervened because I thought that it was the right moment to ask about the key words which he was reading. He stated that the varying power would operate on income tax.

My noble friend Lord Mackay of Ardbrecknish pointed out that local authority taxation—that is, council tax and so forth—will be separately within the power of a new parliament. However, as regards central government taxation, again I ask whether the Minister can give an assurance that the varying power will be restricted to income tax?

Lord Rowallan

My Lords, I rise to ask a question. In yesterday's debate the Minister said: Let me—I hope for the last time—put the record straight. What we are proposing is that the Scottish parliament will have power to increase or decrease the basic rate of income tax set by the UK Parliament by a maximum of 3p". 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 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 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 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.

Baroness Carnegy of Lour

My Lords, will the Minister tell us what information the public is to receive on that subject? I think we were told that a summary of the White Paper will go to every household. Will that summary include all the paragraphs which relate to this matter so that the people know what the ballot paper means? Will there be an explanation and, if there is an explanation, will it explain to people what the Minister has just explained to us? This is quite a complicated matter. If people are to answer a specific question, they must know what it is that the Government are saying.

Lord Sewel

My Lords, the summary will be a summary. It will not contain all the paragraphs in the White Paper by any means. We shall make available to the people of Scotland and Wales a summary in simple, straightforward, plain English of what are the powers of the Scottish parliament and Welsh assembly, including the tax varying powers for Scotland.

On Question, Motion agreed to.