§ (" .—(1) The Scottish Executive shall after the first financial year of the Parliament make an annual written statement showing—
- (a) the total amount of the expenditure which it proposes to incur for that year; and
- (b) on what it proposes to incur that expenditure,and shall present it to the Parliament for approval.
§ (2) After the Parliament has approved the proposed expenditure for that year, a statement under this section shall be published by the Parliament as soon after being made as is reasonably practicable.").
§ The noble Earl said: The idea behind the new clause is to make quite certain that the Scottish parliament, after its first year in office, produces a budget of its expenditure similar to that produced by the Chancellor of the Exchequer in another place. In my experience of legislation in respect of local government there has always been a surprising difference between my friends in local government in England and those in Scotland. Those in England always ask for more accurate forecasting of what the local authority wishes to spend than appears to be required by Scottish local authorities.
1711§ It is important that local authorities should be able to give an accurate forecast of their proposals. The budget can then be discussed and alterations may then be required. I see nothing in the Bill covering the point I am raising. I beg to move.
§ Lord Selkirk of DouglasMy question relates to emergencies. I vividly remember the night of the appalling tragedy at Lockerbie and travelling North with Mr. Donald Dewer. Apart from the terrible scale of the tragedy, there was the immediate problem that the local authority did not have the funds to deal with such an emergency. I believe that application was made to the contingency reserve and funds were provided independent of the local authority.
Will the Minister give a reassurance that there is nothing in the legislation to prevent the Scottish executive applying to the contingency reserve if there is an emergency, which I sincerely hope never again happens in that form?
§ Baroness Ramsay of CartvaleAmendment No. 276 would place an obligation on the Scottish executive to make a statement of its proposed expenditure to the Scottish parliament. There is a similar provision in the Welsh Bill and the noble Earl may well have had that in mind when he tabled this amendment. However, there are two important differences between the Scottish parliament and the national assembly for Wales in this respect. The national assembly does not have a separate executive, nor can it enact primary legislation. In this particular case, those are crucial differences. It is the Scottish parliament that will hold the executive to account and it will legislate for that.
Clauses 62 and 66 provide that the Scottish parliament has to make legislation covering the circumstances that payments may be made out of the Scottish Consolidated Fund as well as the arrangements for financial control, audit and accounting. I have no doubt that the parliament's procedures will meet all the essential points made by the noble Earl. But we should not attempt to tie it down to such detailed arrangements.
I assure the Committee that the Government are satisfied that the Bill strikes the right balance through providing a framework for the parliament to make robust financial arrangements while leaving it the scope to decide its own affairs. Only in that way do we believe that the parliament can really take ownership of its procedures and, it is hoped, ensure their success.
I can give the noble Lord, Lord Selkirk of Douglas, the reassurance that he seeks. There is nothing in the Bill to stop what he has spoken about. I am sure that all Members of the Committee will join with him in hoping that such a terrible event never happens again, but there is nothing in the Bill to prevent the procedure that he described. I ask the noble Earl to withdraw his amendment.
The Earl of BalfourOnce again, I am most grateful to the noble Baroness, Lady Ramsay, for her explanation. I am satisfied that my wishes are covered in the Bill. Perhaps I did not pick up all the points, even when I read the Bill.
§ Amendment, by leave, withdrawn.
§ Clause 66 [Financial control, accounts and audit]:
§ The Earl of Balfour moved Amendment No. 277:
§ Page 28, line 26, at beginning insert ("Subject to directions given from time to time by the Treasury,").
§
The noble Earl said: Once again, I have always felt that the Treasury must have the last say. That is why my amendment provides:
Subject to directions given from time to time by the Treasury".
Also in this group is Amendment No. 278 which stands in my name. I believe that the presentation of the accounts produced by the Scottish parliament must be such that the Treasury is satisfied in the way in which those accounts are kept.
§ I know from my limited experience in business that sometimes there has been an awful row between the auditor of the accounts and the company secretary that the two accounts are not being kept to the satisfaction of either of them. Such a tragedy can sometimes happen and create a great many difficulties. That is the basic reason behind my amendment. I beg to move.
§ Lord Mackay of ArdbrecknishI have two amendments grouped with the amendments to which my noble friend has just spoken. My noble friend and I are looking at the same issue and perhaps approaching it in a slightly different way. I suggest the removal of Clause 66(3) which simply states:
Standing orders shall provide for the consideration by the Parliament of accounts and reports laid before it in pursuance of subsection (1)(f)".I am including rather firmer proposals which are much more detailed and outline some specifications for the accounts. Like my noble friend, I agree that the Treasury should have the right to give any directions from time to time.I suspect that we shall have to return to this matter on Report because I am not entirely convinced that my amendments achieve what I want them to achieve. That is one of the problems of being in opposition. However, sometimes the Government have clauses which do not achieve what they want them to achieve. The Minister has, in fact, deleted a couple of clauses from his own Bill. Therefore, I am not too ashamed that my amendment does not do exactly what I should like it to do.
There was considerable debate about this problem in the other place which was led by my honourable friend Mr. David Davis who is the chairman of the Public Accounts Committee. I wondered about putting anything down at all on this matter, because it is very much a House of Commons matter. But, in fact, when it was left in the other place, Mr. David Davis expressed the hope that Members of this Chamber would explore the issue. That is what we are doing.
In the other place there is a very well-honed system consisting of the Public Accounts Committee and the Comptroller and Auditor General. Indeed, the Public Accounts Committee is, arguably, quite the most fearsome of all the committees in the other place. It is always chaired by a Member from the main Opposition 1713 party. That is why my honourable friend, David Davis, is currently the chairman and why the Member so assigned in the last Parliament was a Labour Back-Bencher, and a very powerful one at that with considerable Treasury experience behind him.
Therefore, the other place has a system whereby it can call into account all the expenditure of departments, and so on. It ensures that, if the Comptroller and Auditor General reports adversely, the Treasury Committee will hold hearings. Indeed, I believe that has been happening during the past few days as regards my former department on the subject of benefit fraud, which, if I recall, was not supposed to exist when we said it did. However, I am glad to see that everyone now accepts that it does exists and that we must try to get rid of it. Nevertheless, I should point out to the Government that that is easier said than done.
