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Lord Hooson: Clause 1(1) refers to,

However, even if we leave out the words "tax-varying powers" and substitute the wording in Amendment No. 8A, the Bill does not set out what those limited powers of a Scottish parliament are to be. Everyone

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knows that they will be limited powers, and that they will be spelt out in the White Paper and eventually embodied in a Bill.

I turn now to the second proposition; namely, the

    "tax-varying powers of a Scottish Parliament".

There is no need to spell them out at this time any more than it is necessary to spell out the powers of a Scottish parliament because they will, I assume, be circumscribed by the White Paper.

Lord Sanderson of Bowden: I do not want to spend too much time on the amendment because the noble and learned Lord, Lord Simon of Glaisdale, may have gone further than the Government Front Bench would prefer. I believe that the noble Earl, Lord Perth, made a point by clarifying the situation. The term "tax-varying powers" is not as clear to me as the,

    "power to raise or lower taxes".

Coming as I do from financial circles north of the Border, I should like the Front Bench opposite to realise that there is tremendous uncertainty there as to what will happen as a result of the publication of the White Paper and the subsequent legislation. Anything that the noble Lord, Lord Sewel, can say to allay the fears of those who are extremely worried about the tax-raising powers in this proposed new parliament would be a great service to everyone, including those who are most concerned with the running of industry and the financial circles north of the Border.

7 p.m.

Lord Ewing of Kirkford: The tremendous uncertainty in Scottish financial circles results from the old process whereby one starts a rumour and then repeats it as often as one possibly can: the rumour then becomes accepted fact. There is absolutely no truth in, for example, what the governor of the Bank of Scotland has been saying about the possibility of a sales tax. There is no truth in the possibility of VAT being raised or lowered. A simple proposition is being put to the people of Scotland; namely, do you want a Scottish parliament with revenue adjusting powers? The document of the constitutional convention makes that absolutely clear. I can confirm to the noble Baroness, Lady Carnegy, that my noble friend the Minister referred at Second Reading to the basic rate of income tax and a variation of 3 pence in the pound either way, either up or down. There was no mention of VAT, corporation tax or any of the other taxes that have been mentioned.

I say to the noble Lord, Lord Renton, that the possibility of a Scottish parliament introducing a new tax is also non-existent because a Scottish parliament's powers will be spelt out when we eventually get the devolution Bill. If we get on with this Bill and discover the result of the referendum we shall then know whether we are to have a devolution Bill. That Bill would spell out the Scottish parliament's powers. The powers in relation to taxation are limited to the basic rate of income tax and a variation of 3 pence in the pound up or down. If we tried to introduce any other new tax, we

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would be acting ultra vires. We would be acting outside the powers defined in the Bill. I do not understand why there is all this confusion when the issue is quite simple.

Lord Renton: I thank the noble Lord for giving way. What he said in effect is that because eventually there will be another Bill setting out the powers of a Scottish parliament--if the people vote in favour of one--we do not have to worry very much about the exact phrasing of this Bill when it comes to letting the people vote on tax varying or tax raising powers, whatever they may be. But surely we have to get it right at this stage. People must not be asked to vote on something which could be more elaborate, and therefore considerably different, from what they are being asked to vote for now. We must get the question absolutely right as regards what they are asked to vote for under the Bill.

Lord Ewing of Kirkford: I rest my case on the reassurance given by my noble friend Lord Williams of Mostyn to the noble Baroness, Lady Carnegy, at Second Reading. I am assuming that that reassurance, which is on the record, will be part of the White Paper when it is published. Members of the Committee opposite are stacking up problems that simply do not exist.

Lord Hughes: I look forward to what my noble friend the Minister has to say on this matter, particularly in view of what the noble Lord, Lord Ewing, said. The convention's document referred to income tax being raised or lowered by 3 pence. I believe that in the ordinary reading of the English language tax varying powers could not be interpreted as restricting themselves to a single tax. However, if the Minister is to tell us that the use of the tax varying powers will be confined to a variation of income tax, that should be made quite clear.

Lord Mackay of Ardbrecknish: I am sure we are all grateful to the noble and learned Lord, Lord Simon of Glaisdale, and to the noble Earl, Lord Perth, for these amendments which draw our attention to the need to clarify the phrase "tax varying" to draw to people's attention the fact that that means the power to raise or lower taxes. I am doubly grateful to the noble and learned Lord, Lord Simon of Glaisdale, because he has managed to get the noble Lord, Lord Ewing of Kirkford, to his feet to defend the second question of the referendum. Yet if my memory is right, the noble Lord resigned as joint chairman of the constitutional convention in protest at the decision by his party to have a referendum and to have that second question--

Lord Ewing of Kirkford: I correct the noble Lord because I would not want him to continue with his misunderstanding. I am not defending the second question; I am defending the principle of revenue raising or reducing powers for a Scottish parliament. That is a principle that was promised by the late Lord Home of the Hirsel. One of the reasons we failed to secure the 40 per cent. at the previous referendum was the promise made on the part of the Conservative Party at that time.

