Orders of the Day — Scotland Bill

House of Commons, 23 February 1998.

John Swinney (Scottish National Party, North Tayside)

On a point of order, Mr. Lord. I should like to draw your attention to a press announcement by the Scottish Office this afternoon. It announced a consultation paper on the details of the Scottish Parliament's tax-varying powers, which are the subject of our discussions. I called at the Vote Office at 4.15 pm to try to obtain a copy of that document, but it was not available. That is unusual, as it contains an interpretation of the contents of the clauses before us today, to which hon. Members have tabled amendments.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

I understand that the Minister would like to respond to that point.

Henry McLeish (Labour, Central Fife)

Copies of that documents can be obtained in the House of Commons Library, and I apologise for any inconvenience.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

Further to that point of order, Mr. Lord. I was unaware of this difficulty until the hon. Member for North Tayside (Mr Swinney) made his point of order. If the press have been informed, would it not have been a simple courtesy to send a fax message to hon. Members who are known to have an interest in these matters?

POWER TO FIX BASIC RATE FOR SCOTTISH TAXPAYERS

Michael Ancram (Conservative, Devizes)

I beg to move amendment No. 352, in page 29, line 7, after 'Scottish', insert 'income'.

Michael Ancram (Conservative, Devizes)

Let me say first, with reference to the points of order, that I find it extraordinary that we should be told at the beginning of the debate that there are papers in the Library about which we have had no notification, the understanding being that we should sit at the Library door waiting to see what papers go in, lest any should be relevant to the debate. It is a disappointing start, and I hope that if there are any relevant issues in the paper—which I hope one of my hon. Friends has now gone to the Library to secure for me—the Minister will take the opportunity to highlight them, so that we can discuss them today. The amendments comprise the first of a number of groups that we shall debate today relating to part IV of the Bill. They deal with the tax-varying powers of the Scottish Parliament. Having read this part of the Bill a number of times since its publication, I consider it the most confused piece of legislation that I recall reading in a long time. It is muddled, it is obscure and it is a cause of uncertainty—and, therefore, a cause of concern—about a matter that is very important to many people in Scotland. I was surprised at what appears to be a general lack of interest among the other parties in a matter that was, after all, a central part of the referendum debate. I see from the amendment paper that the Liberal Democrats have tabled only one amendment to part IV, although they were never backward in coming forward to table amendments on the other parts. The Scottish National party has tabled eight amendments. That suggests that, having secured endorsement through the ballot box for the power to vary, those parties are now anxious to push on to the back burner the fact that the Scottish Parliament will almost certainly mean higher taxes for people living north of the border. I appreciate that the vote on 11 September settled the issue of whether there would be a tax-varying power, and we accept that the Scottish people wish the Parliament to have the limited tax-raising power to which the Government referred in the White Paper. However, that cannot mean that the whole issue can now be swept under the carpet, in the hope that, in the run-up to the first elections to the Parliament, the electors of Scotland will not be aware of the potential effect on them. The issue will be of major importance when we come to the elections, and I hope that we can debate in detail today some of the uncertainties and concerns that have been voiced by people all over Scotland about this part of the Bill. It is essential to ensure that the legislation delivers a power that is no more and no less than what was endorsed in the referendum. As we all understood it, that was the marginal power to vary the standard rate of income tax up or down by a maximum of 3p—and nothing else. That is the question which I understood to have been put to the Scottish people, and they endorsed it. In the amendments, we seek to achieve such a position, and to do so in a way that is beyond peradventure. The amendments stem from a genuine suspicion that somewhere in the tangled legislative undergrowth are hidden taxation powers about which the people of Scotland were not told and do not know. The Minister shakes his head; as the debate progresses, we shall see whether he can give us the assurances that he and his colleagues have so far distinctly failed to give us. I must tell him that our suspicion is not without cause. During our debates on the Bill that became the Referendums (Scotland and Wales) Act 1997, in the summer of last year, we sought—unsuccessfully here, but successfully in the other place-to insert the word "income" before the word "tax" to make it clear beyond doubt that the power to vary would be limited to income tax alone. We were given bland answers by the Minister—bland answers which I fear may yet return to haunt him. When we tried to insert the word "income", he said: If we are to add the word 'income', why not also include the 3p in the pound limit or a definition of who should pay the tax?"—[Official Report, 30 July 1997; Vol. 299, c. 409.] That was his reason for not inserting the word "income". However, the 3p in the pound limit is in the Bill, along with a rather unsuccessful attempt to define who should pay the tax. We have a right to be suspicious.

Henry McLeish (Labour, Central Fife)

Will the right hon. Gentleman give way?

Michael Ancram (Conservative, Devizes)

I shall finish the point and then give way to the Minister. We were met with a blanket refusal to accept the amendment, and an amendment from the other place was overturned here. So firm was the Government's opposition that it could be justified in logic only by the belief that there was a need to keep open the option to vary other taxes or introduce new ones. When the matter went back to the other place, Lord Sewel, the Minister responsible for the issue there, gave the reason for the word "income" not being in the Bill. He said: To add the word 'income' would create a false sense of precision, because it is limited."—[Official Report, House of Lords, 31 July 1997; Vol. 582, c. 319.] Presumably that means that the definition that "income" would have given to the power was limited in a way that the Government found unacceptable because it would have conferred a false sense of precision. That gives rise to the suspicion, not only in my mind but in the minds of many people in Scotland, that there is something behind this.

Henry McLeish (Labour, Central Fife)

The only suspicion lurks in the right hon. Gentleman's mind. There are two issues. First, the referendum on 11 September contained two parts. The first related to the wording of the ballot paper, and the second was the reference to the White Paper. The two taken together meant that it was unequivocal in the sense that it was income tax. Secondly, clause 69(1) refers to "income tax" and the clause heading is Power to fix basic rate for Scottish taxpayers". The word "income" is before the word "tax". Some 19 amendments have been tabled to make a point that is included in the second line of clause 69.

Michael Ancram (Conservative, Devizes)

I have carefully read the Bill. Clause 69(1) refers merely to the section applying for any year of assessment for which income tax is charged. If the Minister is right and that means that every other reference to tax means income tax, he will have no difficulty accepting my amendment.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

Will the right hon. Gentleman give way?

Michael Ancram (Conservative, Devizes)

I shall give way in a moment. I want to return to this issue. I shall certainly give way to the Minister if he can explain what his noble Friend meant when he said that to add the word "income" would create a "false sense of precision". Those words were either meaningless or they meant that there was some limitation that the Government could not accept.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

The right hon. Gentleman has said that he has looked carefully at the relevant part of the Bill. The Minister spoke about clause 69(1). There is a reference to the "Income Tax Acts" in clause 69(2). To what other taxes could the measure apply if the word "income" were not included? The Minister also spoke about 19 amendments being tabled, but that is easy to do when only one word is starred. What other taxes has the right hon. Gentleman identified?

Michael Ancram (Conservative, Devizes)

It is not a question of taxes that I have identified.

Henry McLeish (Labour, Central Fife)

Answer the question.

Michael Ancram (Conservative, Devizes)

Perhaps the Minister would allow me to make my speech in my own way. He is not a great example of how to answer questions. I think that we have had only one answer from him in about six months. We have tabled the amendments so that we may be reassured that no taxes other than income tax are involved. I do not want to pre-empt a later debate on the guarantee in the White Paper about the £450 million that 3p could raise and how that would be achieved regardless of what happens to the tax base. Apparently that is outwith the 3p that is mentioned in the Bill. What form of tax will be used to raise that money? I hope that we shall get an answer to that, because I have been asking about it for a long time. I seek answers because the Scottish people and Scottish business in particular require reassurance on this matter and I have not yet received it.

Nick Hawkins (Conservative, Surrey Heath)

In pressing the Minister on the issue, my right hon. Friend quoted from the speech by Lord Sewel. Does he share my concern that, later in his speech, Lord Sewel spoke about what is and what is not covered in terms of savings and dividends? Does that not increase the suspicion not only of Opposition Members but of the business community and people in Scotland?

Michael Ancram (Conservative, Devizes)

I am grateful to my hon. Friend for raising that point. The whole of Lord Sewel's response suggested that more than income tax was at issue. He went on to raise other hares which are still running, and the simplest way to put those hares to rest is to accept our amendments. We seek to ensure that, under the legislation, no tax other than income tax can be at issue, and that, without further primary legislation, and, indeed, probably further endorsement by referendum, no other taxes can be brought into play and no new taxes can be introduced. That was the understanding from the White Paper, and we seek reassurance on that. We are concerned that the Bill contains no provision to exclude other taxes. Clause 72(3) confines changes to the tax powers to income tax when the Treasury has altered the United Kingdom's tax system. It does not prevent extra taxes from being levied if 3p does not raise the sum to which I referred; nor does it prevent the Scottish Parliament from raising additional revenue indirectly through new local taxes. Some other taxes have been openly canvassed by various interests, and all of them are possible. A tourist tax has been suggested, and there has been talk of a local sales tax. Scottish business has been alarmed by rumours that the unified business rate might be reconstituted, thus placing an even higher burden on that sensitive and vital sector. This matter is not an academic concern which can be brushed aside with talk of agreements and understandings. Future prosperity under a Scottish Parliament will depend largely on the performance of the Scottish economy and the confidence of Scotland's business sector. The greatest enemy of business confidence is uncertainty, and the greatest cause of uncertainty is the possibility of sudden tax changes or tax rises. That is bad for inward investment, for enterprise and for jobs. There could be no more damaging background to the Scottish economy than for it to be thought of as a prospectively high-tax economy. That would not only be damaging in the borders, where great anomalies would immediately be created, but would affect the cost structure of Scottish business, which would damage competitiveness and undermine our ability to export. It would threaten to penalise people for working and living in Scotland, and would drive expertise and jobs southwards. The amendments are important because they replace uncertainty with certainty, and create confidence where, at the moment, there is a distinct lack of it. Their acceptance can make it clear that what was said during the referendum is still true and that Scotland is not about to become the high-tax centre of Europe. All our amendments to part IV of the Bill are essentially designed to clarify the legislation and remove uncertainty, and we shall argue them in detail. They were tabled because of what clause 69 does, but also because of what it fails to do. It does not, in terms, exclude forms of direct taxation other than income tax. In the light of the White Paper, the £450 million that is guaranteed to the Scottish Parliament from the 3p—which is index linked against possible changes to the income tax structure or variations of the tax base as a result of changing economic conditions which could reduce the tax take—raises the almost certain possibility of some form of taxation other than the standard rate of income tax. We need an answer on that today. Indeed, the Government effectively admitted as much when, during the referendum campaign, the Chief Secretary to the Treasury, a Scottish Member, let slip on television that they would have to find a substitute—that was his word, I think—if those circumstances arose. The people of Scotland and, indeed, Scottish Members have a right to know what that substitute will be. We will deal with the question in detail under later amendments, but the principle behind it is germane to this clause and to these amendments. Restricting the clause's power to levy tax to income tax, as the White Paper did, but the Bill fails to do, will go a long way to achieving that. The Minister said that I was creating suspicions. He knows that the uncertainty about which I am talking is not exclusive to members of my party. That uncertainty is real. It exists throughout Scotland. The Government themselves had to reassure the Scottish Confederation of British Industry directly in a meeting some time ago—I think at the end of last month—and again last week during Scottish Question Time, that this provision will have no knock-on effect on capital gains tax. If the provision is so clear, why did the CBI, with all its expertise, say to the Minister, "Please ensure that this does not have a knock-on effect on capital gains tax"? Why was the Minister required to give that assurance? Why cannot the matter be cleared up by having the simple expedient of our amendments? Business men cannot find reassurance in the Bill. We want to give it to them, and I cannot understand why the Government wish to resist that. There are vicarious ways by which the Scottish Parliament could raise tax, but which, again, are not spelt out in the White Paper. We know that the Parliament will redistribute revenue support grant and will have the power to alter the business rate. We know, too, that, by withholding central resources, it could effectively force local government to raise tax for the Parliament, allowing itself the spending benefit of the resources retained in pushing local government to raise local taxes. The Scottish business community's greatest fear about the Scottish Parliament is still the abolition of the uniform business rate and the return to the previous situation, whereby councils set business rates and Jenner's in Princes street paid more in business rates than Harrods in Knightsbridge. Those are genuine uncertainties and worries, which the Government have a duty to resolve.

Dominic Grieve (Conservative, Beaconsfield)

I had the opportunity today of reading the Government's press release dealing with capital gains tax. It makes it clear that the tax on capital gains is computed by reference to income tax rates, but that the Government have chosen not to treat capital gains tax as taxable under the Scottish variable rate scheme. Is it not true that if this is simply a Government administrative decision in relation to that form of taxation, it can be equally easily administratively changed, unless they clarify the position?

Michael Ancram (Conservative, Devizes)

I am grateful to my hon. Friend for pointing that out. That is another reason why Scotland's businesses are uncertain, doubtful, worried and not taking investment decisions until they have clarification. The ambiguity of language appears time and again from the Minister, Lord Sewel and Government press releases. I hope that the Minister will take this opportunity to clarify the issue and to create confidence where, at the moment, there is doubt. The Government fought the referendum proclaiming that business in Scotland had nothing to fear from devolution. Indeed, the White Paper was clear in its desire to exclude business from a punitive tax regime, but there is nothing in the Bill to rule that out. That is where the fear of the business community lies. It is not a good enough answer to say that the Government in a Scottish Parliament would not be so unwise as to introduce such taxes. Last July, this Government taxed pensions and, as we saw in last week's Scottish revenue support grant debate, the Secretary of State for Scotland is, Uriah-Heep like, wringing his hands at the consequences of that tax.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

The right hon. Gentleman has referred to non-domestic rates, as he did during the referendum. What I have never understood is how they would be any more secure under the current system, whereby Westminster continues to run them—particularly when Labour has a majority of 179 and said in its manifesto that it would return those rates to local government—than they would be if we put in the sort of safeguards that he seeks. In any case, no party in the Scottish Parliament is likely to have an overall majority, so any change to business rates would require considerable consensus throughout the political spectrum.

Michael Ancram (Conservative, Devizes)

The hon. and learned Gentleman loves to talk about consensus, but if I were to base my business decisions on the hope that there would be political consensus—or a lack of it, as the case may be—my shareholders might ask whether I was taking those decisions on a correct basis. If we have a doubt, surely it is right that that doubt is answered in this legislation. What is the point of having legislation, which does create limitations and safeguards, if we do not use it to create those necessary areas of confidence? It is the failure to do that and to rule out vicarious tax raising which has given rise to fears of other taxes. I think it was the president of the Convention of Scottish Local Authorities who proposed a tourist tax. It is hardly surprising, therefore, when people in Scotland, not least those in the tourist industry, sit up. A local sales tax strikes dread into the hearts of retailers and consumers alike, not least in the borders, where people would be most importuned by it. Whether the Government like it or not, the picture of paying for devolution over and beyond the 3p exists and serves Scotland ill. Our amendments would cure that simply by ruling those fears out once and for all, and by establishing in statute that, rather than just in the mouth of the Secretary of State and his colleagues, the restriction on the standard income tax rate that was presaged in the White Paper and on which the Scottish people voted is genuine and is in the legislation. The amendments seek to shine light on the darker recesses of this part of the Bill. They are constructive and I commend them to the Committee.