However, this is an extension of the earlier debate that we had in which I suggested that the Secretary of State ought to be satisfied that proper controls were in place in order to check and audit the expenditure in exactly the same way, or in a similar way, to the way in which the Comptroller and Auditor General and the Public Accounts Committee do in the other place. Therefore, my amendment would firm up what subsection (3) talks about in two lines. It would be much more specific than just saying that, "standing orders shall provide".
Clause 66 specifies a limited framework of accountability, if one reads through the first section and the various subsections that follow. It sets out in a limited way the accountability and scrutiny which the Scottish parliament must adopt, but the parliament will remain largely free to devise its own procedure. I will probably be told by the Government that I should leave this to the good sense of the parliament. Indeed, that is the response I get when I suggest that something should go into the legislation. However, when I suggest that perhaps something should come out, as I did with the Liberal Democrat Benches on the last day of Committee, I am told that it must be left in. It is all very complicated and I make no apology for weaving a bit, because the Government are also weaving around on this issue as regards what should and should not be specified.
I accept that it will be up to the parliament to devise its own procedures. However, my amendment would give the Treasury the power to make directions in such matters if it thinks it needs to do so. I suspect that what will actually happen, even without my amendment, is that the Scottish parliament will discuss these matters informally with the Treasury and that the procedures established will be perfectly satisfactory. But, if they are not perfectly satisfactory, I believe that the Treasury should have some power to insist. My reason is the same one as I used earlier; namely, that the £14 billion will come from money raised by the Treasury at the instruction of Parliament—in other words, it will come from British taxpayers—but, as we have already heard, the procedures down the corridor for overseeing expenditure by government departments will not cover 1714 that money. It seems to me to be right and proper that the Treasury should be satisfied that proper monitoring and control is in place in Scotland.
The second half of my amendment, Amendment No. 278B, relates to the Auditor General for Scotland. However, I believe that I ought to have tabled an amendment to remove subsections (4) and (5) from Clause 66 because the second part of my amendment would replace those subsections. I hope that the Minister will accept an apology from me in that respect. Nevertheless, I am quite sure that he and his officials saw clearly what I was trying to do.
Amendment No. 278B would set up the appointment of the Auditor General, who would be an independent person and appointed by Her Majesty. It also specifies the way that he or she should be removed. However, there is one significant difference; namely, that the removal contains no specification as to the majority, whereas the Government have a qualified majority of two thirds in the Bill. Subsection (5) provides that,
the number of members voting in favour is not less than two-thirds of the total number of seats for members of the Parliament".We do not have such qualified majorities here. Indeed, we have never felt that they were needed. The other place operates on a simple majority, as does this Chamber. I wonder why the new parliament requires a qualified majority.I may be told that we should not necessarily ape Westminster, but if we are being consistent as regards the usual explanation that we should trust the parliament, we ought to be able to trust it with a straightforward ordinary majority. Before the Government Ministers tell me how important qualified majorities are, I remind them of the scathing dismissals I received from the Government Front Bench when I suggested that referendums ought to have qualified majorities. It seems to me that if the Government think that a totally unqualified majority in a referendum is good enough, I suggest that the Auditor General could be dismissed on an ordinary straightforward majority without qualification.
§ 9.30 p.m.
The Earl of BalfourI support my noble friend in respect of the auditors. I know that some quite big companies can change their auditors almost by a simple majority. I do not say that we quite want that, but is it wise to have this larger majority—two-thirds—to change an auditor? I should have thought not.
§ Lord SewelI offer a rough and ready rule of thumb on this business of what is "in" and what is "out". Basically, we would make far quicker progress if we accepted that what is in should remain in, and what is out should remain out. I would move an amendment to that effect to cover the whole of the Bill, if need be.
Amendments Nos. 277 and 278 would require the Scottish parliament, in setting out its detailed rules for the effective control and scrutiny of spending of the Scottish executive, to do so in accordance with directions made by the Treasury from time to time. The difficulty is, of course, that, essentially, that strikes at 1715 the essence of devolution and cuts across the guiding principles behind Clause 66; namely, that the detailed procedures which the Scottish parliament makes to control and scrutinise the spending of the Scottish executive should be a matter for the Scottish parliament itself. Only in this way can the parliament take full ownership of its own procedures and so be committed to ensuring their success.
Furthermore, if the parliament is to hold the executive to account, it follows that it, not some external source, should decide on the details of the accounting. I am satisfied that the provisions in the Scotland Bill strike the right balance between prescription in relation to the matters the parliament must make provision for, while leaving it the maximum degree of freedom.
Of course we shall ensure that the parliament and the executive are given the best possible advice in these matters. That is why we set up the consultative steering group and the financial issues advisory group. Therefore they will not approach this matter "cold"; there will be much experienced professional advice not just available to them, but—not to beat about the bush—virtually rammed down their throats. On that matter they will be in a position to make the proper decisions on the basis of those recommendations. However, it is still an important point of principle that they should make the decisions for themselves. In that way they are committed to them; they accept ownership of them; and they will want to ensure that they are a success. On that basis I hope that the noble Lord feels it possible not to press his amendment.
As regards Amendment No. 278A, I am slightly puzzled as the amendment seeks to delete Clause 66(3) which makes provision for consideration of accounts and reports by the parliament. Clearly we shall return to the point slightly later in our proceedings. I look forward to the explanation.
Amendment No. 278B, covers a number of issues which I shall now turn to. The first concerns the form of the accounts, and suggests that these should be directed by the Treasury. That undermines the principle of devolution. It is important to realise the nature of the parliament we are establishing. It will be a legislative body with law-making powers, and—crucially in this context—it will have a clearly defined and separate executive. In these circumstances, it is the right, indeed the duty, of the parliament to hold the executive to account. It follows that it, not some external source, should decide on the details of the accounting.
As I have said, we shall ensure that the parliament and executive are given the best possible advice in these matters. However, it will be up to the parliament to decide for itself on the basis of the advice it has on the final shape of the arrangements.
The second point relates to the accountability of other bodies. In this respect it is important to realise that the Bill leaves underlying legislation regarding the accounting and auditing of other bodies such as health service bodies, non-departmental public bodies and local authorities substantially in place. It may modify the auditing by transferring it to the Auditor General for Scotland, and provide for reports to be made to the 1716 Parliament. But the essentials are the same. The parliament may, of course, modify those provisions, but it need not do so. Government Amendment No. 278AA clarifies that it may do so even where the body deals with both reserved and devolved matters but is funded from the Scottish Consolidated Fund. That is there to cover that eventuality.
