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Lord Hope of Craighead: My 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

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accordance with the index. That is what the reference to index-linking in the White Paper was about, as I understood it.

Lord Sewel: Perhaps 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 Ardbrecknish: We 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.

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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

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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 Carter: Before I move the Motion that the House do now resume, I thank and congratulate Members of the Committee on the progress that has

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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 Ardbrecknish: I am grateful to the Chief Whip. It shows how much progress we can make when we get a full day.

Lord Carter: I 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.

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