Tam Dalyell (Labour, Linlithgow)

This is a complex and difficult matter. Like my hon. Friend the Minister, I have served in opposition and, indeed, in government on Finance Bills. I do not make a party point, but if we see in action these very able and clever tax accountants—including my noble Friend Lord Barnett and the Opposition spokesman's colleague Peter Rees, now Lord Rees, a former Member for Dover—one has to ensure that legislation is crystal clear; otherwise, they will run amok and that would be to no one's benefit, including Holyrood. Therefore, I should like to ask certain questions. What additional taxes can be raised by the Parliament over and above the specified income tax power—I should like the Minister to answer that question in his winding-up speech—particularly where the Treasury restricts the amount of additional revenue that is available to the Scottish Parliament as a result of possible future changes in the United Kingdom tax structure? I hope that Ministers will take into account what the right hon. Member for Devizes (Mr. Ancram), the Opposition Front-Bench spokesman, said about uncertainty and the lack of clarity, because, bluntly, unless these matters are cleared up before the Bill becomes law, business and individual taxpayers will be condemned to perpetual uncertainty. Nowhere is that more important than in relation to the uniform business rate. My second question concerns the life companies, where many of my constituents work, as do those of Edinburgh Members. As I understand it, the life companies that pay pensions are in the dark about some of their responsibilities. Are they to make payments and to charge on the basis of a whole year or just time spent in Scotland, and what effect will that have on the Scottish rate? If an English taxpayer moves to Scotland, will the adjustments have to be made by the pension companies and the life offices, or will it be the responsibility of the Inland Revenue? Under clause 69(3), if a widow received the life rent of her husband's estate, she would not have to pay Scottish tax on the savings income of the trust. However, if that same widow received an annuity from the trust, she would have to pay Scottish tax, would she not? If I am wrong, doubtless I shall be told so; if I am right, is it fair? 5 pm Again in respect of clause 69, will payments to charity be under a Scottish or a United Kingdom rate? The Bill defines a Scottish taxpayer as someone who, in any tax year, is resident in the United Kingdom, and Scotland is the part of the United Kingdom with which he has the closest connection". That description appears in a number of clauses. However, generally speaking, "the closest connection"—[Interruption.] It is no good my hon. Friends getting impatient. We are dealing with matters of great importance to the lawyers' firms that will have to operate the system. This is the Committee stage of the Bill—[Interruption.] I must tell my hon. Friend the Member for Paisley, North (Mrs. Adams) that if these matters are not clarified there will be endless trouble and difficulties later. It is for the benefit of all of us that they are clarified as soon as possible. Generally speaking, will "the closest connection" be interpreted as someone who has his principal home in Scotland and spends more of the year in Scotland than elsewhere in the United Kingdom? Will there be separate provision for Members of the Scottish, Westminster and European Parliaments? What will be the status of the time spent at those institutions by Scottish Members? That point should be clarified. My understanding is that the price of property in Berwick would rise dramatically because people would live on the English side of the border to avoid tax, but work in Scotland. It is said that the Inland Revenue often forces people claiming to be resident outside the UK for tax purposes to produce proof of travel. That would be more difficult if a land border had to be policed. There would be no way properly to monitor the border—we would have to rely on people's integrity. I do not know whether that point is more properly raised under the amendment or on clause stand part, but it certainly arises under clause 69. Following the introduction of income tax self-assessment, the possibility of tax avoidance by claiming not to be a Scottish resident could affect many tens of thousands of people. A limit on the level of tax would mean that, in practice, there was too little incentive to make avoidance worth while. If the maximum bill was £660, someone would have to be a little penny pinching to object. However, lawyers know that these matters can be cumulative. The Bill limits the amount of Scottish tax that anyone will pay by confining it to a premium of up to 3p in the pound on only basic rate tax. That means that higher-rate taxpayers will pay only an additional 3 per cent. on income up to the point at which the top rate of tax, 40 per cent., starts to operate. Thus, on current rates, the maximum liability would be £660 a year. Scottish Office calculations show that the average Bill for about two thirds of those expected to be liable would be £230. Does the Scottish Office believe that those figures are roughly accurate? There are many other things to be said, but, as we are time limited, I shall leave the matter there.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

I am sure that you will keep me in order, Mr. Lord. I want to raise points about the details of charges and the definition of "taxpayers", but it may be more appropriate to do so when we reach the amendments dealing with those matters—

Tam Dalyell (Labour, Linlithgow)

If we ever reach them.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

I have just received my timetable; I am sure that the amendments will be reached. I intend to confine my remarks at this stage to the more political points made by the right hon. Member for Devizes (Mr. Ancram). My Liberal Democrat colleagues and I argued in the Scottish Constitutional Convention for tax-varying powers—and they were agreed to as part of the convention's package. We thought it to be a very important issue. It is one of the more significant changes from the 1979 referendum and the 1978 legislation. It is interesting to recall that one of the criticisms made by the Conservative party in 1978–79 was that a Scottish Parliament would not have tax-varying powers and therefore would be a toothless tiger and unaccountable. When we tried to address that problem, the Conservative party changed its tune and raised all sorts of fears and scares. The right hon. Member for Devizes said that it is the Government's duty to dispel all the myths and scares, but it was his colleagues—more than any others—who went around Scotland stirring them up in the first place. The hon. Member for Linlithgow (Mr. Dalyell) accurately pointed out that the 3p variation would apply only to the basic rate tax band. Some people put it about that it would apply to all income—so that if someone were earning £200,000 a year, the variation would apply to all of that £200,000. Some amazing figures were produced on that basis. It is fundamental that the Scottish Parliament should have a tax-varying power. After all, taxation makes an elected body accountable to its electorate. The fear—which was actually well expressed by some Conservatives at the last referendum—is that, if there is not some scope for tax variation, every time a project is frustrated—be it a hospital, school or pedestrian crossing—people will blame Westminster for not allowing us more money. That would then fuel friction. In fact, the Scottish Parliament will have a tax-varying power. If it chooses not to exercise it, it will be as answerable to its electorate as it will be if it chooses to exercise it at the rate of 1p, 2p or 3p. That is why it is as much an issue of democracy as it is of taxation. The right hon. Member for Devizes has tabled many amendments to add the word, "income", but when I challenged him he was unable to name one other tax that could fall within the definition of this part of the Bill—

Michael Ancram (Conservative, Devizes)

rose—

Jim Wallace (Liberal Democrat, Orkney and Shetland)

If the right hon. Gentleman has found one in the meantime, I shall happily give way.

Michael Ancram (Conservative, Devizes)

I want to ask the hon. and learned Gentleman a question, as he asked one of me. If the tax-varying power is restricted to 3p, and if the tax base does not achieve the necessary £450 million, where will the Government find the extra tax?

Jim Wallace (Liberal Democrat, Orkney and Shetland)

We shall deal with that question when we come to the appropriate part of the Bill. I have never understood the position to be anything other than using the income tax mechanism. When we have all had an opportunity to read the consultation document that has been placed in the Library, more light may be shed on the matter. It has never been claimed that anything other than the income tax mechanism would be used. We heard again today that the great danger of having a separate rate for Scotland, which would lead to great differences between Scotland and England, would be that people flocked across the border to set up home in England. If the relative rate of taxation were so vital in choosing where to live or work, why do not people flock to Shetland, which has the lowest council tax in Scotland? [Interruption.] I accept that there are many reasons why people choose a particular place to live or to locate a business. The Conservative Government introduced banding in council tax. In 1996—the latest year for which I have figures—the occupant of a £85,000 house in Scotland would have paid, on average, £8 a week more than the occupant of a similarly valued house in England. I have looked at the relative differences between Dumfries and Galloway, and Cumbria. The occupant of a £50,000 house in Dumfries pays substantially more council tax than the occupant of a similarly valued house only 30 miles away in Carlisle, yet we have not seen removal vans trundling across the border because people want to relocate. There is more behind people's decisions on where to live than the myths and scares that we have heard from the Conservatives during the referendum campaign and since.

John Home Robertson (Labour, East Lothian)

rose—

Jim Wallace (Liberal Democrat, Orkney and Shetland)

I shall give way to the hon. Gentleman, who has a constituency near the border.

John Home Robertson (Labour, East Lothian)

My constituency is not near the border, but my home is. I confirm that there is no sign of people flocking across the border. The good citizens of the Scottish Borders region voted both for the establishment of a Scottish Parliament and—along with almost every other region of Scotland—for the tax-varying powers. I do not understand what the fuss is about.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

I agree with the hon. Gentleman. The islands area of my home and the region of my birth were the two places that did not vote for the tax-varying powers, but, considering the negative approach to the Scottish Parliament in 1979, which was our starting point, we were not far away. All Members of the Scottish Parliament will have to exercise those powers sensitively, if they exercise them at all. The no vote to tax-varying powers in some areas and the fact that the yes vote was only marginally over 50 per cent. in some others should remind Scottish parliamentarians that the powers should be used sensitively. The powers in the Bill do not justify the scares that we have heard today. If businesses are confused, the fault cannot lie with those of us who have been arguing the case for those powers since the Scottish Constitutional Convention reached its agreement in November 1995. The Conservatives are seeking to create further confusion today. If these unnecessary amendments are defeated or withdrawn, no doubt they will conjure up other mythical creatures that are about to do down the Scottish business community. That is not the intention of those of us who agreed the powers in the convention. The most important point is that we want the Scottish Parliament to work. We want Scotland to prosper and flourish. No one wants to put unnecessary blocks in the way of prosperity in Scotland.

Michael Ancram (Conservative, Devizes)

Why is the hon. and learned Gentleman not prepared to accept our amendments, which would merely put the word "income" in front of the word "tax"? That is apparently what he wants.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

Because they are superfluous and are designed to make a political point, continuing the case that the right hon. Gentleman and his hon. Friends lost so decisively on 11 September.

John Swinney (Scottish National Party, North Tayside)

The Government have got themselves into difficulties over the technicalities of the tax-varying powers. I have already referred to the difficulties over the availability of the consultation paper on aspects of the tax-varying powers. I was intrigued by the Government's press statement on that. It said that the Government were publishing the technical paper to inform taxpayers of the Government's intention, to assist Parliament as it continues its scrutiny of the Scotland Bill and to seek views from those with an interest in the operation of the new tax system on how detailed aspects of the new arrangement might best be handled. It is strange that the Government publish a document to assist Parliament as it continues its scrutiny of the Scotland Bill on the day that we are considering the relevant amendments. None of us has had a chance to read the document. My hon. Friend the Member for Banff and Buchan (Mr. Salmond) went to the Library earlier this afternoon to obtain a copy, at the Minister's suggestion. A bewildered librarian tried to find the paper. Two copies were found, both of which had been sent to the Library for information and reference only. It is unsatisfactory that the Government's announcement has put such a question mark over the tax-varying powers. I have tabled amendments to clause 71 on the definition of Scottish taxpayers. When I came to London this morning, I was excited by one newspaper comment, which I thought showed a great reflection by the Government on some of the aspects of the proposals before us. The Daily Mail said: The Government appeared to bow to ferocious criticism of its tartan tax plans last night by saying that it would be willing to rethink certain key areas. None of us expected such a rethink to be tabled in the House of Commons Library this afternoon. Talk of movement on such issues is welcome. I hope that the Minister will have something positive to say about the substantial issues that we have raised on clause 71. However, I do not want to talk about those amendments yet. I want to concentrate on the proposals of the right hon. Member for Devizes (Mr. Ancram). I shall not be surprised if the Minister is not positive about those amendments. I suspect from his body language that he will not be. The Secretary of State may have had the right hon. Member for Devizes in his sights when he made his speech about destabilisation on Saturday evening. The further litany of scaremongering that the right hon. Member for Devizes has put forward, to compound what he said during the referendum campaign, will probably destabilise the Scottish Parliament and the parliamentary passage of the Bill more than anything else. The evidence of the debate so far is that the Tories have failed to learn the lessons of the general election or the referendum. The people of Scotland gave clear assent to the tax-varying powers. It is incumbent on us to reflect the views expressed in that referendum. That does not prevent us from bringing forward constructive amendments designed to help the passage of the Bill and enhance the clarity of its details. That is what we want to do in clause 71.

Liam Fox (Conservative, Woodspring)

Does the hon. Gentleman agree that, if the practical effect of the Bill, particularly the contradictions inherent between clause 69 and subsequent clauses, resulted in an increase of more than 3p in the basic rate, the Scottish voters would feel that they had been conned in the referendum?

John Swinney (Scottish National Party, North Tayside)

My reading of clause 69 is that the Parliament will have the power to vary tax by 3p. If that does not add up to £450 million—I suspect that that is what the hon. Gentleman is getting at—it will be tough on the Scottish Parliament. The Government tried to produce an illustrative figure in the White Paper of what the tax might raise. That is for the Government to answer, not me. I have enough numbers to defend without defending the Government's. The official Opposition cannot grasp two main points. First, the power to raise at least part of its finances is a basic requirement of any Parliament. Secondly, the people of Scotland still have discretion on how the powers should be used. The referendum was a vote not to put up taxes but to give the Parliament the power to put up taxes or reduce them. If the careful-budgeting, money-conscious Conservative party is about to re-emerge in Scotland, able to exercise financial prudence, as it did when doubling the national debt in the past few years, we shall be intrigued to discover what it will offer the Scottish people in a general election. The people of Scotland have a choice on whether the powers are exercised.

Liam Fox (Conservative, Woodspring)

The hon. Gentleman says that if the 3p does not raise £450 million, it is tough for the Scottish Parliament. The White Paper explicitly says: the Parliament's ability to raise or forgo up to £450 million through the tax system will be preserved. This sum will be index linked to maintain its real value.

John Swinney (Scottish National Party, North Tayside)

The Government can reconcile their calculations between 3p in the pound and £450 million. My reading of the clause is that the Parliament will have the right to vary the basic rate of income tax by 3p in the pound. That is for the Government to defend. The Committee will not be surprised to hear that, unlike the Conservatives, I believe that the Scottish Parliament should have wider tax-varying powers. Quebec and the Spanish autonomous regions have far more extensive tax powers which can be used not only to raise a few million pounds here and there but fundamentally to alter the economies of those areas. The Quebec and Catalonia Parliaments can raise around 40 per cent. of their finance. By contrast, Scottish local government can raise a mere 15 per cent. of its own finance. The Scottish Parliament is being given the opportunity separately to raise about 3 per cent. of its taxation and, in the context of the examples that I have just cited, the powers being suggested by the Government are very restrictive. The Tories are keen to restrict the tax role of the Parliament. I certainly have problems with the extent of its tax powers, because they do not give the Parliament the opportunity to take some of the more imaginative decisions that would be required to improve the Scottish economy and deliver a fair tax system that is more in the interests of the people of Scotland. Nor will the powers generate much flexibility. Some of the interesting examples of varying taxation, whether in the form of lower business rates, tax incentives for entrepreneurs, tax breaks for those on low incomes or adjustments in allowances to protect people who are persistently hammered by the tax system in this country, are all opportunities that are lost by the limited nature of the powers. Therefore, the Conservatives are making a mountain out of a molehill in relation as to the substance and significance of the powers. The tone of the Conservatives' amendments is that the Parliament's powers should be fixed in stone. They are very limiting and Westminster-focused amendments, which will simply entrench some of the rhetoric that we have heard all too often from the Conservatives. They put Scotland second and demonstrate beyond doubt that the Tories do not trust the people of Scotland to be imaginative and responsible in the use of those powers. There is a democratic issue at stake—if the people of Scotland wish to use the powers, they will vote for those who are prepared to use them. A separate election contest will determine that point. Clearly, the Government are going to defend staunchly the 3p in the pound power. I have mentioned some of the limitations, but another that I find quite frustrating is that the power will have a disproportionate effect on middle-income earners. For someone earning about £19,000, the application of the full 3p in the pound increase will account for about 10 per cent. of his tax bill. For someone earning £100,000, it will account for only 2 per cent. of his tax bill. Again, middle-income earners will be disproportionately hit by potential tax increases while people earning a phenomenal sum of money will benefit from a tax system that has lost its progression and equity. If the Government were to surprise us all later tonight by saying that part of the current consultation exercise is a proposal to give the Parliament the power to abolish the ceiling on employees' national insurance contributions, I should not be able to get into the Lobby fast enough. It would bring some equity back into the tax system, but I suspect that I am allowing my optimism to run away with me. The Scottish National party has argued for fiscal autonomy, for the Parliament to have more responsibility for its financing, but the Committee rejected our arguments at an earlier stage. Given that the Government now have some doubts about the application of the tax-varying powers, and that what looks like a hurried consultation paper has been typed up in the past few days to be issued in advance of this debate, I think that we shall have to return to those arguments on Report because some of the substance of the powers and the details of the financing of the Parliament are clearly not as securely founded as we should have liked. My colleagues and I shall examine the details of the tax powers extremely carefully to ensure that some of our arguments on fiscal autonomy are redeployed on Report.

Nick Hawkins (Conservative, Surrey Heath)

I shall be brief, but I wish first to take up one point made by the hon. Member for North Tayside (Mr. Swinney)—the extraordinary situation in which we have found ourselves this afternoon. A paper has been rushed out, but hon. Members have not had access to it. The Minister for Home Affairs and Devolution has been good enough to apologise to hon. Members, so I shall not blame him personally, but this is yet another example of a certain combination that we have witnessed all too often from Government Departments— the combination of arrogance and incompetence. Arrogance leads to paperwork appearing only on the day of the debate to which it is relevant, so that we do not have the opportunity to study it, and incompetence leads to it not being available in the Library when the Minister thinks that it is. Hon. Members are having to rush out of a debate on taxation matters, which are of great interest to the Scottish people. I hope that the Minister will give us an undertaking that we shall never again have to put up with official Government papers coming out on the very afternoon of the debate. It is simply not good enough. The debate began with the Minister, and, indeed, the hon. and learned Member for Orkney and Shetland (Mr. Wallace), suggesting that there is nothing to worry about, and that the Conservatives' amendments are not necessary. However, we have just heard about the Scottish National party's plans from the hon. Member for North Tayside. He said that it has always been the SNP's position that, the minute that it had the chance to change things, it would rather have much wider powers to vary taxes. That is precisely what the Conservative party and many Scottish people are worried about. In May last year, Sir Donald Pattullo, Governor of the Bank of Scotland, was expressing concern—

John Swinney (Scottish National Party, North Tayside)

On a point of information, the gentleman is in fact Sir Bruce Pattullo.

Nick Hawkins (Conservative, Surrey Heath)

Of course, I meant Sir Bruce Pattullo. The concern that he was raising about the possible need for a sales tax, and the plans of the Convention of Scottish Local Authorities for a tourist tax, which is of great concern to the people in the tourism industry with whom I have worked over the years, are signs of why we are rightly suspicious about the fact that this part of the Bill is entitled not "The Income Tax-Varying Power" but simply "The Tax-Varying Power". The hon. and learned Member for Orkney and Shetland suggested that there was something inconsistent in the tabling of our amendments today by my right hon. Friend the Member for Devizes (Mr. Ancram) and our original opposition to tax-varying powers, but that is not the case. There is no inconsistency. We were against the Scottish Parliament having tax-varying powers; now that it is to be given those powers, we want them to be as limited as possible, and we want them clarified.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

My hon. and learned Friend the Member for Orkney and Shetland (Mr. Wallace) also said that the inconsistency went back to the Conservatives' previous incarnation, when they were extremely critical of another Bill relating to Scotland for providing no tax-varying powers.