The third also proposes the designation of accounting officers, and the fourth arrangements for the appointment of the independent auditor by Her Majesty along with certain safeguards in relation to that person's removal from post. I must admit to being confused by the noble Lord's suggestion. As he will no doubt know, similar amendments were proposed by the right honourable Member of Haltemprice and Howden, Mr. Davis, in the other place. In response to the concerns the honourable Member expressed, my right honourable friend the Secretary of State for Scotland tabled amendments which make provision for these matters. These fulfil the commitment given to the right honourable Member for Haltemprice and Howden that we would consider ways to strengthen the independence of the head of the audit service and for the appointment of accounting officers. The new sections can be found at Clause 66(1)(e), which refers to the appointment of accounting officers, and at Clause 66(4) and (5) covering the matter of the appointment and removal of the Auditor General for Scotland by Her Majesty.
At the risk of inviting the noble Lord, Lord Mackay of Ardbrecknish, to return to the referendum debate and bring in various members of his family, I do not think that the issue of qualified majorities in relation to a referendum and the need for a qualified majority to ensure a degree of protection and independence to an officer such as the Auditor General are comparable. I ask the noble Lord to withdraw his amendment.
§ Lord Mackay of ArdbrecknishBefore my noble friend decides what to do with his amendment, I am grateful to the Minister for his explanations. We shall study his amendments when we see them as a unified part of the Bill. They go a little way, but not very far, towards satisfying some of the problems that were raised.
It is the raising of moneys that is the problem. It is not an independent parliament which raises its own money. The problem is that it will be the other place that will still be raising the money. The question mark is over the ability of the raiser of the money to check that the auditing and accounting procedures etc. are properly in place. So perhaps I should not have included the Treasury—perhaps it should have been the House of Commons, the Public Accounts Committee or even the Comptroller and Auditor-General, to make sure that there is, as it were, a trace between the £14 billion raised through supply and its actual spending.
I can understand the difficulty of creating that trace when we want to ensure that the parliament looks after itself responsibly. Equally, I do not think we can ignore the fact that the other place has to raise the money. That is the problem to which I return. Will the Minister say what role he envisages the Public Accounts Committee in the other place will have as regards the £14 billion 1717 or the Comptroller and Auditor General? Will they rely entirely on scrutiny in the Scottish parliament? If so, we must find a way for them to be satisfied that they can rely entirely on the procedures in the Scottish parliament. If the Minister can give me some assurances on that, I would be more than content. However, I can understand that it is a complicated area and he may prefer to write to me before we get to Report.
§ 9.45 p.m.
§ Lord SewelI am grateful for the spirit in which the noble Lord offered those comments. I shall take advantage of his invitation to write to him on those matters and ascertain what progress can be made.
§ Baroness Carnegy of LourBefore my noble friend Lord Balfour decides what to do with his amendment, I do not believe I heard the Minister say what I understood to be the case. The auditor general in Scotland is not the auditor of the Scots parliament. He is not its auditor; he is an independent person appointed by Her Majesty to do the job independently. That is why the two-thirds majority recommendation is set. Is that right?
§ Lord SewelI am afraid that Her Majesty, knowledgeable as she is, would not act independently to appoint the auditor general. She would act on the basis of advice received in Scotland. The protection is there and there are examples from the local authority background. I believe it was the old sanitary officer who could only be sacked subject to a complicated arrangement. It is simply to protect that particular official, to give him a degree of protection, to secure his independence. The parliament would have to cross a significant barrier in order to dismiss him. It could not be done on the basis of a slight political whim.
§ Baroness Carnegy of LourDoes the parliament then have to approve the name of the auditor general? I have not seen that anywhere. The noble Lord said that it has to be on the advice of someone in Scotland. How does a person become appointed? The independence is quite important. I do not wish to hold up matters, but it seems to me that there must be a reason for the two-thirds majority.
§ Lord SewelThe parliament appoints him. It is difficult to see who else would appoint him; it would be inappropriate for the executive to do so. It is the parliament that appoints him and, having once appointed him or her, it is necessary to give him a degree of protection.
The Earl of BalfourI am glad I initiated the discussion because it has cleared my mind a great deal. I should be most grateful if the Minister could send me a copy of the letter on this point as well. Otherwise, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
1718§ Lord Sewel moved Amendment No. 277A:
§ Page 28, line 33, leave out ("independent").
§ The noble Lord said: There is a somewhat daunting list of amendments in this group: Amendments Nos. 277A, 277B, 278AA, 278AB, 278AC, 278C to 278J and 294ZZA. They are mainly technical. The substantive point about the amendments concerns cross-border public authorities which receive part of their income directly from the Scottish Consolidated Fund. In practice they are likely to be two bodies: the Forestry Commission and the proposed food standards agency. In these cases the current provisions in the Bill could very well mean dual accounting and dual auditing. Obviously, it would be sensible for such bodies to provide only one account with, if necessary, an apportionment to Scotland as well as the other parts of the United Kingdom and for that account to be audited only once; for example, by the Comptroller and Auditor-General. It could well be that such an arrangement would suit the needs of both this Parliament and the Scottish parliament.
§ The effects of Amendments Nos. 278C to 278F are to make it possible for such an arrangement to be made, probably under an order under Clause 84 of the Bill. The other amendments in the group clarify the provisions regarding the Auditor-General for Scotland and the competence of the Scottish parliament to provide for the accountability of persons receiving sums derived from the Scottish Consolidated Fund, even where those sums are used for functions in relation to reserved matters. I beg to move.
§ Lord Mackay of ArdbrecknishI am grateful to the noble Lord for his explanation of these clauses. I am brought to my feet more by a mention of the Food Standards Agency and the Forestry Commission. In some way I managed to omit an amendment to allow us to discuss the Forestry Commission and I shall not use the Minister's mention of it to introduce a debate on it. To some extent I failed to see the wood for the trees when tabling the amendments. However, I am interested in that subject and the Minister must be slightly surprised that there was not an amendment in relation to the Forestry Commission. That will be rectified on Report.
