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Lord Lyell: Amendment 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

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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

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    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.

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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.

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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 Lyell: I 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.


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