Nick Hawkins (Conservative, Surrey Heath)

The hon. Gentleman is right—the hon. and learned Member for Orkney and Shetland made that point as well, but he also said specifically that there was some inconsistency in our opposition to tax-varying powers in the referendum campaign and our amendments today. My point is that our position has been entirely consistent. We want to ensure that the powers are as limited as possible. I am sure that that is what the Scottish people want, too. They do not want a Pandora's box open for future development by people such as the hon. Member for North Tayside and his colleagues. We want to ensure that the powers clearly relate only to income tax.

John McAllion (Labour, Dundee East)

Will the hon. Gentleman concede that, if the hon. Member for North Tayside (Mr. Swinney) and his colleagues were in a position to influence matters on their own, Scotland would at that stage be independent, so his argument would be redundant?

Nick Hawkins (Conservative, Surrey Heath)

The hon. Gentleman is right to draw attention to the fact that our concern about the Bill and the whole process is that the Government are leading us down the slippery slope towards complete independence and the break-up of the United Kingdom. That is my party's fundamental objection to what the Government are doing. Our amendments draw attention to the vagueness of the Bill. There are great dangers unless the amendments, which limit and clarify the powers, are accepted. I want to draw the Committee's attention to some of the concerns about the tax proposals that were outlined in an article in The Independent on 8 January last year. The particularly appropriate headline, in the context of this debate, was "Tax Shocks for Jocks". The article highlighted the comparisons that the Labour party was then seeking to make, and the fact that it was saying that there was nothing to worry about, that there could be differential rates of tax between Scotland and England and that it would be just like the United States. The article also pointed out: The new Labour Scottish tax would be working against the framework of there being a tax haven next door. Accountants, business men and the Governor of the Bank of Scotland have expressed concern about the plans of the Scottish National party and the Labour-dominated Convention of Scottish Local Authorities. Unless the Government accept the Conservative amendments, there will be no clarity at all.

Eleanor Laing (Conservative, Epping Forest)

Why are the Government afraid to accept our perfectly reasonable amendments that would insert the word "income" in front of the word "tax" at various points in the Bill? If, as the Government have consistently said, they have no intention of varying any other tax, what is wrong with accepting the amendments? They would add only clarity to the Bill. They would not take anything away from the Bill. If it is truly the Government's intention that only income tax would be affected—as they said in the White Paper and told the Scottish people before the referendum—why do they oppose the amendments? Is it not time that the Scottish people knew with clarity what they voted for in the referendum? I shall continue to argue that it is a pity that they did not know before the referendum, but at least they should know before the legislation comes into force—if indeed it does. As the amendments are purely for the sake of clarity, who could possibly object to them on any reasonable grounds? As the Government and hon. Members on my left representing the Liberal Democrats and the Scottish National party—[Interruption.] They are certainly on my left.

John Swinney (Scottish National Party, North Tayside)

We are pleased about that.

Eleanor Laing (Conservative, Epping Forest)

I am pleased, too, because I am on their right. Some of us are Scottish Tories, and always will be. Liberal Democrat and SNP Members frequently insist that it is important that the new Scottish Parliament should have autonomy and that it is vital that the Westminster Parliament trusts the Scottish Parliament and does not treat it like a child and restrict it too much. Hon. Members are always saying that trust is of the essence in setting up the new Scottish Parliament. If that is indeed the case and the Government believe in the autonomy of the Scottish Parliament, it is inconsistent to argue that any tax-varying powers should be limited to 3 per cent. Why should it be 3 per cent.—why not 2.5, 3.5, or 4.25 per cent.? We have never had a proper explanation of why the Scottish Parliament, as an autonomous body, should have its tax-raising powers limited to exactly 3 per cent.

Andrew Welsh (Scottish National Party, Angus)

Local authorities have 15 per cent. revenue-raising powers, yet the Scottish Parliament is to be given only 3 per cent. revenue-raising powers. What kind of Parliament has fewer revenue-raising powers than a Scottish local council? The Tories have just apologised for what they did to Scottish local government. Should not the hon. Lady be apologising in advance for what she is doing to the Scottish Parliament?

Eleanor Laing (Conservative, Epping Forest)

It is not what I am doing; it is what the Scottish people voted for in the referendum. The hon. Gentleman is right to point out that local authorities have more autonomy in respect of raising and varying tax than the Parliament will have. So where is the trust? I put it to the Committee that the reason for inserting the figure of 3 per cent. is that it is a wolf in sheep's clothing. It was done simply to make sure that the Scottish people were not frightened.

John McAllion (Labour, Dundee East)

Thank God for that. I was beginning to worry about the powers of the Scottish Parliament.

Eleanor Laing (Conservative, Epping Forest)

I know that the hon. Gentleman is worried about the powers of the Scottish Parliament and that he and many of the hon. Members on my left would like the Scottish Parliament to have far more powers.

John Maxton (Labour, Glasgow Cathcart)

Order. The hon. Lady is going rather wide of the subject. I wish that she would return to the amendment.

Eleanor Laing (Conservative, Epping Forest)

I apologise, Mr. Maxton. It is too much of a temptation to reply to the hon. Member for Dundee, East (Mr. McAllion). If the Westminster Parliament truly trusts the body that is being set up in Edinburgh, why is it not willing to give it more autonomy in its tax-raising powers and to accept the amendment, which would simply provide clarity? Whatever other havoc is caused when the Parliament is set up in Edinburgh and whatever uncertainty is created, especially for small businesses in Scotland, at least the Scottish people will know that only income tax can be varied. If it is truly the Government's intention to allow only income tax to be varied, why can they not accept our very reasonable amendments? The hon. Member for North Tayside (Mr. Swinney) said earlier, in respect of the level of taxes that can be raised, that, if certain things did not happen, it would be tough on the Scottish Parliament. It would not be tough on the Scottish Parliament; it would be tough on the Scottish people.

David Prior (Conservative, North Norfolk)

I have read clause 69 very carefully in conjunction with clause 72 and I agree with my right hon. Friend the Member for Devizes (Mr. Ancram): it is extremely confused. However many times I read it, it became no clearer. My right hon. Friend described it as obscure and incomprehensible. The fact that it is incomprehensible and the Government do not seem to want to clarify it creates doubt, uncertainty and a suspicion that there may be some hidden taxes lurking beneath the surface—not least because the basic rate of 3p in the pound, to which the tax is supposed to be limited, does not seem to fit with the £450 million that they talk about raising from it. Clause 69 is obscure, but it is nothing compared with clause 72, and the two together cause doubt and confusion among Opposition Members. It is important that clause 69 should be clear and certain for three particular reasons. First, despite what was said earlier, taxation is extremely important when it comes to locating and running businesses. Parts of the world that have low taxation are doing well. If hon. Members are in any doubt about that, they should ask Sir Bruce Pattullo, Governor of the Bank of Scotland. Secondly, the tax-raising power in Scotland drives a significant wedge between the various parts of the United Kingdom. Why should Scotland be able to raise or lower income tax when other parts of the United Kingdom cannot? It is therefore doubly important that we know the exact extent of the tax-raising powers.

John Swinney (Scottish National Party, North Tayside)

The hon. Gentleman is in effect arguing that all taxes should be the same throughout the United Kingdom. Can he tell me why council tax for the average household is about £200 in the City of Westminster, but may be five times as much in Scotland?

David Prior (Conservative, North Norfolk)

I am arguing not that taxes should be the same throughout the United Kingdom, but that taxation should not be structured in such a way as to break up the United Kingdom. Local government is correctly financed through locally raised taxes—indeed, I wish that it was financed to a greater extent through locally raised taxes. The third reason we need clarity and certainty in clause 69 is illustrated by the argument advanced by the hon. Member for North Tayside (Mr. Swinney), in that his party wishes to extend the right of the Scottish Parliament to tax and will use every chance available and every piece of ambiguity and uncertainty in the clause to argue for higher and greater tax-raising powers. Our amendments would clarify the Bill; they would not make any fundamental changes, but they would add certainty. That is why I support them.

Tim Collins (Conservative, Westmorland and Lonsdale)

The amendments invite the Committee to consider the important provision that gives the Scottish Parliament the power to vary income tax up or down. I shall follow up my right hon. and hon. Friends' remarks about the lack of clarity in the Bill later. First, I should like to pick up on some of the remarks made by the hon. and learned Member for Orkney and Shetland (Mr. Wallace). The hon. and learned Gentleman said that our amendments should not be accepted because, in his view, they are superfluous. If the worst that can be said of the amendments is that they merely clarify or lengthen the Bill, that is not a sufficient argument for striking them out, given the importance of clarity in this matter. Secondly, the hon. and learned Gentleman said that the Conservative party has no right to table the amendments because they express a position different from that taken by the Conservative party in 1978–79. That seems a rather strange view from the spokesman for a party which, since 1978–79, has changed its view on the right to buy, nuclear weapons and privatisation or nationalisation and which has allied itself, merged itself, split itself and changed its name countless times. An argument based on consistency with 1978–79 comes ill from a Liberal Democrat. Thirdly, the hon. and learned Gentleman pooh-poohed the proposition that anyone would ever move from Scotland to Cumbria. Although I understand and respect his natural love for his country—Scotland is a beautiful country—as one who represents a Cumbrian constituency I have to tell him that there are people in my constituency who have moved there from Scotland. They have moved both themselves and their businesses and one of the many factors they took into account was the difference in taxation, which the hon. and learned Gentleman said was irrelevant and not a matter of concern.

Roseanna Cunningham (Scottish National Party, Perth)

Name them.

Tim Collins (Conservative, Westmorland and Lonsdale)

I name Mr. Melvin Mackie, who is the entirely splendid landlord of The Pheasant Inn in my constituency and who moved from Scotland to Cumbria. I thank the hon. Lady for that invitation to name and praise that splendid gentleman and his splendid pub.

Russell Brown (Labour, Dumfries)

I live on the border and I can assure the hon. Gentleman that everything he is arguing was argued before 1 May. Scotland's businesses are not flocking to relocate across the border. Relocation is far too expensive: the hon. Gentleman should know that.

Tim Collins (Conservative, Westmorland and Lonsdale)

I hear what the hon. Gentleman says, but we do not yet have a Scottish Parliament—or differing levels of income tax, which is what the Bill is all about. We shall see what happens. I was invited to give an example of someone who has moved from Scotland to Cumbria and I have done so, so I have proved my point. Scottish National party Members have said that they think the problem with the tax provision is that 3 per cent. is not enough and that the figure should be far higher. The 15 per cent. for local authority financing was quoted—and that was clearly the opening bid in an upward process. That proposition is difficult to reconcile with the argument of the hon. and learned Member for Orkney and Shetland, who said that because Members of the Scottish Parliament will be elected by proportional representation a cross-party consensus will be needed before there can be any tax increases, so no one needs to worry. Which parties will apply the brake to ambitions to shove up taxes harboured by a Labour party short of a majority in the Scottish Parliament? First, there will be the Liberal Democrats, whose constant refrain at Prime Minister's questions is to ask why he will not shove up taxes more, so as to be able to spend more public money. Secondly, there will be the Scottish National party, which says its only problem with the tax-raising powers of the Scottish Parliament is that they do not go far enough and do not enable taxes in Scotland to rise yet further. It seems unlikely that the Scottish Parliament will apply a brake to any of Labour's ambitions to raise taxes. It is clear that, unless there is a clear and overwhelming Conservative majority—as we hope there will be, although it will be difficult to achieve under a system of proportional representation—all the other parties will be instinctive tax-raising parties which, sooner or later, will try to use the powers to increase taxes to the detriment of the Scottish people. The point of the amendments is simply to establish what was put before the Scottish people in the referendum.

John Swinney (Scottish National Party, North Tayside)

Does the hon. Gentleman accept that if, in a Scottish general election, the people of Scotland were given a clear choice between the different tax proposals offered by the parties and they opted for certain proposals that might, lead to an increase in taxation, that would be the expressed will of the Scottish people and that they are entitled to express that opinion democratically?

Tim Collins (Conservative, Westmorland and Lonsdale)

The interesting question is whether those propositions would be honestly put to the Scottish people. It is significant that the Government have established a pattern whereby they ask people to look at the rabbit of income tax while they do all sorts of other things in the background. Some of us remember that, before the general election, the present Prime Minister went around signing posters in his own fair hand saying that he would not put up income tax. As I found on doorsteps in my constituency and elsewhere, many people interpreted that as a pledge not to put up taxes at all, but, as we have already seen, taxes were increased in the first Budget of the Labour Administration and it is threatened that they will rise extensively. It is likely that the same will happen in Scotland: there will be an attempt to focus all attention on income tax, as though that is the only tax that can be levied. We should ensure that what the Scottish people were asked to vote on in the referendum—that a Scottish Parliament should have the power to vary only income tax rates, and that by a limited amount—should be written on the face of the Bill. Without that and the amendments, the technique constantly used by the Government—inviting people to focus solely on income tax, thus enabling the Government to make all sorts of other tax increases that they believe have a lower profile but which are every bit as painful—will be used again. The amendments are important because they provide clarity and would establish on the face of the Bill the proposition that the Scottish people were invited to endorse. They would prevent a sneaky, but particularly poignant and oft-repeated, trick of the current Administration that has already been played on the people of the United Kingdom as a whole being perpetrated on the Scottish people.

Robert Syms (Conservative, Poole)

I support the amendments, which would insert the word "income". It was explicit throughout the White Paper, the referendum and the debate on devolution that what the amendments would write into the Bill was what was intended and I cannot understand why the Government do not accept them—after all, they are in the spirit of the debate. The amendments would clarify and make more specific the powers of the Parliament. There will always be those who worry that, if income tax is not specified, other taxes may appear. In the press, we have read of concerns about a tourist tax or a sales tax, and various members of the Scottish business establishment are concerned about how other forms of taxation may impact on them. Having read the press release and the various prospective clauses that were put in the Library earlier, I am pleased to see that the Government have clarified many points. The complexity of the income tax system becomes clear when one starts to read through those complicated documents. It is easy to see why tax lawyers make such a good living at the Bar when they deal with issues relating to income tax. I doubt whether a 3p rise would raise £450 million. That may be an issue for another day. I oppose the principle of varying tax within the United Kingdom because I believe that it will be detrimental to Scotland. Scotland may wish to make that choice, but the debate about crossing borders shows that it will be a difficult issue. As the hon. Member for Dumfries (Mr. Brown) told my hon. Friend the Member for Westmorland and Lonsdale (Mr. Collins), companies will not move from Scotland, but the decisions of many international businesses and businesses based throughout the United Kingdom about where to expand could be determined by tax structures. The Library document brings out the issue of the setting-up costs of the Scottish Parliament that will fall on the Inland Revenue and social services. For the Inland Revenue, a setting-up cost of £10 million, with perhaps £8 million a year running costs, was mentioned. For social security, the figures are £6 million setting-up costs and perhaps £1 million running costs. It is inevitable that a Parliament with the power to levy ½p or 1p will not choose the lower figure because of the substantial setting-up and initial running costs. With a £16 million setting-up cost and a £9 million running cost, the Parliament will not go for a ½p rate, which may raise only £75 million. That would not be efficient. In practice, the Parliament will not have much choice between ½p, 1p or 3p because, with the cost of collecting the tax, it will go for the top level from day one. That will affect business and employment north of the border.

Andrew Welsh (Scottish National Party, Angus)

While raising the spectre of international companies rushing to leave Scotland or not coming at all, can the hon. Gentleman give an example of companies being deterred? To prove his point, the hon. Member for Westmorland and Lonsdale (Mr. Collins) could offer only a publican rushing from Scotland to Cumbria.

Robert Syms (Conservative, Poole)

It would take a while; the Parliament has not yet been set up and the tax has not yet been levied.

John Swinney (Scottish National Party, North Tayside)

Assuming that it will be.

Robert Syms (Conservative, Poole)

It is a realistic point. High-tax countries do not attract jobs. Scotland will be competing against England and Wales, which will have lower taxes.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

I cannot understand why Conservative Members do not understand the logic. The matter would be dealt with as an issue in the election to the Scottish Parliament. The hon. Gentleman said that the Parliament would have to raise the tax by 3p, but it could get away with that only if the electorate was willing to forgive it.

Robert Syms (Conservative, Poole)

The hon. Gentleman makes a good point. I am sure that that will be a key issue. The principal point of the amendments is to insert the word "income" to make the provision specific. I do not believe that that would change the Government's intent, but it would reassure many people who are worried that other forms of taxation might be raised. I support the amendment.

Gerald Howarth (Conservative, Aldershot)

This is an important debate. It is a great shame that there are so few members of the media in the Gallery to listen to a debate that has profound implications for all the people of the United Kingdom and not only for the people of Scotland. I support the amendments tabled by my right hon. Friend the Member for Devizes (Mr. Ancram) to insert the word "income" so that there is no doubt, not only in the House but in the country at large, that we are talking about powers to vary income tax, not powers that relate to any other form of taxation. If the hon. and learned Member for Orkney and Shetland (Mr. Wallace) believes that the word "income" is superfluous, let him put it in the Bill. It is not as if we are asking for a series of new clauses that make lengthy insertions. We propose a one-word insertion at a number of points that would mean that no one, least of all the courts—to whom the Government are handing more powers under the Human Rights Bill, which we debated last week—should be able to interpret the will of Parliament as extending beyond income tax to other forms of taxation. I remind the Minister for Home Affairs and Devolution that, on Second Reading, the Secretary of State referred to safeguards that had been built into the system and said: First, income from savings and dividends will not be affected by the tax-varying powers. We were influenced heavily in reaching that decision by the need to have a level playing field for the financial services industry in Scotland, which is particularly important in insurance and pensions."—[Official Report, 31 July 1997; Vol. 299, c. 465.] I wonder how much those industries gave to the Labour party. Bernie Ecclestone gave £1 million to secure changes in the tobacco regime. The Government have clearly had representations from the insurance and financial sector, which is concerned about the impact on its businesses.