I rise to say to the Minister that this is quite a change and it is difficult to read one's way through it. Normally, if everything had gone to plan we would be having our last day today and over the Recess would be in possession of a reprint of the Bill for Report. For a number of reasons of which everybody is aware, we are not finishing today and will have a day in the overspill. Is it possible for the Minister to send me a letter containing the new clause as it will appear in the reprint which we would receive in October after the last day? I would find that handy in the Recess—not that I intend 1719 to work much in August, so the noble Lord need not hurry, but perhaps by September I may wish to turn my attention to the matter again.
§ Lord SewelThe noble Lord, Lord Mackay of Ardbrecknish, is eminently reasonable in his request, as always, and we will endeavour to meet it.
§ Lord Hope of CraigheadAs the Minister said, this is a formidable list of amendments. It is the two simplest which caught my eye—Amendments Nos. 277A and 277B. Perhaps he could give a word or two more in explanation.
Amendment No. 277A takes out the word "independent" from Clause 66(1)(c). The Auditor-General of course is an independent person. The clause gives him power to allow other persons to exercise the functions. I am not sure why the word "independent" is being taken out. Perhaps an explanation could be given.
The other point relates to Amendment No. 277B, which deletes from Clause 66(2)(d) the words,
or by the Scottish Ministers".I can see that on one view those words are unnecessary because Clause 66 deals with movement of money in and out of the Consolidated Fund. I assume that if money is being given to other persons from the fund, one of the channels by which that will happen is through the hands of Scottish Ministers. It may be that that is the reason why these words are being deleted.If that is being done, I am not sure why the wider phrase "their resources" is used in subsection (1)(c) where the function extends to looking at the use by Scottish Ministers and the Lord Advocate not simply of moneys obtained from the Consolidated Fund but also of resources.
It is late in the night to expect an answer to those questions. Perhaps the Minister will look a little more carefully at the relationship between subsection (2)(c) and (d). My essential point is that as I understood the clause as a whole it was concerned only with the consolidated fund. The use of the words "their resources" raises a slight concern that the functions of the auditor may extend more widely than the movement of monies in and out of the consolidated fund.
§ Lord SewelI can clarify at least part of the points raised by the noble and learned Lord. Amendments Nos. 277A and 277B are consequential to Amendments Nos. 278AC and 278AA respectively. I doubt that that adds any clarification whatever.
Amendment No. 277A ostensibly has the effect of no longer requiring that persons appointed by the Auditor-General for Scotland to undertake audits of value-for-money studies need be independent. That is not the case. The independence of such people is provided for in government Amendment No. 278AC. This amendment is consequential to it. I hope that deals with that.
Amendment No. 277B is consequential on government Amendment No. 278AA. Amendment No. 278AA makes it clear that the parliament can legislate to ensure that persons receiving money 1720 indirectly from the Scottish Consolidated Fund for example, through a grant from the Scottish Ministers—are accountable to the parliament for the functions for which those sums are received. These functions could relate to reserved matters—for example, in the case of a Scottish public authority—with a mix of devolved and reserved functions such as the local authorities. The purpose of the amendment is to clarify that the parliament can legislate on the accounting and auditing arrangements when non-departmental, public or similar bodies undertake reserved functions using monies from the Scottish Consolidated Fund. I hope that goes at least part of the way.
§ Lord Hope of CraigheadI am most grateful for that explanation.
§ On Question, amendment agreed to.
§ Lord Sewel moved Amendment No. 277B:
§ Page 29, line 12, leave out ("or by the Scottish Ministers").
§ On Question, amendment agreed to.
§ [Amendments Nos. 278 and 278A not moved.]
§ Lord Sewel moved Amendment No. 278AA:
§
Page 29, line 16, at end insert—
("(3A) Scottish legislation may make further provision for the purpose of ensuring that persons who receive sums derived from the Fund are accountable including, in particular, provision for any person to whom subsection (1)(a) does not apply to be accountable for his expenditure and receipts in respect of functions for which he receives sums derived from the Fund.").
§ On Question, amendment agreed to.
§ Lord Sewel moved Amendment No. 278AB:
§ Page 29, line 18, leave out ("independent person") and insert ("individual").
§ On Question, amendment agreed to.
§ Lord Sewel moved Amendment No. 278AC:
§ Page 29, line 25, leave out subsection (6) and insert—
§ ("(5A) The Auditor General for Scotland shall not, in the exercise of any of his functions, be subject to the direction or control of any member of the Scottish Executive or of the Parliament.
§ (5B) Subsection (5A) does not apply in relation to any function conferred on him of preparing accounts.
§ (6) Persons (other than the Auditor General for Scotland) charged with the exercise of any function mentioned in subsection (2) or other like function conferred by Scottish legislation shall not, in the exercise of that or any ancillary function, be subject to the direction or control of any member of the Scottish Executive or of the Parliament.").
§ On Question, amendment agreed to.
§ [Amendment No. 278B not moved.]
§ Lord Sewel moved Amendments Nos. 278C to 27811:
§ Page 29, line 28, leave out from beginning to ("requires") in line 29 and insert ("Scottish legislation may not require any cross-border public authority to prepare accounts if any other legislation").
§ Page 29, line 30, leave out from ("of") to second ("and") in line 31 and insert ("its expenditure and receipts").
1721§ Page 29, line 33, at end insert (", the Comptroller and Auditor General or a person appointed by either of them; and in this subsection "other legislation" means any enactment (including one made under this Act) other than Scottish legislation.").
§
Page 29, line 40, leave out ("the") and insert—
("(a) any").
§
Page 29, line 41, leave out ("the") and insert—
("(b) any").
§ Page 29, line 42, at end insert ("which are required to be examined, certified and reported on by the Auditor General for Scotland or any person appointed by him,").
§ On Question, amendments agreed to.
§ On Question, Whether Clause 66, as amended, shall be agreed to?
§ Lord LyellAmendment No. 278J is in the happy list of groupings, but seems to be informal. The noble Viscount, on the advice of the Minister, stopped at Amendment No. 278H. Have I been asleep and missed out? What happened to Amendment No. 278J?
The Deputy Chairman of Committees (The Viscount of Oxfuird)The noble Lord will realise as he studies the briefing that we stop at Amendment No. 278H to put the clause. Then we follow it with Amendment No. 278J, which also applies to Clauses 67 and 68.
§ Clause 66, as amended, agreed to.
§ Lord Sewel moved Amendment No. 278J:
§ Divide Clause 66 into two clauses, the first (Auditor General for Scotland) to consist of subsections (4) to (5B) and the second (Financial control, accounts and audit) to consist of subsections (1) to (3A) and (6) to (10).