Lord Mackay of Ardbrecknish: There is nothing like rewriting history. It is amazing how the late

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Lord Home of the Hirsel is suddenly transformed into a great hero by the party opposite when my recollection is that it did not think much of him when he was Prime Minister. But suddenly he is a great man. He becomes part of the folklore as to why a majority was not achieved in the previous referendum. If one looks at the polls during the run-up to that referendum, one will see that they were badly adrift for the then Labour Government for some weeks before Lord Home intervened.

It is interesting that we have been chastised again by the Liberal Democrat Benches as regards the triviality of these amendments and the fact that we should not bother about them. I believe that the noble Lord, Lord Hooson, was dismissive of any attempt to explore the second question. I know that I am not allowed to quote from certain proceedings--if I were, I would certainly do so--but I commend to him the debates in the House of Commons in Committee stage on 3rd and 4th June when some considerable time was taken up by an amendment of Mr. James Wallace on behalf of the noble Lord's party. The amendment dealt with the second question and proposed incorporating the second question into the first question to make just one question. Not only did Mr. Wallace speak, in moving the amendment and summing up, but also Mr. Gorrie, the new Member for Edinburgh West. Therefore I do not accept that we in this Chamber are wasting time when we discuss these matters. The Scottish leader of the Liberal Democrats in another place spent quite a lot of time debating whether there should be one question. The amendment proposed that the one question should refer to tax raising powers. Clearly, the Liberal Democrat Party in the Commons is still allowed some independence and freedom of thought on government legislation. I have already indicated I am surprised that that amendment is not being moved in this Chamber by the Liberal Democrats. I understand that they do not approve of having a referendum but they feel strongly that there should be only one question.

The question of varying taxation up or down is difficult because it is tied in with the difficult question of the consequences of that either for the Scottish government's expenditure or for Her Majesty's Treasury. I have little doubt that if this Scottish parliament comes about, another penny on the standard rate of tax will most assuredly be needed to cover the costs. Otherwise the costs, which I suspect will be £80 million or £100 million, will have to be met from somewhere in the Scottish block of funds. Therefore the Scottish education budget, the Scottish health budget or moneys to local authorities in Scotland will have to be cut to cover the deficit. Therefore the Scottish parliament will need to raise taxes to cover its running costs. Like Mr. Wallace in another place, I believe that it would be much more honest to ask about tax raising and not tax varying powers. However, if we cannot persuade the Government to go that far, they would do well to consider referring to tax raising or tax varying powers.

My noble friend Lord Campbell of Croy drew our attention to an article last week in the Scotsman which stated that the Government were in some disarray about

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this part of their White Paper. That may well explain why they are so reluctant to give me a date for the publication of the White Paper. Mr. Peter MacMahon, the Scottish political editor, says that the power to raise or lower the basic rate of income tax is to be dropped by the Government, and members of the ministerial committee on devolution to Scotland and Wales and English regions--it is known as DSWR and, if I am right, is chaired by the noble and learned Lord the Lord Chancellor--have been working overtime on these issues. Even with the help of the two Scottish Members of Parliament in the Treasury team, the Chief Secretary Mr. Darling and the Economic Secretary Mrs. Liddell, they are having some difficulty with this scheme. I am not surprised. I have some difficulty finding out from the Government what it adds up to--or what it subtracts from.

Let us assume for a moment that the tax-varying power means tax reducing. The Scottish parliament will say to the Inland Revenue that instead of collecting 23p in the pound, or whatever the standard rate will be once the Chancellor has presented his Budget tomorrow, those in Scotland will pay only 20p in the pound. The Inland Revenue will be down something like £450 million in their tax take.

I raised the matter on the debate on the Queen's Speech. I was not surprised that the noble Baroness, Lady Jay of Paddington, promised to write to me. She did so; and her letter was interesting but not informative. If I recall the instructions, that is what the ministerial replies are supposed to be. However, she wrote words to the effect that I must wait upon the White Paper.

On the day after the Second Reading of the Bill, I put down a Parliamentary Question for Oral Answer. The noble Lord, Lord Haskel, answered from the Dispatch Box. He did not give me much of an Answer when I posed the Question on the Order Paper. In my supplementary question, I spelt out the very question that I posed to the Committee: what happens when the Inland Revenue is £450 million light? What does that say to the Chancellor of the Exchequer? The noble Lord did not reply to the question even when posed to him by the noble Lord, Lord Marsh. But he answered the question when it was posed to him by the noble Lord, Lord Stoddart of Swindon, who put it rather more bluntly. He asked whether it meant that the English taxpayer will be asked to pay more in taxes in order to make up the £450 million. At that point the noble Lord, Lord Haskel, decided that he had better answer my question. He said,

    "If the Scottish parliament were to vary the tax rate downwards, Westminster would lose a possible £450 million of revenue but could deduct that from Scotland's block grant".--[Official Report, 18/6/97; col. 1236.]