Henry McLeish (Labour, Central Fife)

On a point of order, Mr. Maxton. The comments that my right hon. Friend the Secretary of State made on Second Reading have been linked to the suggestion that the Labour party may have received income from financial services companies. I hope that that was not the inference that was being drawn.

John Maxton (Labour, Glasgow Cathcart)

That is not a point of order but a matter for debate.

Gerald Howarth (Conservative, Aldershot)

I note your ruling that that was not a point of order, Mr. Maxton. The Minister is a decent chap, but he was remarkably sensitive to my point. Perhaps he might like to check with Walworth road to make sure. The point that I was making for the benefit of the Minister and in answer to the Scottish nationalist lot was about a specific case of an industry that has made representations to the Government about the potential impact of the Bill on its business. The industry wanted to ensure that it would not be prejudiced by an extension of tax-raising powers beyond income tax. If the Minister wishes to score a few brownie points with the insurance and financial services industry, which plays a big part in the Scottish economy, he should accede to our small but important amendment.

Oliver Heald (Conservative, North East Hertfordshire)

Has my hon. Friend noticed that the largesse directed to savings is not being directed towards charitable gifts, in respect of which the amount of Scottish tax supplement will not be grossed up in the usual way? It will be restricted to only the United Kingdom basic rate. Is that not a particularly mean decision?

Gerald Howarth (Conservative, Aldershot)

I was not aware of that and I am grateful to my hon. Friend for drawing it to our attention. It seems that it is a one-way ratchet—and not a good example of the good faith to which the people of Scotland might like to look forward in their dealings with a Scottish Parliament.

John Maxton (Labour, Glasgow Cathcart)

Order. The hon. Gentleman is straying a little far from the amendment. I would be grateful if he returned to it.

Gerald Howarth (Conservative, Aldershot)

I was seeking only to respond to my hon. Friend's intervention. As a matter of principle, I believe that national taxation should be decided by this place for the whole United Kingdom. This part of the Bill is one of the axes falling on the unity of the United Kingdom. I agree with my hon. Friend the Member for Poole (Mr. Syms) that it is a matter of principle that taxation should be determined nationally in this Parliament at Westminster. There has been some discussion of people moving. I noted the nervousness of the insurance and financial services industry about the Bill's impact on their business. Much mirth was had by the Scottish nationalist lot about the suggestion that my hon. Friend the Member for Westmorland and Lonsdale (Mr. Collins) could not name people who had moved to Westmorland. They ought to take note of the fact that, even in advance of the Bill reaching the statute book, a Scottish business man has realised that he can read the runes only too clearly and has decided to up sticks in order to ensure that there is no way that he can be affected. I am quite sure that the habitues of his hostelry will be grateful for his move.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

Will the hon. Gentleman inform the House how many international companies have announced over the six months since the referendum that they are about to make inward investment in Scotland?

Gerald Howarth (Conservative, Aldershot)

I am not aware of the answer off the top of my head. The hon. and learned Gentleman makes a fair point. Many businesses have gone to Scotland. That is one of the features of 18 years of a Conservative Government. Thanks to our policies—

John Maxton (Labour, Glasgow Cathcart)

Order. The amendment says: "after 'the', insert 'Income'." I wish that the hon. Member would refer to it.

Gerald Howarth (Conservative, Aldershot)

I was, Mr. Maxton. I was referring to income—income in Scotland from all the new businesses that were encouraged by the Conservative Government. I say to those who have questioned whether the Bill will have an impact on where business locates that, generally, business does not make a decision until it has seen how individual bits of legislation take effect. In that respect, it is very instructive to look at what is going on in Kent, where people have been able to see the impact of different rates of taxation. There, they have voted with their feet—

Frank Roy (Labour, Motherwell and Wishaw)

They voted Labour.

Gerald Howarth (Conservative, Aldershot)

If the hon. Gentleman thinks that this matter is anything to do with there being a Labour Government, I remind him that it probably has more to do with the Labour Government sticking to the spending limits set by the previous Conservative Government, giving people some reassurance. Once the Bill comes into effect, we are likely to see businesses trying to escape the extra burdens of a Scottish income tax. Scottish nationalists say that it will not make a difference. In the White Paper, the Government made clear that they propose that the tax varying power should operate on income tax, because it is broadly based and easy to administer. I shall return to that point. They specifically ruled out VAT, stating: different rates of VAT on different sides of the border would cause practical problems". I remind the Minister that the 1977 White Paper came to a very different conclusion. It noted that, of all the options, supplementary income tax seems an attractive candidate at first sight because of its high yield and broad coverage but it was ruled out primarily on the ground that it would impose a heavy new burden on the PAYE system and would reduce its efficiency as the Government's main revenue collector. Furthermore, because a marginal tax would be at a low rate, the cost of collection could represent as much as 20 per cent. of the yield. There we have it. It has been considered in the past that such a tax would impose a substantial burden. The Government are now asserting to the contrary. There will be a cost to business from the tax-varying powers conferred by the clause. There will be a cost to the Government. We do not know how much; the Bill is not explicit on that. I wonder how much the Government will make available to businesses to help them offset the additional cost of the income tax-varying powers that they are being asked to shoulder.

Robert Syms (Conservative, Poole)

Is my hon. Friend aware that, from some estimates, it could cost business upwards of £50 million to set up the running of the additional tax?

Gerald Howarth (Conservative, Aldershot)

That is a very substantial amount of money—but cost is not the only issue. For a large business, £1 million may not be a large amount, but £10,000 in costs could be a substantial burden on a very small business. My hon. Friend mentions a substantial figure, which could fall disproportionately and particularly harm small businesses. I give the Minister a word of advice. All Conservative Members are clear that much of the Bill comes from a dispute between the Scottish nationalists and the Labour party, as they vie to outdo each other on winning the nationalist vote. The Minister had better beware, because it is perfectly apparent—we shall come to this issue in a later debate—that the 3p income tax-varying power may not raise enough for the Scottish nationalists' designs, and they will be back. I say to you, Mr. Maxton, as a Scottish Member, that the Scottish nationalists will be back, seeking to persuade the Scottish people that such a sum is paltry and that the only way in which they can implement their plans will be with a very much larger take. I support the amendment.

Henry McLeish (Labour, Central Fife)

Some things change, but many do not. The speech of the hon. Member for Aldershot (Mr. Howarth) was breathtaking in its irrelevance to the fact that Scotland has moved on, the business community has moved on and the Scottish Conservative party has moved on. Conservatives in this House have simply not moved on. Before I briefly address the Opposition amendments, I shall refer to the consultation paper issued by the Inland Revenue. The paper sets out the Revenue's initial thinking on a range of second-order technical issues, which will have to be dealt with before April 2000. It has been sent to a range of representative organisations and invites their comments. It is very much a working document, but, for hon. Members' information, the Chief Secretary to the Treasury and I have arranged for copies to be placed in the Library. I shall come to points made about that in a second. The paper is intended only as a step along the road to sorting out all the various detailed technical aspects of the tax. I anticipate, however, that it will meet some of the concerns that have been expressed to us and will encourage constructive comment in other areas. May I repeat that I apologise for the inconvenience that has been caused to hon. Members? The paper is part of the on-going debate, but it would have been courteous to have informed at least the party leaders about its availability. It could then have been accessed a little earlier. On that basis, I hope that I can leave that point.

Michael Ancram (Conservative, Devizes)

I am grateful to the Minister for his apology, which I certainly accept. Will he pay the fees of the tax adviser whom I shall need to explain the paper to me?

Henry McLeish (Labour, Central Fife)

As they say in the legal profession, I shall reflect on that matter.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

I, too, am grateful to the Minister for his apology. On a cursory glance at the paper, one of the things that cause me some concern is a reference to clause 75 and how many of the responses to the consultation may be made by subordinate legislation. Will the Minister give an undertaking that, if substantive points come up, he will be prepared to reconsider amendments either on Report or in another place?

Henry McLeish (Labour, Central Fife)

That is for the procedures of the Committee. If hon. Members want to raise further items at a later stage, they can obviously be discussed. The Inland Revenue will have prepared the paper for the purposes of consultation with employers and others. As a courtesy, the paper was placed in the Library. I have already referred to the administrative convenience.

John Swinney (Scottish National Party, North Tayside)

I accept the Minister's remarks about the arrangements for the paper. Will there be more papers of that nature? From a cursory glance, the paper does not seem to cover all the issues that concern me in relation to clause 71 and the definition of Scottish taxpayers. Although the Minister may have more to say in a later debate, I seek his reassurance on that point.

Henry McLeish (Labour, Central Fife)

I shall indeed have something further to say about that. I hope for continuing consultations, in addition to the paper that is being published. Moreover, the Revenue intends to call in employers to discuss implementation of the tax. I anticipate further papers clarifying some of the issues that will be involved. There is something synthetic about the concern expressed by Conservative Members this evening. Since 11 September, many people have taken the result very seriously—the result being a Scottish Parliament. The result also meant, however, a tax-varying power. Despite the ringing endorsement by the Scottish people, by a ratio of 2:1, I detect at best a grudging acceptance of their decision by the Conservative Opposition. It does little good to distort and exaggerate. The Conservatives' grudging acceptance is cloaked in further attacks on the democratic wishes of the Scottish people. It is always very dangerous for democracy when people seemingly insult a decision arrived at in this way. It is the business of this Committee to scrutinise the technicalities, not to revisit old arguments—yet that is what the Tories have done under the guise of apparently supporting the measure. They actually harbour deep misgivings about what is happening—

Henry McLeish (Labour, Central Fife)

I see that they are getting edgy.

Liam Fox (Conservative, Woodspring)

What are the Prime Minister's economic reasons for saying that his party will not support the use of the tax-raising power?

Henry McLeish (Labour, Central Fife)

The subject was well aired before publication of the White Paper on 24 July, and before the referendum of 11 September. It is no secret that we are committed to that for the lifetime of this Parliament.

Desmond Swayne (Conservative, New Forest West)

Does the Minister accept that we tabled our amendments solely to ensure that the Scottish people get exactly what they voted for and nothing else?

Henry McLeish (Labour, Central Fife)

Not at all. That is not the import of the amendments. There was a tax-varying question, linked to what the White Paper said, on the ballot paper. We made it clear that we were talking about income tax. The business community has moved on from these points already. Business people wanted fairness: that is what they have got. They wanted uncertainty cleared up; the business community is always rightly apprehensive of change. All that has formed the basis of the discussions between the Government and the business community. While that community has begun to look at the technicalities and the impact of the tax-varying power, Conservative Members have not moved an inch since the result was declared on 12 September.

Oliver Heald (Conservative, North East Hertfordshire)

If the measure applies only to income tax, why not say so? Could it be because the Government, with their secret agenda, intend later to include capital gains tax?

Henry McLeish (Labour, Central Fife)

Conservative Members should apply themselves to clause 69(1): Subject to section 70, this section applies for any year of assessment for which income tax is charged". That is clear to every party in the House except the Conservative party. No matter how many times Conservatives are told that this concerns income tax, they will not acknowledge the fact—on political, not technical grounds.

Tam Dalyell (Labour, Linlithgow)

Is the business community completely satisfied with the Government's position on a uniform business rate?

Henry McLeish (Labour, Central Fife)

I think the business community is satisfied with our openness and with the dialogue that we have had with business people. They have acknowledged that the power over the uniform business rate, linked as it is to the structure of local government, is being passed to the Parliament, not to local government itself. The Parliament will determine the matter. I am well pleased with our discussions so far. Recently the CBI met my right hon. Friend the Secretary of State and agreed to submit its thoughts on some of the technical issues surrounding the tax. It has now done that; I believe that the Inland Revenue is to hold further discussions with the CBI to respond to its points. I am content with the process—

Michael Ancram (Conservative, Devizes)

But are business people?

Henry McLeish (Labour, Central Fife)

Conservative Members should do some reading about what industry and business are saying. The life companies, for instance, are allowing their staff to stand for the Scottish Parliament, protecting their jobs and interests in the meantime.

Tam Dalyell (Labour, Linlithgow)

I have said before that there is some concern about the responsibilities of the life offices. Will it be they or the Revenue which will be responsible for making information available?

Henry McLeish (Labour, Central Fife)

It will be a matter for the Inland Revenue, which will notify the life companies of what needs to be done. 6.15 pm At some point, Conservative Members will have to come clean on where they stand—not for the benefit of the Government, the Liberal Democrats or the nationalists, but for the benefit of the Conservative party in Scotland, which may be interested in participating in elections there. Conservative Members ask who will decide whether the tax-varying power is to be used. The answer is: possibly the Conservatives. They have no locus in this House when it comes to Scotland, following 1 May, but they should be careful when deciding whether to accept the verdict of 11 September. They should not undermine the efforts of Scottish Conservatives to be elected to the Scottish Parliament—an outcome most democrats would want, yet it could be jeopardised by what the Opposition say in this Committee. Amendments Nos. 352 to 355, 358 to 365, 369, 383, 386, 391, 394, 395 and 398 would replace each reference to tax-varying powers or taxpayers in the Bill with a reference to income tax-varying powers or income tax payers. The amendments are simply not necessary. Clause 69 makes it quite clear that the tax-varying power applies solely to income tax and thus to income tax payers. Clause 72(3) would confine any future replacement of the proposed tax-varying powers to income tax. There is nothing more I can say on the subject. The amendments are superfluous and should not be agreed to.

Michael Ancram (Conservative, Devizes)

That was a most inadequate response. These days it seems that if we are told by the Minister that black is white, we need not see it on the face of the Bill. His whole argument is predicated on the idea that because he has said before that the provision relates to income tax, that need not be stated in the Bill. Certainly, from the point of view of Scottish business, that is inadequate. The Minister keeps saying that clause 69 makes it clear that this is about income tax. I have read it again. It refers to any year of assessment for which income tax is charged". If that is indeed about income tax, why does the Minister resist the simple addition of the word "income" to make the measure clear beyond peradventure? We are only trying to bring about some confidence and stability. I would expect the nationalists to attack us, but when even the Liberal Democrats suggest that we have a hidden agenda, it becomes disappointingly clear to me that they have not understood the depth of concern in Scotland. My hon. Friends have admirably highlighted the uncertainties generated by these provisions; the Minister has not begun to answer any of them. Once again, we have heard the protests that this is a wrecking group of amendments tabled by the Opposition. The Minister has given no serious consideration to them. He says that the Government do not need to clarify, yet when he introduced the paper from the Inland Revenue today, he said that it was the first of a number of papers whose purpose will be to clarify these issues. Those were his words—to clarify these issues. In saying that, he is accepting that there are doubts, that there are questions that need to be answered, and that clarification is required, yet when we seek to make a simple clarification in the Bill, he throws his hands in the air and says that he cannot accept it. Then he wonders why we are suspicious. The Minister says that the business community in Scotland has moved on, that it is satisfied with the provisions, and that our need for clarification is not the need of the business community. Why, then, did representatives of the CBI go to see him on 30 January to ask for clarification and to get an assurance that capital gains tax would not be affected by the provision? If the Bill and the arguments are so clear and so patent, and the Scottish people have seen and heard them for the past eight months, why does a senior organisation representing Scottish business take a different view and feel the need to ask for that reassurance? Why was the Minister so keen to give us that reassurance from the Dispatch Box again last week at Scottish questions? Because he, too, knows that there are doubts in Scotland, and that those doubts are dangerous and destabilising. He wants to offer reassurance not in the Bill, but from the Dispatch Box. The Minister's attitude is breathtaking in its complacency. He was asked by the hon. Member for Linlithgow (Mr. Dalyell) whether he was satisfied that the Scottish business community was reassured about the uniform business rate. If I understood his answer, which was not easy to understand, he seemed to say that the business community was pathetically grateful that he had been prepared to talk to its representatives. There are real business decisions—investment decisions—to be taken, all of which will be taken on the basis of the confidence that Scottish business has in the Government's proposals in relation to tax, but we have again heard nothing that creates any more confidence in that regard.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

Does the right hon. Gentleman accept that even if all his amendments were accepted, it would make no difference to the powers of the Scottish Parliament in relation to the uniform business rate?

Michael Ancram (Conservative, Devizes)

Not these particular amendments—

Jim Wallace (Liberal Democrat, Orkney and Shetland)

Those are the ones that we are discussing.

Michael Ancram (Conservative, Devizes)

I said earlier that the entire clause relates to confidence in tax varying. We have tabled new clauses that we shall discuss later, which deal with that specific problem, so the hon. and learned Gentleman will see that we are consistent in our approach. I am sorry about the view that the Minister has taken. These were useful amendments, which could have created confidence. Throughout our consideration of the Bill, his reaction to any amendments tabled by the Opposition—even by the Government's friends, the Liberal Democrats, who are now protesting about not having any amendments accepted—has been arrogant resistance to any constructive suggestion. That is disappointing, but I shall not press the matter. I beg to ask leave to withdraw the amendment. Amendment, by leave, withdrawn.

Oliver Heald (Conservative, North East Hertfordshire)

I beg to move amendment No. 356, in page 29, line 23, at end insert— '(3A) The income mentioned in subsection (3) to which section 1A of the Income and Corporation Taxes Act 1988 applied for that year shall also be treated as income of that kind even where the taxpayer's total income from all sources exceeds £25,500 in that year. (3B) The income referred to in subsection (2) does not include income from any annuity purchased from a pension fund.'.