§ On Question, amendment agreed to.
§ Clauses 67 and 68 agreed to.
§ [Amendment No. 279 not moved.]
§ Clause 69 [Power to fix basic rate for Scottish taxpayers]:
§ 10 p.m.
§ Lord Mackay of Ardbrecknish moved Amendment No. 279A:
§ Page 30, leave out lines 36 to 38.
§ The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 281BA. We have made some good progress in the past hour or so. I suspect that we shall now slow up because we now come to the part of the Bill dealing with the tax varying powers. I firmly believe that this requires a great deal of examination and questioning.
§ I am bolstered in that view by a letter which my noble and learned friend Lord Mackay of Drumadoon received from the Institute of Chartered Accountants of Scotland. The letter is written by Charlotte Barber, the institute's assistant director on taxation. I shall not quote the whole of the letter but I wish to give the Committee the flavour of some of it. It underlines the need for some serious thought to be given to the way the next few clauses, including the one we are discussing, are drafted and the 1722 approach the Government have taken with regard to the tax varying powers. I am not arguing whether or not there should be tax varying powers. That was decided in the referendum. I am looking at how the Government are delivering the tax varying powers.
§
The letter from the institute states:
However, we remain concerned about the quality of the proposed legislation in the following respects. We are strong supporters of the tax law rewrite project and question why this approachable technique has not been used here. The financial provisions in the Scotland Bill do not make easy reading".
If I asked how many of your Lordships were content with that, I think the answer would be all content and no one not content. That would be pretty much the view of all noble Lords.
§
The letter goes on to state:
Although we welcome the Inland Revenue consultation document about the Scottish variable rate, it runs to some 44 paragraphs of explanation—about seven clauses in the Bill—and is not even intended to be comprehensive. It seems quite wrong that such an amount of explanation is required and suggests that the underlying legislation lacks clarity".
Those noble Lords who have tried to wade their way through the 44 paragraphs, unless they happen to be members of the Institute of Chartered Accountants, probably became as lost as I did. I understood a few of the paragraphs but I failed miserably to understand a few others.
§
The letter continues:
The commentary provided by the Revenue seems to be contrary in parts to the underlying legislation. For example, in the commentary there are instances where the Inland Revenue has decided to forgo its power of collection as a commercial decision because collection would cost more than the money involved. This is sensible and is not to the detriment of the taxpayer. However, the Inland Revenue does not have the prerogative to deny a taxpayer relief to which he is entitled nor, for administrative convenience, to reduce another person's income. We question the approach taken to charitable covenants, particularly the impact this approach may have on Scottish-based charities such as the Church of Scotland and the SSPCA, to name but two".
I shall come to that on another amendment.
§
The letter continues:
We are of the opinion that the principles of constitutional change should be clearly implemented. Underlying the Scottish variable rate is the principle that the electorate of Scotland has accepted a degree of fiscal responsibility. The fiscal discretion may only be marginal but the objective of the SVR is to ensure that the Scottish parliament is accountable to its electorate for the spending decisions which it makes. We recommend that there should be further consideration of these fiscal clauses to ensure that the defects apparent are corrected. Of equal concern, the cost of maintaining the register of Scottish taxable persons and the costs of collection of tax would appear to be substantial and disproportionate to the compliance costs of other forms of taxation. The tax may increase in the future or the legislation could be used as a prototype for other regional assemblies. Either way, the legislation should be clear and comprehensible".
§
The letter then goes on to something with which some Members of the Committee may have a great deal of empathy. It states:
The state has a fundamental duty to the taxpayer who must self-assess to specify clearly any tax liability. There appears to be no reason why the financial provisions need to be rushed at this stage given that it will be a number of years before the tax is to be levied. Surely now is the time to consider carefully and fully how the Scottish variable rate can best be implemented. In our experience
1723
with Finance Bills, there is very rarely sufficient parliamentary time to revisit unsatisfactory tax laws at a later stage; nor is a series of Revenue explanatory papers a solution, as discussed in Pepper v. Hart".
I have read that out to underline the fact that the professional bodies are not very happy with these clauses. If they are not very happy, I am sure that that leaves those of us who are laymen in these matters even less happy.
§ I recall when I spoke from the Government Benches on behalf of the Treasury taking part in a hugely interesting debate one Friday about writing simple legislation. We had an example of sections of a Finance Bill written simply. The difference between what we write now and what the group suggested that we could write in the future was the difference between chalk and cheese. I see the noble Lord, Lord Borrie, assenting. I am not sure whether he was present for that debate, but the example given was remarkable. I fully endorse the idea that we could write these seven clauses more simply.
§
I come now to my amendment, having discussed the background to the next few clauses. I am sorry to have gone on a bit, but these are important matters. The Government's problem is this: it all seemed so simple at the start. Paragraph 7.13 of the White Paper stated:
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. This is consistent with the recommendations of the Scottish Constitutional Convention. 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 £450m. It is of course possible that future changes to the UK income tax structure might reduce the value of the product of the Scottish Parliament's tax-varying power".
§
I bet that they sometimes wish that they had never written the next sentence:
In these circumstances, the Parliament's ability to raise or forgo up to £450m through the tax system will be preserved".
That is the rub.
§ When the Secretary of State discussed these matters in the other place, he explained the same thing in slightly different words. He said that the Government were trusting the people of Scotland to make choices on their own behalf and that they must therefore face the real financial choices. He said that the 3p in the pound variation was devised to do that. He went on to say that if the parliament's power to raise the £450 million, which would be index-linked to preserve its real power, were eroded at some hypothetical future date by changes in the UK tax structure, an alternative base with the same sort of impact in terms of distribution would be provided by the Treasury. That explains why we have Clause 72, which is hugely complex.
§ Reading the debate in the other place, it is quite clear that the Government had no clear idea how any difference would be made up. If some day in the future the basic band were to be reduced in range and size, naturally the take from a penny rate in Scotland would reduce. We all follow that. Let us assume for a moment that the parliament increased it—"decreased" is far too fanciful and complicated—by 3p, which is the maximum, and it did not bring in the £450 million. 1724 The question that is asked again and again is how that gap would be bridged. No answer, good or bad, has been given. Clause 72 more or less says that it should all be left to the good sense of the Treasury. It is fairly heavily hedged about with expressions such as "if the Treasury thinks", "if the Treasury sees fit", and so on. I do not believe that that is satisfactory.
