Scotland Bill

I certainly agree with the noble Lord's analysis. However, if there were a significant reduction in the tax base as a result of a macroeconomic shock, the Holtham method of adjustment would take less out of Scotland's budget. So there would be a dampening effect, entirely properly, to reflect the reduction in tax receipts from a shrunken tax base. I have answered the questions about intra-Budget period adjustments. I come back to some of the overall numbers to see whether I can help my noble friend on the key consideration here. Under the proposals, from 2016 the income tax base in the UK will be shared between Scotland and the rest of the UK. As my noble friend says, the 10p taken out of all the rate bands in Scotland is expected to yield between the £4.3 billion and £4.5 billion that he mentions, up to £5.6 billion over the OBR forecast period, and the Scottish Government will receive around 3 per cent of total UK income tax receipts. The Scottish Government will then be responsible for setting their rate of income tax and the UK will be responsible for everything else. In such a system the UK must be accountable for the decisions that it takes on the structure of the tax. Conversely, the Scottish Government must be accountable for the decisions that they take in respect of the rate. At the moment, when the Government make decisions about personal allowances that will have a significant impact on many thousands of taxpayers in Scotland, taking them out of tax, it does not in any way affect the current settlement under the Barnett formula. In the same way, we want to make sure that in future, once the 10p rate is devolved, there is no adjustment to the block grant to the detriment of Scotland, just as there would not be now. If we follow through my noble friend's argument and apply it to the current situation, the logic would seem to suggest that if the people of Scotland benefit from a measure—as they will from the very considerable increase next year in the personal allowance and the starting rate of tax—the block grant should be reduced. If my noble friend is suggesting that then I would agree that the principles that we are applying under the proposed legislation are not appropriate. However, I do not think that my noble friend is suggesting that if the people of Scotland benefit from a reduction in their income tax, the block grant should be adjusted. We are simply saying that, going forward, there should be no such adjustment flowing out of decisions on changes to the personal allowance, and that the position should be neutral, just as it is now. On the other hand, if the Scottish Government want to make changes to the 10p rate or to the 3 per cent of total UK income tax revenue which will effectively be ceded to the Scottish Parliament or replaced by what it chooses to raise, they will be fully at risk. Perhaps the detailed discussion around the numbers that we were regrettably unable to have because of the pressure on everyone's time—it was no one's fault—may not have been necessary after all, if my noble friend is able to accept my attempt to bring the discussion back to the key simplicities. Linked to that, my noble friend proposes to devolve to the Scottish Parliament the setting of personal allowances for Scottish taxpayers. It may be worth stating for clarity that it is not just personal allowances that would impact on the receipts of the Scottish Government, which is the example that we have regularly talked about in these debates. If, for example, the Government altered the higher additional-rate thresholds, there would be an impact on the yield from the Scottish rate of income tax. It is not simply a matter of making an amendment the principle of which I do not, of course, accept. An amendment that would pick up my noble friend's underlying concern would have to be considerably more complex and pick up a lot of other situations. However, my noble friend will be well aware of what Calman said about the problems of allowing the Scottish Parliament to alter tax allowances and reliefs. I quote: "““First the efficiency of the tax system would be seriously reduced, creating problems of compliance and administrative cost for employers and the tax collection authorities. Secondly, it would not in our view be consistent with the social Union as income tax is, as well as a revenue-raising device, also an instrument of redistribution””." I could carry on, but my noble friend's proposal raises all sorts of technical questions and goes directly against some key considerations in Calman. I am conscious that this is a complex area. I hope that my reassurances have helped my noble friend in some respect, and I ask him to consider withdrawing the amendment.