John Maxton (Labour, Glasgow Cathcart)

With this, it will be convenient to take amendment No. 357, in page 29, line 35, at end add— '(6) Split year concessions shall apply to resolutions passed by the Scottish Parliament as they apply under the Income and Corporation Taxes Acts.'.

Oliver Heald (Conservative, North East Hertfordshire)

Amendment No. 356 proposes adding two new subsections, (3A) and (3B), to clause 69. New subsection (3A) seeks to ensure that any tax supplement resolved on by the Scottish Parliament should not have effect as against income from savings and distributions, even if the Scottish taxpayer's income exceeds £25,500 in that year. To put that in context, clause 69(2) applies the income tax Acts to Scottish taxpayers so that the UK rate—the basic rate—is increased or reduced by the amount resolved by the Scottish Parliament. Clause 69(3) provides that income from savings and distributions is not to be considered for that purpose, but that is done by reference to section 1A of the Income and Corporation Taxes Act 1988. Section 1A provides that income from savings and distributions is to be taxed at the lower rate in the United Kingdom, but if a taxpayer's total income exceeds £25,500, tax is paid on the top slice at the higher rate, and income from savings and distributions is considered under subsection (5) as the highest part of his income and taxed at 40 per cent. less the 20 per cent. already deducted. The amendment seeks answers to two questions. For the purposes of the Scottish tax supplement, will income from savings and distributions be completely disregarded, or will such income be considered for tax as the highest part of the taxpayer's income and be brought into the Scottish tax supplement if the total income exceeds £25,500? In other words, will the tax supplement apply to basic rate taxpayers and those in receipt of savings and distributions income in so far as the total income exceeds £25,500, or does section 1A apply only to define the categories of income to be disregarded, and may subsection (1)(b) and subsection (5) of section 1A therefore be ignored for these purposes? That was a fairly technical argument, but I can see that one or two Labour Members followed it closely. New subsection (3B) would remove pension income from the Scottish tax supplement. As at present drafted, clause 69, subject to my previous comments, would exempt savings and distributions income, but not pension income. It is an anomaly that senior citizens in receipt of a pension should pay the tax, while those who rely on other savings income should not. The Government may argue that savings are made out of taxed income and should therefore be exempt from further taxation, and that it would be wrong to tax twice. However, as we have seen, the income under section 1A of the 1988 Act is already taxed, albeit at a lower level. It is true that pension contributions attract tax relief and that pensions in payment are taxable, but the agreement between the Government and the taxpayer has been that tax relief will be at the current UK tax rate, and that pensions in payment will be taxed at the current UK tax rate. Pension scheme members have made their contributions, as have their employers, on the basis of the present situation, and have made their projections of the necessary required income for retirement on that basis. Is it fair to change the rules retrospectively and impose a new tax on those with fixed incomes—pensioners who have no opportunity to increase their income, because their working lives are over? For the past 18 years, the Conservative Government were anxious to increase the number of people who had pension provision. The number went up by more than 6 million. That was against a background of falling income tax rates. In recent years, Labour has given people taking out pension provision the idea that Labour would agree to the system where tax rates fall rather than rise. It is doubly cruel now to increase the rate of tax for pensioners while leaving other savers untouched, as pensioners cannot change their position, claw back the money, put it back into their pension schemes and save the situation for the future. Furthermore, is it right as a matter of policy to disadvantage pension scheme savers in comparison with other savers? Other savers have made their savings from taxed income, but at the current UK rate. They have not paid the Scottish tax supplement. If they are to be exempt from the tax supplement on the fruits of their investments, why should pensioners pay it? There is an imbalance between the way in which two kinds of savers, both possibly saving for their retirement, are treated. Is it right for a Government to discriminate against pensioners? Pensions are thought by many to be the best form of investment for retirement. The money is set aside permanently, and employers are prepared to make contributions to pension funds as part of their employment policy. Everyone recognises that good-quality pensions help the individual to meet his expectations of retirement. Until recently, all Governments have gone to great lengths to extol the benefits of pension provision, not least because it eases the burden on the public purse at a time when we face an increasing aging population. At present, there are three pensioners for every worker. By 2030, there will be five pensioners for every worker. Against that background, rather than abandoning that pension policy, should not the Government support those who make provision in that way? We have already seen the £5 billion pensions raid and now we have this discrimination against Scottish pensioners. I ask the Government to think again and to accept amendment No. 356. There is a certain mean-spiritedness about this tax-varying power—grossing up charitable gifts not by the amount of the Scottish tax supplement but only by the United Kingdom basic rate; and not giving full relief for home income plans, which are restricted to the basic rate instead. There are 15,000 plans in the United Kingdom and no doubt there are many in Scotland. Do the Government wish to send the message, "Don't be a Scottish pensioner or a Scottish home income plan owner"? I do not think so. That is why the Government should consider the amendments seriously. 6.30 pm Amendment No. 357 seeks to maintain the extra-statutory concession on split years for the Scottish tax supplement. Under United Kingdom tax law, anyone who is resident in the United Kingdom for part of a tax year is liable for tax for the whole year in respect of his whole income. In theory, if he is resident in the United Kingdom for a day and then moves to the United States, he is liable to pay tax for the whole year on his whole income. The Revenue has recognised the unfairness of that and has made an extra-statutory concession that involves splitting the tax year, so that income arising after departure is not subject to United Kingdom tax. It is not clear whether that concession applies to the Scottish tax supplement if a person moves to England or abroad to the United States, for example. It is important that the Government clarify their position. It would be wrong to discriminate against those who seek to exercise mobility of labour. I ask the Government to consider both amendments seriously, and I hope that the Minister will accept them.

Tam Dalyell (Labour, Linlithgow)

In the previous discussion, I asked whether donations to charities would be treated according to Scottish or United Kingdom taxation rules. I put that question then in the expectation that we might not reach these amendments, and I wonder whether it would be convenient for the Minister to answer now. I asked also about the treatment of annuities. The Minister did not touch on that issue in his winding-up speech, but that matter may be dealt with more properly now. I have one more question about pay-as-you-earn treatment—forgive me if it does not relate to the amendments, but I do not know when it will be appropriate to raise it. Would it not create less of a burden and be administratively easier if tax years could be split? For example, if someone arrives in Scotland from England on 1 September, the Scottish rate will affect PAYE for the whole year of assessment. That creates an additional burden for employers and employees, which may result in an employer paying an additional salary or in an employee seeking to postpone his arrival in Scotland. Now is probably as good a moment as any to ask about the treatment of PAYE.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

I should declare an interest in the discussion, as I am the parliamentary adviser to the Institute of Chartered Accountants in Scotland. I have had discussions with the institute regarding some technical matters in the Bill—although obviously any political gloss I may put on them is entirely my own. I welcome the fact that the hon. Member for North-East Hertfordshire (Mr. Heald) has moved the amendments. This is the stuff of the Committee stage; we should examine the details of the legislation. The hon. Member for Linlithgow (Mr. Dalyell) also raised important detailed points. The amendments raise concerns about the way in which clause 69(1) and (2) will interact with the general operation of income tax as it affects Scottish taxpayers. I understand that clause 69(2) makes the provision part of income tax legislation, so it should apply the next time we have a consolidation. Given that the Scottish variable rate applies to income tax, does it apply also to tax relief? I note that the charitable deeds of covenant are covered by the consultation paper and that tax relief will continue to apply at the United Kingdom basic rate, regardless of the tax position of the donor. I am not 100 per cent. certain that the provisions in clause 69 will achieve that aim. We could have a political debate about whether they should achieve it—the hon. Member for North-East Hertfordshire said that the deeds of covenant should attract tax relief if someone pays a higher rate. Many charities have found that successive reductions in the rate of income tax have led to reductions in their income. Putting aside that political point, I seek an assurance from the Minister about precisely how the position that he sets out in the paper with regard to the deeds of covenant can be achieved by the structure of the changes to the Scottish rate of income tax as set out in clause 69. In terms of simplicity, there is much to commend the extra-statutory concession. We want simplicity, but I would hesitate to allow a Bill that deals with fundamental constitutional matters to make a major taxation change. There is much to be said for putting such extra-statutory concessions into taxation legislation. It is not satisfactory to achieve fundamental taxation change by way of extra-statutory concessions. My final point relates to annuities. I understand that we have different tax rates to which annuities from pension funds do not apply, principally because the Conservative party made that distinction. I think that the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), introduced that provision. If there is a tax break going in, it is not unreasonable that there should be tax coming out. We seek confirmation from the Minister on that point. If, for the sake of argument, the tax rate in the Scottish Parliament is 24 per cent., would a contribution attract a tax break at 24 per cent? If that is so, it is not unreasonable that it should be taxed at the Scottish rate when the payment is taken out.

John Swinney (Scottish National Party, North Tayside)

I wish to make a brief contribution to the consideration of amendments Nos. 356 and 357. I believe that amendment No. 357 is the better of the two. In the past few weeks, I have received several representations from specialist organisations in the financial services sector and from the business community about some of the details surrounding these provisions. I take the point made by the hon. and learned Member for Orkney and Shetland (Mr. Wallace): there is concern about the publication of the consultation paper. It is felt that too many details about the application of the tax-varying powers will be settled by secondary provisions and do not form part of the Bill. A key concern that has been drawn to my attention is the definition of "Scottish taxpayer" in clause 71.

Oliver Heald (Conservative, North East Hertfordshire)

I am rather surprised by the hon. Gentleman's comments. He spends a good deal of time telling us that details do not have to be on the face of the Bill, and now he says that they should. Can he not decide?

John Swinney (Scottish National Party, North Tayside)

That is such a lot of rubbish that I will not even bother to respond. The Government have introduced in the Bill the concept of Scottish taxpayers. I understand their motivation for doing that, but I disagree with the method and the mechanism that they have proposed. This debate is similar to the one that I suspect we shall have on clause 71; the definition of Scottish taxpayers should be much more closely related to residence than the Government propose. I am particularly concerned about split-year concessions. I have anxieties about the bureaucracy and the administrative hassle and costs of gathering information for the proposed days test, and I believe that the Bill should make clearer the issues relating to the split-year concessions. If the Revenue can deliver a split-year concession for individuals who leave the United Kingdom for other tax jurisdictions, I am sure that a mechanism could be designed adequately to protect the right to a split-year concession for people who leave Scotland for another part of the United Kingdom. We need guarantees that such mechanisms will be implemented, but the days count is inadequate; it is cumbersome and unnecessary, and it does not provide sufficient clarity. I understand the Government's enthusiasm to maximise revenues, but they must do so through the consistent application of tax practice and definitions, which are sadly lacking in the Bill.

Dominic Grieve (Conservative, Beaconsfield)

This is an interesting debate; it has become clear that, far from being simple, the 3p income tax variation is a matter of considerable complexity. Nothing illustrates that better than the preferential treatment that will be accorded to those who are in receipt of unearned income from stocks and shares, as opposed to those who have saved for their pensions. Given the Government's proclaimed interest in pensioners, the fact that they are making such a differentiation comes as something of a surprise. We hope that the Government will accept the amendments, which would ensure parity between those who receive unearned income and those who receive pensions. Pensioners tend to have nothing else to fall back on for their income, yet they will be unfairly penalised in comparison with those who enjoy unearned income from other sources. Another illustration of the measure's complexity is the split-year concession, about which the hon. Member for North Tayside (Mr. Swinney) and other hon. Members have spoken tellingly. If income tax rates differ in Scotland and England, the concession will be of great importance to those who work in and out of Scotland, and the Government should take that into account when they consider how the income tax mechanism will work. As I understand the Government's thinking, they have moved from the principle that tax variation will occur only in relation to income tax to the position that it will affect only taxed, earned income. If so, they would be wise to nail their colours to the mast and leave it at that; otherwise, we shall end up with a series of bizarre anomalies—one need only look, for example, at the wording of the Inland Revenue's detailed statement to realise that some items that would normally be treated as income will be exempt. That is a recipe for the system to be considered unfair. If tax variation will apply only to the income earned by those who are earning, so be it; if not, the Government should consider the whole matter again.

Tim Collins (Conservative, Westmorland and Lonsdale)

Again, this is an important debate, as it enables us to flush out the Government's intentions. Amendment No. 357 deals with split-year concessions, and we should be aware that it is somewhat naive to operate a system on the assumption that most people—or even a significant number—will move from Scotland to England or vice versa just as one tax year ends and another begins. The Bill should make clear provision to take account of the fact that most people will move at other times of the year. It is important to note that, once again, more Conservative Members are present than Labour Members, even though there are, sadly, two and a half times as many Labour Members as Conservative Members. The Scottish Parliament is supposed to be the flagship of the Government's programme, but in this debate on a matter of great significance—taxation—the Labour Benches are not filled. Is that because Labour Members do not believe that these matters are important, or do they think that the Government's case is difficult to support? With the honourable exception of the hon. Member for Linlithgow (Mr. Dalyell), Labour Back Benchers have been entirely silent all afternoon. That needs to be noted; it betrays not only the contempt in which many Labour Members hold the House, but their indifference to matters of taxation, income and the management of the Scottish economy, which are of great importance to the people of Scotland and to all those who want every part of the United Kingdom to operate a strong and prosperous economy under a clear financial framework. 6.45 pm Amendment No. 356 is important; we want the Government's attitude to people whose income is greater than £25,500 per year to be put on the record. Those who were around in the run-up to the 1992 general election—I was in a very junior capacity—will remember the Labour party's immense difficulties over whether someone who earned £21,000 or £22,000 per year was affluent. At a famous dinner at an Italian restaurant, which was attended by journalists, the then leader of the Labour party, Mr. Neil Kinnock, changed policy on the treatment of employers' national insurance contributions. That was as significant then as it is now, as we need to know what the Government's rhetoric means. They talk about people who are prosperous, who can afford to pay and who should be encouraged to make sacrifices for the wider community, but at what income will the affluence test start to bite? As we learned during the debate on the previous group of amendments, the Government are reluctant to specify in the Bill the assurances that they gave during the referendum campaign and on other occasions—that the Scottish Parliament will be given powers to vary only income tax. If they reject the amendments, there will be a suspicion that the Labour party is pursuing an agenda in which people of a certain income—it may be £20,000, £25,000 or £30,000—should pay more. The amendments were tabled to find out how much the Minister believes people's income should be before it is reasonable to expect them to pay more towards services, whether they are in Scotland or the rest of the United Kingdom. I should be interested to hear his definition of the affluence test—an idea that the Secretary of State for Social Security floated during a famous "Today" programme interview, but which was denounced a few hours later by Mr. Alastair Campbell from No. 10 Downing street, who—unconstitutionally—holds much greater power than any member of the Cabinet, with the possible exception of the Prime Minister. I hope that the Minister will make clear the Government's position on pensioners. The pensions tax that was imposed in last year's Budget gave us some idea, but we want the Minister to put it on the record whether the Government are interested in the concerns of pensioners, particularly those with private pension provision. I hope that, in the Minister's response to amendment No. 356, he will also clarify the Government's position on the key question of people with middle incomes, to which many people below them aspire. Does he believe that they should be asked to delve deep into their pockets to pay for socialist spending plans, whether they be from Holyrood or Westminster?

Robert Syms (Conservative, Poole)

I listened to my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) eloquently introducing the amendments. I think that all of us have been impressed by the technicality of the clauses that we are discussing. We have had to listen carefully to explanations of what they mean. The arguments behind amendment No. 356 are telling. Unearned income will not be taxed, but pensioners will find themselves under a tax burden. We all know that many pensioners are on a fixed income. Many have planned for their retirement for many years, only to find that the burden of the proposed taxation will diminish their living standards in retirement. I support the amendment. I support also amendment No. 357. As the hon. Member for Linlithgow (Mr. Dalyell) said, split years are an important issue. People are moving from one address to another and changing jobs all the time. Many of those moves and changes take place within the United Kingdom and many are international. If we can have recognition of split years under our income tax and corporation tax arrangements for people who go abroad, it seems not unreasonable that we should have such arrangements for people who move between Scotland and England or from Scotland to any other part of the United Kingdom.

Henry McLeish (Labour, Central Fife)

The hon. and learned Member for Orkney and Shetland (Mr. Wallace) asked about the tax treatment of pensions. If the Scottish rate were to be 24 per cent., would contributions attract relief at 24 per cent? The answer is yes. The hon. and learned Gentleman referred also to the treatment of charities and asked how that would be achieved in the Bill. That will be done by invoking the powers in clause 75(2) by regulation in so far as that is necessary. That is one of the issues on which the Inland Revenue is consulting. My hon. Friend the Member for Linlithgow (Mr. Dalyell) raised the issue of pay-as-you-earn treatment. I can tell my hon. Friend that PAYE will operate as normal. Indeed, that was made clear in the White Paper. The Inland Revenue will be consulting employers on detailed operational matters, covering such issues as how best to deal with people who move to and from Scotland in any one year.

Tam Dalyell (Labour, Linlithgow)

Is the Inland Revenue considering a split year?

Henry McLeish (Labour, Central Fife)

I shall take up that question in response to the amendments. The hon. Member for North-East Hertfordshire (Mr. Heald) asked whether it is fair to tax pension payments at the higher rate at which the contributor obtained tax relief in contributing to his or her pension fund. If a Government committed themselves to tax pensions only at the same rate at which they gave relief on pension contributions, it would not be possible to alter tax rates, including lowering them. I shall take up some of the substantial points that were made by the hon. Member for North-East Hertfordshire. Amendment No. 356 is clearly based on a paper produced by Deloitte and Touche. The argument seems to be that section 1A of the Income and Corporation Taxes Act 1988 is a form of allowance and that, after that slice of income is, in effect, cut out, the next slice can fall into the gap. But that is not quite right. Sections 1 and 1A of the 1988 Act and clause 69 work together. The rules take account of a person's total income, as arranged in a certain way, which basically puts savings income on top. From this are deducted personal allowances, and what income is left is divided into rate bands. For 1997–98, the first £4,100 is taxed at the lower rate of 20 per cent. Income from £4,101 to £26,099 is taxed at the basic rate of 23 per cent. The balance is taxed at the higher rate of 40 per cent.