§ I notice that in his Second Reading speech the Minister changed the £450 million of Holy Writ—the White Paper and the constitutional convention—to £400 million. I am puzzled as to what calculation has been made that results in the loss of £50 million from the ceiling. We must be clear as to exactly how much money we are talking about. As it stands the Bill refers later to the amount raised in relation to the year 1997–98. If that is less than £450 million it is at variance with the recommendations of the constitutional convention and the White Paper.
§ If I committed an offence of that severity and went against both the White Paper and the constitutional convention I would be given a serious dressing down by whichever government Minister replied. The problem is that the Government tried to link 3p and £450 million. They should have specified 3p or up to 3p. If those who examined the legislation asked the Government what would happen if the Chancellor reduced the basic rate band, or something else occurred to reduce the take, Ministers would say, in their usual elegant and well-argued manner, "hard luck".
§ The alternative is to take the £450 million and say that that is the figure that can be raised or lowered on the basis of the basic rate. The Scottish parliament would then have power to pass a resolution changing the basic rate, perhaps by 3p or 3½p. I doubt that it would be more than 4p in any conceivable circumstances. That is exactly what my two amendments seek to do. They would remove the necessity for some of the subsequent clauses. I offer them in good faith. I may be accused at some future date of making the Scottish variable rate 3½p or 4p. I am prepared to put on my devolutionary hat and stand shoulder to shoulder with the Minister and the noble Lord, Lord Steel of Aikwood, to defend that position. I believe that that is much simpler.
§ However, £450 million will be taken away from Scottish taxpayers by one means or another. I believe that it is much more sensible to take it away by the one means available in the Bill; namely, the Scottish variable rate. If the Government accept my amendment, Clause 72 could be deleted. That would delight everyone, including I suspect the draftsman who is perhaps less than confident about exactly what the provision would deliver. My amendment may be defective, although I have had it drafted by people who take a good deal of interest in finance Bills and who draft amendments to such Bills. Even if it is defective I believe that the principle is more open and allows the Government to re-write this part of the Bill to make it much simpler. It will also deliver to the Scottish parliament what that body and the Scottish people believe they will get; namely, an increase or decrease of up to £450 million, to be achieved through varying the basic rate of income tax.
1725§ I hope that the Minister accepts this amendment in the way intended. I believe that it is a method of simplifying a horribly complicated way of collecting no more than £450 million. I beg to move.
§ 10.15 p.m.
§ Lord LyellI am delighted that the county of Angus is here and that my noble neighbour the noble Lord, Lord Mackie, is leaping to his feet. I too have received extensive briefing from the chartered accountants of Scotland. The noble Lord, Lord Mackay of Ardbrecknish, has very considerably shortened any remarks which I may wish to make now or at a later stage.
The Minister may remember, as I am sure the noble Baroness, Lady Ramsay, remembers, that I asked exactly these questions a year ago when we discussed the White Paper—£450 million and 3p. If the combination of these sums did not come out, where would the sum come from? The Minister had extensive cunning and it was the noble Lord, Lord Williams of Mostyn, who fielded the high up and under; whether or not he made direct touch, I am not sure.
Happily I have the Inland Revenue paper to which my noble friend referred. It has completely stunned me, though one could not quite perform major surgery on me. I draw the attention of my noble friend to paragraph 12 of this Inland Revenue press release. It refers to something I have not yet heard of, and this is just a preliminary paper. It does not refer to any of the major clauses that I may wish to come to later. There is reference to a splendid thing called a RAT, a rate applicable trust. In paragraph 21 there are UUTs, which I thought had something to do with Ulster Unionists but which is an unauthorised unit trust. This is very helpful and very helpful possibly to chartered accountants and others; but I think one could count them on the fingers and toes of one or two of your Lordships here in the Committee tonight. I do not believe, however, that the Inland Revenue press release is of extensive help to the general population of taxpayers, let alone those who were referred to by the noble and learned Lord the Lord Advocate when he answered some of my questions at Second Reading and those Scottish taxpayers whom we shall be discussing later.
I have followed every word that my noble friend has said. It is very complicated and we are only just getting our little toes wet on this aspect. It is no fault of the Minister and the Front Bench team that we are coming to it this late in the proceedings. I shall try to follow my esteemed colleagues and be brief, but it is a very important subject. If we do stray beyond the witching hour, so be it.
§ Lord Mackie of BenshieI 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, 1726 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 SempillI 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 SewelFirst, 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; 1727 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 BenshieThe 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 LyellPerhaps 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.
1728 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 SewelI 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 LourI 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 BenshieI accept that that is the intention at the moment but I am saying that it is not either just or sensible.
§ Lord Selkirk of DouglasCan 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 SewelPerhaps 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 1729 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 1p 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.
§ Lord Mackay of ArdbrecknishI am grateful to the Minister for the explanation of the £420 million, although I must say that I am a little puzzled. As regards income to the Treasury from taxation, I thought that that included income taxation, that it was actually quite buoyant and was better than had been forecast. That is one of the advantages that the Chancellor of the Exchequer has had from the golden legacy bequeathed to him by the previous government. In that case, I would have expected the income tax from Scottish taxpayers to be equally buoyant. If the Minister had told me that it was being revalued "up the way" I would not have been in the least surprised. But to revalue it "down the way", when I think the total income tax taken in the UK is being revalued "up the way", seems to me to be puzzling.
I wonder if there is more to it than that; for example, was the original calculation perhaps wrong because it was 1p on all the rates of tax or only on basic rate taxpayers, without taking into account the basic rate that higher rate taxpayers would pay? There is a little 1730 uncertainty in my mind about it. It is possible that the Minister will be unable to clear up the matter this evening. I should be grateful if he could, but, if not, perhaps I may suggest that he looks into the matter and sends me another erudite letter.