I trust that the noble Lord, Lord Sewel, will wind up this debate. My question to him is this. Is that correct? If this parliament decides to reduce tax by 3p in the pound in Scotland, will the Scottish block lose £450 million? I absolutely believe the answer that the Treasury spokesman gives me because I know that the Treasury runs the Government. But I wish to hear it from the lips of a Scottish Office Minister so that the

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people in Scotland can see that "tax-reducing" is not some kind of magical, painless promise that will come without any problem, but that it will mean that the Scottish budget will have to come down by £450 million.

That is not a huge amount of money in the Scottish budget. In my recollection, the Scottish budget is about £16.5 billion. But I must tell the Government--and every Member of the Committee who has been in government on either side will confirm this--that budgets are not made in terms of the billions. Chief Secretaries to the Treasury, of whom there are a number around this Chamber, look for the £10 million, the £50 million or sometimes even the £1 million, because they all add up. I am pleased to see that at least one former Chief Secretary agrees with me. I can tell the noble Lord, Lord Sewel, that taking £450 million from the Scottish budget will not be easy, nor will it be painless. It is not easy, nor is it painless to keep spending at its current rate in any department in any year. It will be far more difficult to reduce the amount by £450 million.

The reality is that the Government will not reduce by £450 million. So the idea that they may well reduce taxes is nonsense. Perhaps that is why Mr. Wallace had the integrity to put down in his amendment in another place "tax-raising" instead of "tax-varying". However, there is even more to the word "varying" than that.

On 11th June we had a Statement about the comprehensive public spending review. Again the noble Lord, Lord Haskel, and myself had a discussion over the Dispatch Box about the review. I asked whether the comprehensive public spending review would include the Scottish Office. The noble Lord said that it would include every department. I then posed this question. What will happen if it is discovered in the fundamental review--the same ground rules having been applied north and south of the Border and to Wales and Northern Ireland--that the amount of money going to Scotland is excessive and therefore the budget based on the building blocks of spending comes to far less than the Goschen-Barnett formula allows for? Will the Goschen-Barnett formula be cut to accommodate the fundamental spending review? I received some comfort from the noble Lord, Lord Haskel. He said:

    "There is no intention to make any alteration to the Barnett formula until the review has been completed".--[Official Report, 11/6/97; col. 930.]
As the review will be completed at about the same time as this parliament in Scotland may be set up, there are some significant financial questions to be answered about the tax-varying powers.

Am I wrong? Is it naughty of me to think for a moment that the Government would love a "No" vote on the second question; that they would quite like to be told, "You cannot have tax-raising powers"? And that is why we have a second question in the referendum. That is why the Government broke with the constitutional convention agreement. That is why they were prepared to break with the Liberal Democrats; and that is why they were prepared to oppose Mr. Wallace's amendment when he put it to the vote. He thought so seriously about the matter that he put the amendment to the vote. Is that why the Labour Party

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have opposed it all along the line? Would it prefer a "No" vote on these tax-varying powers? We look forward to hearing the Minister on this issue.

I posed him a number of questions which I hope he will be able to answer. Is there any truth in the press reports last week, in particular the article in the Scotsman, that the Government are having so much trouble with the Treasury on this issue that they are having to drop it? Will the noble Lord confirm that if the Scottish parliament decides to vary taxes down, it will face a reduction in the block grant from the Treasury? Will he confirm further that, in order to fund this Scottish parliament, if it comes about, the Government will inevitably have to increase taxes on those of us who live in Scotland in order to fund it; or they will have to cut into Scottish expenditure on health, education, and so on?

Before the noble Lord answers that question and makes it appear easy to cut some money out of the Scottish budget, perhaps I may remind him of all the things that he and his right honourable and honourable friends said in the last election in Scotland about how parsimonious the Government were on public spending in Scotland. If there is any potential for the noble Lord to cut into the Scottish budget, either to fund the parliament or to reduce taxation, it seems to me that some of the statements made at the last election were just window dressing.

The noble and learned Lord, Lord Simon of Glaisdale, and the noble Earl, Lord Perth, asked interesting questions about why we are not open about tax-varying, calling it tax-raising and tax-reducing. I have thrown in another question. Why do we not go along the lines that the Liberal Democrats had the courage to propose in another place; namely, to have one question which says openly that it will be tax-raising and that the idea that it will ever be tax-lowering is pie in the sky?

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