Tam Dalyell (Labour, Linlithgow)

My hon. Friend will be aware of the concern of the Institute of Chartered Accountants in Scotland, which is asking whether income tax is to be withheld at 23 or 26 per cent. Thereafter, will the payer be given tax relief for an annual charge of 23 or 26 per cent? Are there special rules for cross-border annual payments? That refers to the Income and Corporation Taxes Act 1988.

Henry McLeish (Labour, Central Fife)

I intend to deal with the cross-border issue. However, at this stage I refer my hon. Friend to the answer I gave to the hon. and learned Member for Orkney and Shetland a few minutes ago. The Scottish variable rate can apply only to the £4,101 to £26,099 band, which is taxed at 23 per cent. According to section 1A of the 1988 Act, the 23 per cent. charge cannot apply to savings income. Thus, the SVR does not apply to savings income. Contrary to what seems to be implied by the amendment, part of the balance of income in excess of £26,100 does not drop down into the space to be taxed at the SVR. In our view, the first half of the amendment is unnecessary. There are two types of annuity to which the second half of the amendment might conceivably apply. They are what are termed as PAYE annuities, which are taxed under schedule E—that is income from employment—and payments to holders of retirement annuity contracts, which are annual payments taxed under schedule D. Basically, we are talking about pension income, and that has been alluded to by Opposition Members. In the proposed terms of new subsection (3A), the amendment is unnecessary. Current legislation already achieves what is intended. As Deloitte and Touche made clear in its paper, even it is not sure whether there is a problem with the definition of savings income in the Bill. All that it wanted was an assurance, and I am happy to give that. The amendment is not so attractive when we come to new subsection (3B). The sort of annuity to which it refers is essentially a form of deferred income. There is no reason why it should not be within the ambit of the tax-gathering power, along with other earned income. Excluding certain pension income would produce a mismatch with the relief given to Scottish taxpayers on pension contributions. That seems wrong and would arguably be to the disadvantage of other UK-resident taxpayers.

Oliver Heald (Conservative, North East Hertfordshire)

Is it not the point that contributions attract tax relief at the current UK rate? The same is not true of the pension in payment, which will be taxed at the current UK rate plus whatever the Scottish tax supplement is. How can that be consistent with the treatment that the Government are giving to savers, which is entirely different? They paid the money in tax at the UK rate, yet they are being exempted from the Scottish tax supplement. The two approaches are unequal. Why are the Government discriminating against pensioners, of all people?

Henry McLeish (Labour, Central Fife)

If we take the two annuities that have been implied in the amendments, they would be regarded as pensions. However, the Deloitte and Touche report refers to purchased life annuities. As premiums do not carry tax relief, they are considered as savings and will be excluded. In Scotland, pensioners will be subject to the powers on deferred income. However, fewer than 15 per cent. of over-65s will be affected and the average impact is £140 for aged taxpayers where the basic rate will be their marginal rate. There is a distinction that we are declaring openly and honestly in relation to savings as against deferred income. We believe that deferred income should be subject to the SVR. I move on to the question of Inland Revenue extra-statutory concession—that is ESC A11—which is raised by amendment No. 357. It will apply in the normal way, notwithstanding the Bill's provisions. I can give the Committee that assurance. The argument that has been advanced this evening differs from the general issue of the extra-statutory concession. If the intention is to apply the principles in the ESC to those who move between Scotland and elsewhere in the UK during any tax year, I am not prepared to accept it. It would be an administrative nightmare for employers and the Inland Revenue alike. It would be necessary to revisit Scottish taxpayers' status part way through the tax year. The only fair way to operate the rules in relation to in-year movers is to determine where in the UK they have spent most of the tax year, or where their UK principal home was for most of the tax year. We shall soon be discussing that matter. Clause 71 provides appropriate and fair rules, and nothing more is needed.

John Swinney (Scottish National Party, North Tayside)

How much more of an administrative burden does the Minister believe the information for a split-year concession would be, as measured against the colossal bureaucracy of the days test for every Scottish taxpayer?

Henry McLeish (Labour, Central Fife)

I would not accept that proposition. We shall have a chance to respond to it when we come to the specific question. We advise the Committee to vote against the amendments.

Oliver Heald (Conservative, North East Hertfordshire)

The Minister's reply was a disappointment. The Opposition have pointed to a gross discrimination against pensioners. People who paid tax at the UK rate will have their position on savings entirely protected, whereas pensioners who have made their contributions on the basis of tax relief for the UK rate are being discriminated against. There is no equality between the two. As my hon. Friend the Member for Beaconsfield (Mr. Grieve) said, we are dealing with a complex matter, but one of justice. As my hon. Friend the Member for Westmorland and Lonsdale (Mr. Collins) said, we are faced with an attack on pensioners. It is, indeed, a breach of faith. As my hon. Friend the Member for Poole (Mr. Syms) said, an individual pensioner living on a fixed income will be discriminated against when he has set his arrangements for retirement on the basis of certain knowledge that the current UK tax rate will be the contribution tax relief and the basis on which he is taxed. It is a breach of that agreement. We are dissatisfied with the Minister's answer. The answer on split years is equally wrong, giving no consideration to those who wish to exercise mobility of labour. On that basis, we shall press the amendment to a Division.

SUPPLEMENTAL PROVISION WITH RESPECT TO RESOLUTIONS

Donald Gorrie (Liberal Democrat, Edinburgh West)

I beg to move amendment No. 408, in page 30, line 26, leave out 'tax-varying' and insert 'tax-increasing'.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this, it will be convenient to discuss amendment No. 366, in page 30, line 28, leave out '2000–01' and insert '2002–03'.

Donald Gorrie (Liberal Democrat, Edinburgh West)

Our amendment would replace "tax-varying" with "tax-increasing". Opposition Members in the Scottish Parliament could propose a reduction in taxes, but only members of the Government could propose increased taxes. According to my hon. Friends, who are more experienced than I, that is the practice in this House. In giving Opposition Members as much freedom as possible, it would be reasonable to allow them to propose tax-reducing measures. The amendment might appeal to Conservatives in particular. They are concerned about tax raising. If they succeed in having Members elected to the Scottish Parliament, they could propose tax-reducing measures. I am confused about where the Conservatives are coming from. Leaks to the press suggest that their leader is taking them in a new direction and that devolution and all associated with it is a good thing, although it should apply to the English as well as to the Scots. But today we are hearing the same old story: anything that the Scottish Parliament will be able to do must be bad.

Liam Fox (Conservative, Woodspring)

The hon. Gentleman was not even here.

Donald Gorrie (Liberal Democrat, Edinburgh West)

I beg your pardon.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman is addressing the Chair in all remarks.

Donald Gorrie (Liberal Democrat, Edinburgh West)

I beg your pardon, Sir Alan. I was being interrupted. The amendment is straightforward. It is not of huge moment, but the conduct of the Scottish Parliament would be improved marginally if Opposition Members were allowed to propose a reduction in taxation. 7.15 pm We do not support the Conservatives' proposal which would deny the Scottish Parliament the right to introduce tax-varying powers as soon as it wished. If it is to be a serious Parliament and is to have those powers, it should be allowed to use them.

Tam Dalyell (Labour, Linlithgow)

I should like to ask about retrospection. What will be the combined effect of subsections (3) and (4) of clause 70? Subsection (3)(a) suggests that a determination of the UK Parliament may be made after the beginning of the year without it expressly being stated that such determination is necessarily to be effected in the year in question. Will not that have the consequence that, in theory, the tax-varying power could be applied retrospectively? In the hands of lawyers, that would be more than an arcane point. I should also like to ask about double tax treaty relief. The vast majority of UK double tax treaties specifically refer to UK income tax. The provision that Scottish income tax will also qualify for double tax relief must be clarified. Clauses 69, 70 and 71 appear to replace the non-varied rate with a varied rate for Scottish taxpayers, but would the UK income tax rate still apply? Those two questions are rather significant.

Dominic Grieve (Conservative, Beaconsfield)

I was surprised at the comments of the hon. Member for Edinburgh, West (Mr. Gorrie). I understood that the amendment would limit the power of the Scottish Executive to move a motion to increase taxes. That perhaps was not a total surprise because of the reality in which the Bill will operate, but it was still a considerable surprise in the light of the representations made by the Government in the referendum campaign. Many hon. Members will have no difficulty in agreeing that in the Scottish Parliament the Opposition should be able to table motions to reduce taxation, but that is not what would be achieved. I stand to be corrected, but my reading of this simple alteration is that the Scottish Executive would be allowed to move a motion to vary tax only upwards.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

It would mean that only a member of the Scottish Executive could propose a tax-increasing measure whereas any Member of the Scottish Parliament could propose a tax-reducing measure, which is precisely the position in this House.

Dominic Grieve (Conservative, Beaconsfield)

If that is what the Liberal Democrats seek, a further amendment is required.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

The hon. Gentleman has not read the amendment properly.

Dominic Grieve (Conservative, Beaconsfield)

I beg to differ. Amendment No. 366 would postpone for one year the implementation of the tax-varying powers. It is not an attempt to curb the power of the Scottish Parliament: it reflects the debate that we have had this evening. It is abundantly clear that if the tax-varying powers are to operate successfully, they will require careful attention. The people in Scotland who will have to pay will need to prepare carefully, and may decide to save into pensions or into equities. Given the minutiae that the Inland Revenue has presented us with, it is abundantly clear that accountants and tax lawyers will have a field day interpreting these provisions. I hope that the Minister recognises that I have accepted that we must smooth the way for these changes. The provisions must be seen in the context of the real changes in the relationship between Edinburgh and Westminster. These tax measures add an extra and complex layer to what is already an extremely complex period of change. It is clear from the White Paper on devolution that the Scottish Parliament is intended to be up and running over a period from May 1999 onwards. In those circumstances, the tax-varying powers should be postponed for 12 months, so that we can experience how the relationship between the Scottish Parliament and the United Kingdom Parliament and Government operates in practice. We trust that the Scottish Parliament will have a long life, so that seems a small concession to prudence. It would be a worthwhile concession, given the burden that will have to be borne by those in office.

Alex Salmond (Scottish National Party, Banff and Buchan)

I am puzzled about amendment No. 366, which would delay the change in the Scottish taxation provisions. Does it mean that the Conservative party has abandoned any attempt to lower the level of taxation that the Scottish Parliament can raise? Has it merely abandoned its attempt to do so until 2002–03, or has it abandoned any hope of doing so at any time?

Dominic Grieve (Conservative, Beaconsfield)

The hon. Member for Banff and Buchan (Mr. Salmond) misunderstands the position. We may argue in the future for a reduction in taxes in Scotland. We are concerned about the transitional period when these complex constitutional measures are being introduced. They will undoubtedly need to be smoothed through. I realise that the hon. Gentleman may not want them to be smoothed through, although he often argues to the contrary. On a number of occasions, the hon. Gentlemen the has told the House that it is particularly important that the Scottish Parliament works for the benefit of the Scottish people. Assuming that he wants it to be up and running effectively, it may be more sensible for the stages to be introduced gradually. The hon. Gentleman has attended some of the debate, but not all of it, and if he had listened to the details of the tax principles, he would realise that there will be complex problems. We take the view that there is no point adding to those problems. It may benefit the operation of the Scottish Parliament and smooth its relations with the House if, when it is up and running, there are no tax-varying powers for 12 months and those changes are held over until the following year.

John McAllion (Labour, Dundee East)

I congratulate the hon. Gentleman on his elevation to the Opposition Front Bench. He certainly improves the quality, although that is not very difficult. If he wants to postpone the tax-varying powers of the Scottish Parliament for 12 months, why does amendment No. 366 postpone it for 24 months, from 2000–01 to 2002–03? Surely, if that is what he is trying to achieve, the amendment is wrong.

Dominic Grieve (Conservative, Beaconsfield)

I think not. The amendment would leave out 2000–01 and would insert 2002–03.

John McAllion (Labour, Dundee East)

That is two years.

Dominic Grieve (Conservative, Beaconsfield)

If that is the case, all the better. The purpose of the amendment is to allow a transitional period during which there would be no tax-varying powers.

John McAllion (Labour, Dundee East)

How long is that period?

Dominic Grieve (Conservative, Beaconsfield)

The amendment would introduce the powers in 2002–03.

John McAllion (Labour, Dundee East)

How long is that?

Dominic Grieve (Conservative, Beaconsfield)

If I may say to the hon. Gentleman, we have still not had complete clarity from the Government on how the transitional period from 1999 will operate. I ask the Minister to consider the desirability of a transitional period before the tax-varying powers are introduced. I suggest that postponing the introduction of those powers until 2002 would be a valuable change.

John Swinney (Scottish National Party, North Tayside)

Before the hon. Member for Dundee, East (Mr. McAllion) intervened, I was going to welcome the hon. Member for Beaconsfield (Mr. Grieve) to the Opposition Front Bench. As a result of his rapid promotion to the Front Bench, I thought that my hon. Friends the Members for Moray (Mrs. Ewing) and for Banff and Buchan (Mr. Salmond) may think that it was time for young men to be put into the limelight of debate, but perhaps they were not paying careful attention. Having heard the hon. Gentleman's contribution, I do not think that he is a threat to some of his right hon. and hon. Friends on the Front Bench. The hon. Member for Edinburgh, West (Mr. Gorrie) referred to the ability of Back Benchers to propose a motion to reduce taxation. That is a sensible measure and reflects the established procedure of the House. It would enable Back Benchers outwith the Scottish Executive to utilise the powers that are given to the Parliament. In a strange way, it may give Conservatives something to do and on which to focus when they get into the Scottish Parliament. They could try to challenge the other parties, which they think are determined to use the tax-varying powers only to increase taxation. Amendment No. 366 would delay the implementation of these powers. We must bear in mind some practical realities. The Parliament will be elected in May 1999, and it will assume its responsibilities in 2000. A party making a tax-varying proposal at the election in May 1999 should be confident of delivering that proposal in the time scale offered by the legislation. Such a proposal in an election manifesto would not stand up to scrutiny on the hustings if it could not be delivered in the time scale provided by the Bill. The legislation enables parties to formulate their proposals and to judge whether they are able to implement them in the proposed time scale. I am not clear whether the Conservatives want to delay the implementation of these powers for 12 months or 24 months, but it seems to be more than 12. The amendment is symptomatic of the arguments that we have heard from Conservatives recently. They want to put obstacles in the way of the Parliament assuming the powers in the Bill, and to delay the Scottish people assuming responsibility for a proportion of their own affairs. The sooner the Scottish people are able to exercise their discretion over these matters of policy the better. I have no time for amendment No. 366. The hon. Member for Beaconsfield referred to the need for gradual change. Some of us are concerned that gradual change has been slow in coming. The people of Scotland have decisively voted for the Parliament to be set up on this basis, so we should not impede it from assuming the powers that it was promised.

John McAllion (Labour, Dundee East)

I did not want to speak in this short debate, but I felt that the Conservative Front-Bench contribution required a response from Back Benchers. I regard the hon. Member for Beaconsfield (Mr. Grieve), who has been elevated to the Front Bench, as one of the brightest and best Opposition Members—certainly given what he has said during our debates on the Bill—but, when he cannot even tell the difference between the year 2000 and the year 2002, assuming that it is 12 months, we have to worry about the quality of the Conservative party and the likelihood of its returning to office. It is clear that even the brightest and best cannot count. But perhaps the Conservatives have an aversion to counting following the last general election, when results went badly against them. Let us consider the substance of the debate. Hon. Members want the elected Scottish Parliament to be able to introduce a Budget in the first year in which it takes over—a distinctive Budget: the Budget of the Scottish Parliament, rather than simply a Scottish Office block that is decided here and handed down. They want a definite budget, which will draw its strength from the mandate received by Members of the Scottish Parliament from the Scottish people. I cannot see the purpose of the amendment, other than dog-in-the-manger opposition to what the Scottish people have already voted for. A referendum has taken place, and a huge number of Scottish people voted to give the Parliament a tax-varying power. The Parliament will be elected in May 1999; there will be almost a "shadow" year during which it can come to terms with the new responsibilities that it will take. In that time, accountants and tax lawyers will be able to engage in consultations with the Parliament on what its first Budget may entail. But if the parties elected to that Parliament have been elected on the basis of a manifesto that states that it should vary the rate of income tax in Scotland—whether by 1p, 2p or 3p—by increasing it, that is democracy, and the Scottish Administration will have the right to introduce such a measure in their first Budget.

Dominic Grieve (Conservative, Beaconsfield)

I take in good part the hon. Gentleman's views about my mathematical abilities, but let us confine ourselves to the principle for a moment. Surely the issue is not the Scottish Parliament's ability to deal with the matter; surely it is the fact that all the other associated bodies in Scotland—and the people, and the accountants, and everyone else—will have to prepare for the change. That is not a political but a practical issue, and that is why we sought the postponement.