§ Lord LyellBefore the Minister replies, perhaps he will be kind enough to read on from that paragraph in the White Paper. I have the document with me. Of course, the Minister did a brilliant job; but he stopped. If he looks at the last sentence of paragraph 7.13, he will see that it reads:
In these circumstances, the Parliament's ability to raise or forgo up to £450m through the tax system will be preserved. This sum will be index linked to maintain its real value".That does not quite equate with the first words that the Minister used. Therefore, with the advice of his noble and learned friend—indeed, we also have the noble and learned Lord, Lord Hope, with us—can he advise me whether that "sum" is the flexible sum of £420, or whatever might be coming out as a result of the process? The noble Lord said we would obtain a slightly more accurate projection as to what 1p on the standard rate, as laid out in further amendments, will be. However, which sum will be index linked? It is mentioned in the White Paper. Has anything changed?
§ Lord SewelThe "sum" to be index linked is only there if in fact there is a fundamental and radical change in the tax structure, which means that the basic rate calculation can no longer be made because we would no longer have a basic rate. If the tax structure were to change to that degree, we would then have to go back historically to work from—
§ Lord LyellThat is not what it says—
§ Lord SewelThat is exactly what it says. I am sorry. It says:
It is of course possible that future changes to the UK income tax structure might reduce the value of the product of the Scottish Parliament's tax varying power. In these circumstances, the Parliament's ability to raise or forgo up to £450m through the tax system will be preserved. This sum will be index linked to maintain its real value".That index linking is dependent upon a fundamental and radical change in the tax structure, so we would then have to go back to see what was the value in 1996–97 of the 1p and the 3p amounts. The measure is couched in terms of 3p, which would raise around £450 million. In 1996–97 the accurate calculation was a figure of £420 million. If there is a radical change in the tax structure at some time in the future, the base reference would be the £420 million.
§ Lord LyellI shall return to this matter.
§ Lord SewelLet us proceed. I understand that the amendment seeks a guaranteed additional revenue figure rather than a penny rate, but it is unworkable because one cannot calculate at the beginning of the tax year what the guaranteed additional revenue figure will be because during the course of the tax year factors come into play such as the number of people in work, the 1731 population of Scotland either rising or falling, and general prosperity, and that affects the tax take. Therefore one does not know at what level one has to set the tax to get the income that is specified in terms of the guaranteed additional revenue figure. There is the danger under that system that one could breach the 3p barrier because there is a reduction in the tax take that forces one through the 3p ceiling because of, for example, a reduction in the population of Scotland, a general slow down in the economy or something like that. Having fought the referendum on the clear understanding that 3p would be the ceiling, it would be difficult to say to the people of Scotland, "We said 3p but we were referring to a guaranteed additional revenue figure and because of that we have gone through the 3p ceiling". I think that would be a breach of faith with the people of Scotland.
§ Lord Mackay of ArdbrecknishI am grateful to the Minister for giving way. If the parliament cannot raise the £420 million from the 3p rate, as I understand it the Treasury will find some clever way of meeting the shortfall out of income tax. The parliament may not breach the 3p on the basic rate of income tax, but it will surely have to meet the discrepancy from somewhere else within the income tax system.
This is a difficult issue and perhaps it is too late at night to discuss it, but if the parliament is not to break the 3p ceiling, the only logical conclusion is that if that does not deliver the £420 million, one does not get it. I appreciate that the referendum was fought on the 3p ceiling. I suspect that that 3p ceiling will probably never need to be altered unless something dramatic happens to the basic rate, and then it may have to go up, or it may conceivably come down if the basic rate were widened and not narrowed. I am not with the Minister completely on this matter. I think he is defending the 3p and the £420 million at the same time. I do not think that is possible.
§ Baroness Carnegy of LourI apologise to the noble Lord for intervening but he did say it would not be possible to know what the 3p would bring in. How on earth is the parliament to budget if it does not know what the 3p will bring in? When local government sets a budget, it knows exactly what its council tax will bring in, as the Minister well knows. It allows for unpaid debts and so on, but it knows. The Scottish parliament will not know. How is it to do the precise budgeting which is to be audited and looked after so carefully? This is the money that will be raised at the margin, and it will not know, because of all the circumstances described, what that will be. It seems that the Government have got themselves into a position—and I understand why—which is not sustainable. It will not work. They ought to contemplate my noble friend's proposal.
§ 10.45 p.m.
§ Lord SewelWe have contemplated and given great thought to the proposal from the Front Bench opposite, and we believe that it is unworkable. That is why we are not proceeding with it. I am not defending both the 3p and the £420 million; I am defending the 3p. The 1732 £420 million—or £450 million, to return to the White Paper—was an attempt based on estimates to give an indication of what 3p actually meant. People to whom I spoke and who were relatively well-informed before we were able to include the £450 million figure had no idea what 3p in the pound meant in terms of a variation to Scottish income tax. The £420 million, which is now the best estimate, only comes into play in terms of the legislation when and if there is a major change in the tax structure. That is the base reference point. Following a change in the tax structure, that is the amount, index-linked, that the post-structural change position has to raise.
§ Lord LyellThe index-linked sum is 3p, not this variable figure. The Minister started with £450 million. I understand that; but we should temporarily put that aside. I quite understand 3p on the standard rate. But the Minister has talked about major "earthquake" changes in the standard rate. I think that he is slightly over-egging the position. I understand, and I am with the Minister in this, that it is difficult to know what 3p in the pound on the standard rate for Scottish taxpayers, under the terms of Clause 71, will raise. It might be £420 million; it might be less than that.
If it is less, then that is the point that my noble friend on the Front Bench is driving at. I accept what the Minister says about the 3p being index-linked. In his previous remarks the Minister said: let us put aside the multiple of what will be raised because the tax structure and income tax for Scottish taxpayers may vary from year to year. But the Minister is moving onto dangerous ground if he says that a sum of money, 3p, multiplied by whatever will raise a sum of money and that should be index-linked. Is there not a method by which, at the outset of the tax year, the Scottish parliament can say: we shall have the Scottish variable rate; it will be 3p in the pound; it will be at the start of the year. It could easily refer to the previous year, so that one would know the exact amount that had been raised by levying the 3p rate. I appreciate that the multiple of 3p and the standard rate band paid by all taxpayers in Scotland will make it very difficult, as mentioned by my noble friend Lady Carnegy, for the Scottish parliament to know exactly what it will receive. If we stick with the idea of 3p being index-linked, then at least my noble friends and myself, and the specialists—the chartered accountants and others who will have to put this provision into practice—would be a lot happier.
§ Lord Hope of CraigheadMy name was mentioned by the noble Lord, Lord Lyell, and it is only for that reason that I intervene, possibly to comfort the Minister. I have never understood that the 3p would be index-linked. The whole purpose of index-linking is to tell one what the product is of the amount of tax raised by that sum. One has to use some kind of index-linking method in order to work out what will happen in future years. If someone's income is related to the index, his income goes up, he pays the same rate of tax, but the amount of tax received by the revenue goes up in 1733 accordance with the index. That is what the reference to index-linking in the White Paper was about, as I understood it.
§ Lord SewelPerhaps I may make clear that the 3p is not index-linked; it remains 3p from the day the Bill is enacted, for evermore. It remains 3p. The amount that it raises will vary historically, not on an index-linked basis, because it can vary in a different way from a straight index-linked basis. It is dependent upon population as well as inflation. So that is not index-linking. The product changes over time in a way which is relatively unpredictable.
The noble Lord, Lord Mackay of Ardbrecknish, made the point at some stage about what happens if the estimate is wrong. In such circumstances the Scottish parliament will receive payments from the Inland Revenue based on estimates which become finer and finer during the course of the year. Remember, this is very much at the margin of its budgeting. If the parliament gets itself into the position where it has budgeted on the assumption of what the tax take should be and the tax take is not quite there, it can then start making in-year reductions to meet the amount of money that it has available. It has end-year flexibility and balances and short-term borrowing powers that are available with the exercise of the Treasury. I imagine the Treasury would say, "All right, it's not your fault, you can have the short-term borrowings to tide you over, but you must make the adjustment in the following year straightaway". That is the way out of that problem.
§ Lord Mackay of ArdbrecknishWe have had an interesting debate. It underlines some of the complexities. Perhaps I may start with the small sideshow introduced by the noble Lord, Lord Mackie, on what would happen if the parliament reduced the taxation. I found the suggestion odd, coming from that quarter, that we might have a reduction in taxation. I suspect, if my memory is right, his party opposed every reduction in the standard rate of tax we made during the last Parliament or the one before. If I remember rightly, the pledge at the last election was to increase the rate of taxation. It is hard to envisage the Liberal Democrats being part of a tax-cutting establishment in Scotland.
The real problem is that if the Scottish taxpayer pays less into the Treasury, but the same amount is still paid out by the Treasury, it would impose a burden of £420 million on the taxpayers of the rest of the United Kingdom. I strongly suspect that some of the arguments we heard earlier today will be coming forth in greater numbers and at greater volume.
I turn to the main issue—the amendment. I am pleased to hear that the Institute of Chartered Accountants in Scotland is satisfied about the position of a Scottish taxpayer and the way in which the SBR will impact. When we come to later amendments, I will check some of the points. I do not suppose they are satisfied about the complexity. The point about trying to make it simpler as a piece of text still exists and that is valid.
1734 I thought that I could be portrayed or could portray myself overnight, with the spin that goes with these things, as the person who came to save the Scottish parliament from the complexities of the clauses on tax varying and ensure that the parliament understood what its income would be. I have been rebuffed. I am not quite convinced by the argument used to rebuff me because I cannot believe that what I suggest is unworkable. Whether it is my system or the 1p, 2p or 3p, the Scottish parliament will have to make an estimate about Budget time of what it would like—if it would like to increase taxes and if it would like more income. It will be told by the Revenue what, on current tax laws, the likely income would be from basic rate. It might not be told if the Chancellor, in the Budget, was secretly about to change the basic rate out of all recognition; but it would be told, year on year, what the Treasury estimated. It would see from the previous year what it would have gained from 1p, 2p or 3p.
Therefore, it would not be unworkable; it would not be impossible to calculate the additional figure any more under my system than under the system the Government intend to introduce. These things vary and I accept that if we are only talking about a 1p rate, then the variation will be a higher percentage figure as a variation than it will be for the whole tax take for the United Kingdom. But it is not impossible.
I can see that if the basic rate was narrowed the Treasury might have to find another way. It is that other way that we will explore later, because the Minister did not answer the points about the other way the tax might be raised.
Keen as one always is on one's own amendments, I am still slightly puzzled as to why I am being rebuffed. The only reason is that the Government feel that, having said in the referendum that it was 3p in the pound, they are tied to that. The problem is that if one goes to Clause 72 then in certain circumstances that might all change. The Treasury might bring forward an order which is a different way of raising this equivalent amount of money. I do not know how that squares with the question on which we were all asked to vote in September.
In a way I see that the Minister is trying to prevent people accusing him of moving away from the 3p; I understand that. But, equally, I suspect that the complexities that he is getting us into in the clauses in this Bill, and the complexities that could occur in the future if something changed in the way the basic rate is operating, are such that we could all, if we stood together, explain comfortably to the Scottish public why it may be the case, at some time in the future, that the basic rate would have to be up by 3.5p or 4p. But a change in the basic rate to make it more than that would have to be of enormous proportions, and would mean that a change would have to be incorporated in this legislation by a finance Act in order to cope with that new situation.
I suspect that I have stumbled across the proper answer the Minister should be making: take out all this stuff and if there is a big change in the future then the Finance Act will deal with it. That would be the proper 1735 place to deal with it and not secondary legislation, which is what is envisaged in Clause 72. But I will be coming to that.
I will read with some care and interest and discuss with the clever people who understand more about this than I happily admit I do, as to exactly where we go from here. I am grateful to the Minister, and especially grateful—as I am sure are all my noble friends—at the way he took interventions on this difficult subject and tried to have a good debate with us. I believe we have made some progress in regard to teasing out some of the important points, but there is a bit more to go in this difficult section. I therefore beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord CarterBefore I move the Motion that the House do now resume, I thank and congratulate Members of the Committee on the progress that has 1736 been made today. With some trepidation I have been looking round the Chamber speaking as a mere Sassenach in what I appreciate is a purely private engagement between the different chapters of the "Scotia Nostra"—and suggest that it shows what can be done if we really try. We must all hope that the same enthusiasm to make progress is shown on the ninth day of Committee in October, to which we are all looking forward.
§ Lord Mackay of ArdbrecknishI am grateful to the Chief Whip. It shows how much progress we can make when we get a full day.
§ Lord CarterI beg to move that the House do now resume.
§ Moved, That the House do now resume.—[Lord Carter.]
§ On Question, Motion agreed to.
§ House adjourned at one minute before eleven o'clock.