John McAllion (Labour, Dundee East)

I understand that, since 11 September 1997, it has been clear to everyone in Scotland that the change is about to happen. That means that there are two and a half years in which to prepare for the change before the Scottish Administration introduce their first Budget in April 2000. I do not see the need for us to allow the extra two years that the Conservatives are suggesting. The fact is that they do not like the change: they would prefer the Scottish people not to have voted for it, and they would prefer the Scottish people to elect to the Scottish Parliament a party committed to not implementing it. That, however, is up to the Scottish people. It is not up to amendments tabled in the House of Commons to prevent the Scottish people from electing a party that will introduce the changes contained in its manifesto. In an earlier debate, someone said that the proportional representation election system—which might lead to a coalition Government here—would lead to taxes being increased through the back door against the wishes of the Scottish people. Hon. Members seem to misunderstand the nature of that system. It means that, unless more than 50 per cent. of people back the Administration, that Administration will not be able to increase taxes in the Scottish Parliament. It is almost like the old ladies in the Carlton club who said, when they heard in 1951 that a Labour Government had been elected with an overwhelming majority, "The country will not stand for this." They did not understand that the country had just voted for a Labour Government. The Tories have not yet understood that Scotland as a country has voted for a Scottish Parliament with tax-varying powers, and may well vote for parties that will use those powers when they are in government. There is no reason on God's earth why any hon. Member should stop or delay the exercise of democracy in Scotland. That is what devolution is all about.

Michael Ancram (Conservative, Devizes)

The hon. Gentleman is always very keen to bring my hon. Friends and me to task when we get things wrong. Will he tell us again who were elected to office in 1951?

John McAllion (Labour, Dundee East)

I believe that the Conservative party was elected, following the policies that a Labour Government had produced in 1945. If I remember rightly, the Conservatives adopted those policies lock, stock and barrel—much as new Labour has done with Tory policies. The point that I am trying to make is that, under a system of democracy, the people decide how taxes should be levied in their country. That is why I am keen for my hon. Friend the Minister to oppose amendment No. 366, which I consider anti-democratic and very much in the nature of the Conservative party as it has been for the past 25 years. Sooner or later, the Conservatives will have to learn the lesson that they cannot continue to preach to the Scottish people that they do not know what they are doing, and that if they vote for tax-varying powers there is something wrong with them. Of course there is not; there is something wrong with the Conservative party, if it cannot accept the decision of the Scottish people and continues to try to oppose it in the House of Commons with useless amendments such as this. As for amendment No. 408, I do not agree that a Scottish Parliament should operate in the same way as this Parliament. Here, the Executive has the right to raise taxes, but the Opposition can move motions only for reductions in taxes. I did not know before that that was the position here, but it is, and I hope that it will not apply in the Scottish Parliament. I feel that Committees in the Scottish Parliament should be very different from Committees in the House of Commons, and that the nature of sovereignty in the Scottish Parliament should be very different from the operation of sovereignty here. I do not want an all-powerful Executive in the Scottish Parliament that will do much as it pleases, like the Executive here. I want powerful Committees that have the right to initiate legislation. I do not see why the Finance Committee, or its Chairman, should not be able to propose an alternative Budget. If the Budget can gain the support of Members of the Scottish Parliament, what is wrong with that? It is a different way of working from the way in which this Parliament works, but surely, for goodness sake, as we enter the next millennium we can move away from the 19th-century ideas that dominate the operation of this Parliament. Surely we can move into the new millennium along with the rest of the world, rather than being locked in the 19th century. I do not think that my hon. Friend the Minister should accept either amendment. Both are intended to interfere with the rights of the Scottish people to govern themselves.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

Yet again, the hon. Gentleman fails to understand that, without our amendment, the arrangements will be even more restrictive than those governing this place. The Government propose that only the Executive can do anything when it comes to tax powers; we seek, at least in part, to widen that ability to the whole Parliament.

John McAllion (Labour, Dundee East)

I did not understand that. I am grateful to the hon. Gentleman for drawing it to my attention: if I had known that that was what the Government were about, I might have made a very different speech. [Interruption.] My hon. Friend the Minister, however, assures me that that is not the case, and, as he is such a nice man, I am prepared to trust him, if not others.

Alex Salmond (Scottish National Party, Banff and Buchan)

The hon. Gentleman keeps referring to 19th-century practices in this place. Does he not think that that is a bit unfair? I cannot remember anything quite as modern as the 19th century here.

John McAllion (Labour, Dundee East)

I think that this place had its heyday in the 19th century. In those days, there was a coherent set of principles to which both Government and Opposition adhered—liberal capitalism. The 20th century produced different views about how society should be organised, and the emergence of the Labour party. I rejoice in such differences, however, because they continue to divide Government and Opposition. I resent the idea that we should all come together again in one big consensus and accept the new world order, the new capitalism and so on.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman is going well wide of the amendment, in a debate that allows a limited amount of time.

John McAllion (Labour, Dundee East)

I am indeed going dangerously wide of the amendment, so I shall return to it. If amendment No. 408 increases the powers of the Scottish Parliament over the Executive, I ask my hon. Friend the Minister to accept it. If it does not, I ask him to reject it.

Eleanor Laing (Conservative, Epping Forest)

First, let me correct something that was said by the hon. Member for Dundee, East (Mr. McAllion).

Alan Haselhurst (Deputy Speaker, Saffron Walden)

I hope that it is something that was in order.

Eleanor Laing (Conservative, Epping Forest)

It was not absolutely in order, Sir Alan, but the hon. Gentleman is way ahead of his time if he thinks that there are any ladies in the Carlton club.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I gave the hon. Lady a hint, and I think that she should have taken it.

Alex Salmond (Scottish National Party, Banff and Buchan)

There are women in the Tory party.

Eleanor Laing (Conservative, Epping Forest)

The hon. Gentleman makes the point very well. Let me turn to clause 70(5). With all due respect to my hon. Friend the Member for Beaconsfield (Mr. Grieve), I must agree with the interpretation of the hon. Member for Edinburgh, West (Mr. Gorrie) of his amendment. It seems to me that to change the words only a member of the Scottish Executive may move a motion for a tax-varying resolution to only a member of the Scottish Executive may move a motion for a tax-increasing resolution is a good idea, because it suggests that any other Member of the Scottish Parliament can propose a tax-reducing resolution. The amendment is good because only a Conservative Member of the Scottish Parliament is likely to move a tax-reducing resolution. History shows that only Conservatives aim at reducing taxes. Of course the amendment will be irrelevant when Conservatives control the Scottish Executive, and I am confident that they will.

Alex Salmond (Scottish National Party, Banff and Buchan)

The Tory amendment delays any attempt to reduce taxes for another two years, and, in opposing the Liberal Democrat amendment, the Conservatives seek to delay a Conservative Opposition's ability to reduce taxes. It seems that Conservative Front-Bench spokesmen do not think that they will reduce taxes in government or in opposition and that implies that they do not think that they will be there at all.

Eleanor Laing (Conservative, Epping Forest)

I understand the hon. Gentleman's point, but his interpretation is wrong. There is complete consistency in our attitude to the two amendments. Amendment No. 366 to change 2000–01 to 2002–03 aims to give a degree of certainty and stability to the Scottish people. Despite the way in which they voted in the referendum, the Scottish people do not deserve to have their tax and financial affairs and their political background changed every month or so.

Michael Ancram (Conservative, Devizes)

My hon. Friend makes interesting comments. I have some difficulty working my way through the double negative in the Liberal amendment. Does my hon. Friend agree that it is a typical example of a woolly Liberal Democrat amendment? Would not it have been much easier to say that Standing Orders shall ensure that any Member of the Scottish Parliament may move a motion for a tax-decreasing resolution? That would have been totally clear.

Eleanor Laing (Conservative, Epping Forest)

I entirely agree with my right hon. Friend; it would have been much clearer. However, I give the Liberal Democrats some credit for doing the best that they can in the circumstances. Perhaps they do not have the faith to imagine that anyone will ever want to propose a tax-decreasing resolution. I certainly cannot imagine any Liberal Democrat introducing such a measure.

Henry McLeish (Labour, Central Fife)

I shall respond first to the questions that were posed by my hon. Friend the Member for Linlithgow (Mr. Dalyell). He asked about the combined effect of clause 70(3) and (4) to allow a Scottish rate to be applied retrospectively. The Law Society of Scotland made that point and the degree of retrospection that it suggested is not possible. I want to give my hon. Friend and the Law Society of Scotland a more detailed answer. My hon. Friend also asked about double tax treaty relief. Double tax relief credits will be allowed against income tax that is paid by Scottish taxpayers at any varied rate that has been determined by the Scottish Parliament. Amendment No. 408 would indirectly, through the mechanism of Standing Orders, allow a resolution to lower income tax in Scotland to be moved by any Member of the Scottish Parliament while any tax-increasing resolution could be moved only by a member of the Scottish Executive. I do not accept that there is any logic in distinguishing between the process of moving tax-increasing or tax-reducing resolutions. The key point of principle is whether tax resolutions that are to be considered by the Scottish Parliament should be moved only by members of the Executive or whether it should be open to any Member of the Scottish Parliament to move such a resolution. In reaching a decision on these matters, we have been guided by the Westminster model and by the need for the Executive to maintain control over the sources of their income. For example, the Bill does nothing to prevent general tax relief motions being discussed and voted on in the Parliament. I have had to truncate my response, but what I have outlined seems a sensible, pragmatic approach while the proposal in amendment No. 408 would be less so. I ask the Committee to reject that amendment. Amendment No. 366 would effectively prevent the tax-varying power being exercised before the financial year 2001–02. If Labour were the governing party in the Scottish Parliament it would not use the tax-varying power during the lifetime of the current UK Parliament, which may take us to 2002–03. However, that is not a reason for statutorily preventing the Parliament from exercising the power in its first full year of operation, not least because I am not prepared to pre-judge the Scottish electorate's decision in the forthcoming Scottish parliamentary elections. It will be for each of the Scottish parties to make its proposals on tax and it will be for the voters to decide on which party and, therefore, which tax policy they wish to see. The Westminster Government should not deny the Scottish electorate that choice until 2002. I urge the Committee to reject the amendment. The Government are on target to make sure that the requisite provision is in place by 6 April 2000.

Donald Gorrie (Liberal Democrat, Edinburgh West)

We do not accept the Minister's argument, but the issue is not of such substance that we wish to push the amendment to a vote. Perhaps the hon. Member for Dundee, East (Mr. McAllion) is right and we should have had a more far-reaching amendment. It being a quarter to Eight o'clock, THE CHAIRMAN, pursuant to the Order [13 January] and the Resolution [this day], put forthwith the Question already proposed from the Chair. Amendment negatived. THE CHAIRMAN then proceeded to put forthwith the Question necessary for the disposal of the business to be concluded at that hour. Clause 70 ordered to stand part of the Bill.

SCOTTISH TAXPAYERS

John Swinney (Scottish National Party, North Tayside)

I beg to move amendment No. 344, in page 30, line 32, leave out 'year of assessment' and insert 'complete year of assessment following the passing of this Act.'.

John Swinney (Scottish National Party, North Tayside)

I notice that the right hon. Member for Devizes (Mr. Ancram) and his hon. Friends support amendment No. 341. As a member of a minority party in this place, but not a minority party in Scotland, I am always grateful for support, but the right hon. Gentleman can speak to that amendment for himself. I heard over the weekend that the Secretary of State for Scotland is worried that some people may want to destabilise the Scottish Parliament. I also have concerns that the Parliament may be destabilised, not by forces from within my party, because we want the Parliament to succeed, but by the Government not taking full and genuine account of the real difficulties that the legislation will create. Our amendments in this group are designed to strengthen the Parliament by creating a clear and uncomplicated base on which it can found its actions. The clause and the amendments seek to define who should pay any different rate of taxation that is applied by the Scottish Parliament. The Government propose that those who are resident in the UK for tax purposes and have their closest connections to Scotland should pay any different taxation that is levied by the Scottish Parliament. To define that closest connection, the Government propose to establish a days test that sets out to determine how many days a person spends in Scotland. If he spends more days in Scotland than in the rest of the UK, he will be eligible to pay any different rate of tax. In addition, the Government rightly propose that Scottish Members of the Westminster Parliament, Scottish Members of the European Parliament and Members of the Scottish Parliament will also have to pay. It might be worth trying to add to the net Members of this Parliament who speak repeatedly on Scottish matters. By that device, Scotland might at least receive some modest compensation for some of the things that are said by the right hon. Member for Devizes and his hon. Friends. My concern with the Government's proposals is that they are a sledgehammer to crack a nut. It is difficult to work out exactly why they are taking the steps that are set out in the clause. I assume that they are trying to create a clear mechanism that can withstand attack either politically or by tax avoidance. The Government are prepared to countenance different tax regimes in the United Kingdom and should bear in mind the fact that there is likely to be uncertainty about who pays. That is nothing new. Each year, band D council tax payers in the village of Meigle in my constituency pay £730 in council tax to Perth and Kinross council. A couple of miles along the road, band D council tax payers in the first farm cottages in the Angus part of my constituency pay £670 in council tax. I do not detect many of my constituents contemplating moving that short distance to be relieved of a higher band D council tax, and the Government are perfectly happy to have a situation where different council tax rates are part of the fabric of decision making in the UK.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

Is the hon. Gentleman absolutely sure that some of his constituents in Perth and Kinross have not moved into Angus to set up a pub, on the same basis as people seem to be teeming into the constituency of the hon. Member for Westmorland and Lonsdale (Mr. Collins)?

John Swinney (Scottish National Party, North Tayside)

In the tradition of hon. Members representing North Tayside, I do not spend much time in pubs, so I cannot substantiate the hon. and learned Gentleman's point, but I shall certainly devote considerable time to finding out whether there is any demand. The Government may be trying to create a mechanism by which any leakage of taxation due to the Scottish Parliament is obstructed. I suspect that they are trying to put obstacles in the way of individuals who move home from south Scotland to north England to avoid any additional taxation that is levied in Scotland, where they continue to be in employment. If so—I should be interested in the Minister's argument about the Government's motivation—the Government are using a sledgehammer to crack a nut. The maximum additional tax burden that is envisaged under clause 69 is £660 per person in each tax year of assessment. Conveyancing, transportation and refurbishment costs of moving from Scotland to England to avoid any additional tax burden seem fairly excessive when placed alongside a maximum additional tax burden of £660. The number of cases—this is an absolutely fundamental point—to which the exercise of tabulating the days spent here and there will be relevant, will be utterly insignificant, but I fear that, in setting the legislation off in that direction, the Government will place a substantial burden on many, if not all, businesses and individuals, who will be asked to establish for themselves the means, methods and, inevitably, costs of proving that they are, or are not, affected by the test. A very small number of people are likely to be affected, but I suspect that, invariably, all potential Scottish taxpayers will have to have sufficient information and documentation to prove whether they are eligible for the test. I therefore hope that the Government will think again about the provision and accept that there is a simpler way in which to define who should be in the Scottish Parliament's tax net. The amendments that have been tabled by my hon. Friends and me are designed to change the test on whether an individual is liable to pay any additional taxation, based on the individual's principal UK residence. We aim to make the test fairly easy to undertake. We have included in our amendments, specifically in amendment No. 342, the characteristics of the definition that could be formulated. We suggest that terminology such as habitual or family abode, his permanent home or the residence with which he has the closest personal or economic relations would be of benefit in establishing the rules that lay down the meaning of principal UK residence. Amendment No. 342 also refers to the Organisation for Economic Co-operation and Development model double taxation treaty. That reference is designed to give the authorities that are responsible for determining the collection of any tax that is separately set by the Scottish Parliament appropriate guidance on definitions and when they have to seek alternative opinions on whether individual cases comply with the legislation's definitions. In that respect, I should fully accept it if the Government wished to take away the amendments, to reflect on their contents and to discuss them more widely with the industry to arrive at an absolutely watertight definition, but our amendments try to reach the best possible definition. One of the problems with the Government's proposal of "closest economic connection" is that it is a new tax term which has no established standing in the body of tax law. Having worked my way through many of those definitions during a previous life with Scottish Amicable and having ploughed through the double taxation treaties between the UK and various European states, I am thoroughly of the opinion that we do not need any new tax terms to add to the litany of others in policy and guidance. On amendment No. 343, in the event that the Minister is not persuaded by my arguments about removing the days test, I raise one particular anomaly that must be addressed by the Government. According to the definitions in the Bill, an individual who lives in Carlisle but who works in Dumfries—I am glad to see the hon. Member for Dumfries (Mr. Brown) in the Chamber—will not be eligible to pay any additional taxation in Scotland because he or she will be deemed not to have spent a day in Scotland, according to the rules of the Bill. According to my understanding of the clause, that analysis is okay so long as the person is a day-shift worker. If the person is a night-shift worker, he or she will start and finish the day in Scotland and, according to the rules, will be eligible to pay additional taxation, if it is levied. I am sure that the Minister will ask me to give the number of cases to which I refer, along with an explanation of the number of publicans in Scotland who are planning to reside in Westmorland, but I do not have an answer. However, I respectfully ask the Minister if he has an answer to my question: how many people will be in the net of the days test? Amendment No. 343 would expressly deal with the anomaly that I have raised. It may not seem like a big issue, but I doubt whether it is of any less significance than the scope of the days test that has been constructed by the Government as a unique part of this legislation. I hope that the Minister will thoroughly address the issues that I have raised and which will, I am sure, be raised by others. In doing so, will he specifically set out the position of offshore workers in relation to the days test? I simply cannot work out the answer to that point. There is a danger that the Government, in their zeal to close loopholes, to answer every dilemma, understandably, to knock back every pedantic Conservative attack on their Bill and to ensure that they have thought of everything, pass into law some points that have the sniff of complexity and bureaucracy around them. This clause is an example of that. I hope that the Government will recognise that the amendments have been tabled to assist in addressing practical difficulties in implementing the Bill. They are designed to try to minimise needless bureaucracy that will be faced by individuals or businesses in trying to comply with the Government's tests. The amendments have been tabled to strengthen and to clarify the legislation and I hope that the Government are able to respond to them in that way.

Tam Dalyell (Labour, Linlithgow)

The hon. Member for North Tayside (Mr. Swinney) and his Scottish National party colleagues have done the Committee and the discussion of the Bill a service by tabling these important amendments on the tax net. Following up immediately his point about the North sea, I shall ask a direct question. What about the person who works on an oil rig? Will the North sea be considered, in terms of clause 111, as "adjacent to Scotland"? There is a legal problem here, and perhaps tonight would be the time to clarify it. What is the position of a Scottish soldier who has married quarters, let us say, in Arbroath but who served six months in Northern Ireland and three months in Catterick, Pirbright or somewhere else in England? What are the implications for him in terms of tax-raising powers? The whole issue of service men, who, by the very nature of their job, move around, has to be clarified. There is the question of holidays. If a person takes his or her holidays abroad in the first part of the year, that could make that person into a Scottish rather than a UK taxpayer, if there is no principal home in England. It may seem that I am being pedantic about all this, but may I refer the House to my question to a former Prime Minister? I asked him to ensure that legislation presented to this House is not drafted in obscure language. He replied: I have every sympathy with the hon. Member's objective. However, I am afraid that, in order to achieve precision in legislation which is complex and often technical, it is not always possible to avoid an impression of obscurity. To which I replied: I accept the fact that the Parliamentary draftsmen must try to prevent those who would pretend to misunderstand from doing so, but is it not also important that we laity should understand legislation? The Prime Minister—Harold Macmillan—gave a classic and well-remembered reply, which gave me my comeuppance: I know that this is a difficult problem. I would remind the House of the very wise words of Sir James Stephen, one of our greatest authorities, who pointed out that since legislation is often the subject of litigation it is absolutely necessary not only that it should appear to be simple to those who read it in good faith, but actually precise. That is a very difficult art. Many things are simple. Let us take the sentence: 'When John met his uncle in the street he took off his hat.' That is a clear sentence, but it is capable of at least six different meanings. Those were the days when Prime Minister's questions were heard in total silence. He continued: The point about legislation is that the courts have to interpret it in litigation based upon it, and it is therefore essential that it should be not so much simple as precise. I think that that is the difficulty with clause 71. 8 pm My friend—and he really was my friend—the late Brian O'Malley followed up my question with a question on the explanatory memorandum to a Finance Bill. The Prime Minister replied: I have every sympathy with the purpose of the hon. Gentleman. I think that Finance Bills dealing with a large number of subjects and sometimes fairly simple provisions seem very complicated. What we tried to do in 1962, where there was a fairly complicated provision, was to issue a special White Paper to explain that particular part. Other Finance Bills are fairly simple and involve the raising or reduction of the Income Tax or something of the kind. Therefore, I take account of what the hon. Member says. So it went on, with a final question from the then shadow Chancellor, James Callaghan: Has the Prime Minister looked at the Finance Bill this year to see that it took us nearly 20 Clauses and seven Schedules to get rid of Schedule A? Would not that have been a very appropriate subject for an explanatory memorandum?"—[Official Report, 4 July 1963; Vol. 680, c. 583‒85.] The reason I have gone into such detail is that things have not altered all that much. We must take into account the fact that lawyers will try to extract every single penny possible from legislation. My fear is that the interaction between Holyrood and Westminster will be a lawyers' paradise. I want to ask the Minister about the briefing that his advisers will have had from the Law Society. It states: With regard to Clause 71(1) the present position for UK tax is that strictly an individual should be taxed in the UK on the whole income of a year of assessment although only present in the UK for part of the year but under Extra Statutory Concession (A11) such a person is only taxed on income for the part of the year during which he is actually resident in the UK. There is, however, no provision for splitting the tax year in the Bill and it is submitted that this would be helpful since, without such a provision, for example, it appears necessary for an English employer of a Scot moving to England, say, in the second half of the tax year to operate PAYE at the Scottish basic rate for the whole year or if moved from England to Scotland after 1 month of the tax year would have to collect the Scots tax on English earnings of that month. That may seem very dry, but in reality it is basic and very important. The Scottish Office has had notice of the matter from the Law Society and I expect some sort of response this evening. The briefing continues: In respect of Clause 71(2)(b) it is suggested that time spent in Scotland alone is not a sufficient test if someone has his or her principal residence in other parts of the UK. For example, if a tax payer, having his own principal residence in England, but living in the Borders with family a few miles away, but across the Border, visits Scotland each weekend, arriving Friday and departing early Monday, and all public holidays and annual leave were spent in Scotland it might only require a fairly short additional period (say, 15 weeks) of work, perhaps as a Sales Representative or otherwise in Scotland to be subject to Scottish tax and vice versa in reverse for Scottish residents. It is suggested that there could be a number of people in this situation, e.g. professional sportsmen, particularly in the Borders area. who might, somewhat inadvertently, find themselves subject to Scottish tax and might not realise that were the case, which could have penalty consequences under the Self Assessment regime. Those matters are nuts and bolts, but they are not unusual nuts and bolts; they are practical. The briefing continued: In relation to Clause 71(2)(b) and (3), Inland Revenue leaflet (IR20) states that a visitor to the UK is treated as resident in the UK if physically present in the UK for 183 days of any tax year. The result of Clause 71(2)(b) and 71(3) could be that a foreign visitor might be subject to Scottish tax if in Scotland for only 92 days out of that 183 test period, whereas a permanent resident of another part of the UK coming to Scotland would have to spend 183 days in Scotland before being subject to Scottish tax. It is suggested, therefore, that the definition of 'Scottish tax payer' should exclude persons ordinarily resident abroad unless in Scotland for 183 days to prevent foreign visitors being discriminated against. Do the Government accept the Law Society's view? If not, why not? I have spoken at length to both the Law Society and the Institute of Chartered Accountants. The ICA says: Clause 71(1) indicates the requirements to be met by a 'Scottish taxpayer' and hence who is liable to pay the Scots income tax. This is based upon the test of 'residence' which is a recognised test in deciding whether an individual has a liability to UK income tax. If the test of residence is met, a taxpayer will be liable to Scots income tax throughout the fiscal year. However, if a 'Scottish taxpayer' moves permanently to, say, Wales in October should his new Welsh employer be required to withhold Scottish tax under PAYE? The ICA thinks not. It recommends that the existing Extra Statutory Concession A11 should be included in the law to ensure that a person is only taxed on income for the part of the year during which he is actually resident in Scotland. What do the Government say about that? The ICA continues: Although it may be simpler to apply the 'Scottish taxpayer' test of residence for a whole fiscal year, it will add to the complexities of PAYE for those who move to other regions. To this end we trust that proposed guidance on the operation of an 'S' code for PAYE will be issued at an early stage for consultation with employers and other interested parties. As a matter of interest in 71(1)(a) is 'an individual who … is treated as resident in the UK' the same as an individual who is actually resident? We do not think so. I want to know what the Government think. This will be a matter for litigation; it will be a field day for lawyers unless the issue is clarified. On clause 71(3)(b), the ICA says: One test in defining residence in clause 71 is whether an individual has his 'principal UK home' located in Scotland. This does not fit particularly well with the capital gains tax definition of principal or main residence. People who are subject to capital gains tax legislation can afford very good tax lawyers. Tax lawyers will make a meal of the provisions unless they are cleared up.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

Does the hon. Gentleman think that people will engage tax lawyers to make a meal for, at most, £660 a year?

Tam Dalyell (Labour, Linlithgow)

From my experience of Finance Bills, what tax lawyers and their lobbies can do is amazing. I am a relative layman in such matters, but I have experience of several Finance Bills. I do not know whether the hon. and learned Gentleman has served on Finance Bill Committees.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

I have.

Tam Dalyell (Labour, Linlithgow)

Then the hon. and learned Gentlemen must know what difficulties can be raised. The ICA brief continues: Equally clause 71(4)(a) uses a test for an individual's day of presence which is not the same as that used for a UK test of residence and other related tests. The UK test is whether one is present at midnight whereas this test would treat one nonetheless as being present in Scotland. For example, if a person takes a morning flight to Brussels and stays there for two nights, then returning to Scotland using this test the person is out of Scotland for 1 day but in terms of s. 193 ICTA 1988 out of the UK for 2 days. How are definitions to be made the same as those used in tax legislation to prevent unnecessary disputes? The final point covered by the ICA brief is appeals. It says: Under the existing residence rules questions about a taxpayer's status can frequently take considerable time and expertise to negotiate. This involves both the Inland Revenue and the taxpayer in a relatively expensive process. To ensure as efficient a process as possible, particularly when only 3 per cent. of some income is at stake, we trust the Inland Revenue will establish a central processing unit at, for example, FICO Scotland. Those are all seemingly dry details. They amount to what some of us have called the dewiring of the United Kingdom. During the debates on Welsh devolution, my right hon. Friend the Member for Llanelli (Mr. Davies) has repeatedly talked of the unbundling of the United Kingdom. They are the difficult issues that have to be dealt with. They may seem dry, but they are very important and will be the source of endless litigation and trouble if we do not sort them out.

Michael Ancram (Conservative, Devizes)

The details that the hon. Member for Linlithgow (Mr. Dalyell) has referred to may sound dry, but they are vital. He revisited a kinder, gentler time in the House of Commons when questions were answered and debate was real. If he is looking for a lack of obscurity in legislation after 34 years, I fear that he will have to wait a lot longer. The points that the hon. Gentleman has made are important because the arguments about whether someone is liable to pay tax are centred not on how many people will pay but on whether it is fair that they should pay. The hon. and learned Member for Orkney and Shetland (Mr. Wallace) asked whether anyone would go to a tax lawyer over a sum as small as £630 or so. That is an extraordinary suggestion. We cannot decide whether someone is being rightly or wrongly taxed on the amount that they are being asked to pay. That is the Leona Helmsley line—only the little people pay taxes. The hon. Member for North Tayside (Mr. Swinney) said that he thought that we support one of his amendments. He may find that we are supporting part of his amendment. We are not on all fours with him. I have also found that the amendment paper describes me as a doctor in some places. I assure the Committee that I have not taken medical qualifications. I leave that expertise to my hon. Friend the Member for Woodspring (Dr. Fox). The hon. Members for Linlithgow and for North Tayside have rightly pointed out that the issues that we are debating will determine whether the system of taxation will work fairly. We talked earlier about the complexities of collection. We must have a clear definition of who pays. There must be no areas of doubt or confusion. I have told the Minister of my disappointment at his knocking back of every amendment. I hope that he can cast aside his prejudice on these amendments and think seriously about the impact on the Bill of leaving the confusion that exists at the moment. 8.15 pm Amendment No. 370 is slightly different from the other Conservative amendments in the group. It would prevent businesses in Scotland from facing a different tax regime from those in the rest of the United Kingdom. That was the clear aim of the White Paper. If I have read the complicated Inland Revenue paper lodged in the Library this afternoon correctly, it confirms the impression given in the Bill that unincorporated small businesses would be liable to pay any additional tax raised by the Parliament. The Inland Revenue paper refers to partnerships in particular. Sole traders and partnerships appear to receive different treatment from incorporated businesses. It cannot be fair that payment of the tax depends on whether a trader is incorporated. I hope that the Minister will consider the amendment carefully and will be able to accept it in principle. I am always prepared to accept that my drafting may not be perfect, but I should be delighted if he is able to promise serious consideration of it. We run into difficulties with the definitions of the terms used in the Bill. Phrases in clause 1 such as "principal home", "places of residence" and "main place of residence" have not been used before in United Kingdom income tax legislation. A recent paper by Deloitte and Touche confirmed that. There are uncertainties about definitions. We can all pull out examples. Under the Bill, an employee of a Scottish company who owned a house in Edinburgh but was seconded to London for one year, where he stayed in a rented flat, would presumably be considered a Scottish taxpayer because his principal home was in Edinburgh, even though he performed no duties of employment in Scotland during that period. That immediately raises a substantial question about fairness and the grounds for taxation. I hope that the Minister will look closely at the terms. Amendments Nos. 371, 373, 374, 377, 372 and 378 are probing amendments. We are trying to find out what is meant by the terms, to understand how the tax will impact on individuals. I hope that the Minister will explain why new terminology has been sought. If ever there has been a field day for lawyers, it is when legislation uses new terms of which there are no definitions in existing law. I suspect that lawyers are rubbing their hands in anticipation and planning their holidays in exotic parts of the world as a result of the work that will stem from the Bill. Let us consider the example of a Scot whose family home is in Scotland but who is transferred to the London office of his company. Not wanting to move his family south, he spends his weekends in Scotland. Those of us who travel on the aeroplane see such people flying down to London on a Monday morning and returning on a Friday evening. Under the Bill, the Monday and the Friday will be counted as days in Scotland, even though the man is working in London on those days. He will be deemed to have spent four of the seven days of the week in Scotland, even though he spent five days of the week working in London. Even though his work is entirely outside Scotland, he will be liable to pay Scottish tax. Amendment No. 376 is an attempt to deal with what we regard as a patently unfair situation.

John Swinney (Scottish National Party, North Tayside)

The right hon. Gentleman is citing a number of examples of what could loosely be characterised as a fancy life style, which involves flying to London every week. Construction workers, for example, might live in the north of England and travel to work every week on a site in Glasgow or on the A74, if it is ever improved. They would be liable for the Scottish tax if they worked there for a prolonged period.

Michael Ancram (Conservative, Devizes)

I take the hon. Gentleman's point. If they were working on a construction site in Lanarkshire but travelling home to England every night, they would not pay unless they were working the night shift, in which case they would.

John Swinney (Scottish National Party, North Tayside)

But if they were living in digs?

Michael Ancram (Conservative, Devizes)

That is the sort of anomaly that arises, and it is important to highlight such examples. These cases may not be many, but the Minister would surely want to prevent even one case of the tax being wrongly or unfairly levied. I do not travel to Scotland as often as I used to when I was a Scottish Member of Parliament—I sometimes used to go up two or three times a week—but I came down on an early morning flight today. It was packed with people coming to earn their living in London during the week who will travel back on Friday evening. Although they spend five days of the week in London, they will be deemed to be resident in Scotland and as having spent four out of seven days there. That seems to defy logic, and I hope that the Minister will consider the problem. Let us consider the issue of multiple presence. The Deloitte and Touche paper produced two examples in this regard, both of which are relevant. The first related to someone who had a home in England but spent 121 days in Scotland, 121 days in England and 123 days in France. Such a person would be liable to Scottish tax because he would be a UK resident and would have spent as much time in Scotland as in another part of the United Kingdom, although he had in fact spent 244 days outside Scotland. Again, that seems to create extraordinary anomalies. The second example is perhaps even more graphic. It involves someone who lives in Glasgow and has a house there for 180 days of the tax year. He then moves to London where he lives for the rest of the tax year. He will not be liable to Scottish tax because his period of residence in England exceeds that in Scotland. However, if instead of moving to London he moves to France, he will be liable for Scottish tax because the number of days spent in Scotland will exceed the days spent elsewhere in the United Kingdom. That is an enormous anomaly for which there is no logical explanation. The hon. Member for North Tayside mentioned day and night shifts and movements across the border. As I understand it, it is common in Europe to have special rules for cross-border workers, yet there is nothing in the Bill to provide for that. I hope that the Minister will consider the point. We believe that the amendment would solve the problem.

Jim Wallace (Liberal Democrat, Orkney and Shetland)

The right hon. Gentleman is making some important points, and it is important to tease out some answers. He cited the example of someone who moves to France rather than London. If that person has spent only 180 days in the UK, would he be treated as a UK taxpayer at all in that year? If not, the question of paying Scottish taxation would surely not arise.

Michael Ancram (Conservative, Devizes)

I am not a tax expert, which is why I said the amendments were probing. I cannot answer the hon. and learned Gentleman, but it is an interesting question because there might perhaps be a conflict between the Bill and the usual tax rules. It is important to avoid that conflict if we are to avoid the complications to which the hon. Member for Linlithgow referred. I appreciate that no legislation is ever perfect—if it were, there would be no lawyers—but it is important to examine such patent anomalies. Deloitte and Touche also point out that, for overseas workers who are brought into Scotland, the tax may result in considerable extra costs for inward investment companies because those workers are paid on a net pay basis. In other words, a Japanese worker who has a certain net pay after tax in Japan will be guaranteed the same net pay after tax in the United Kingdom. The Japanese company will therefore pay him sufficient gross pay in the United Kingdom to result in the desired net pay after taxes. Were Scotland to have an additional 3p on the basic rate, the gross pay would have to be higher than in England to arrive at the same net amount. As we know, Scotland is always looking for inward investment and I suggest that the cost to a major new investor bringing in, say, 40 Japanese workers paid on average £25,000 a year could be as much as £40,000. That might he taken into consideration if an inward investment decision were in the balance.

John Swinney (Scottish National Party, North Tayside)

I have studied very closely the material from Deloitte and Touche; I thought that that example was rather weak. I accept that choices will be made at the margin but, in the great scheme of an inward investment decision, £40,000 as the difference between one bid and another will probably not be a major factor.

The rest of the debate is in Hansard.