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Scotland Bill — Committee (5th Day)

Part of the debate – in the House of Lords at 5:15 pm on 21st March 2012.

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Photo of Lord Wallace of Tankerness Lord Wallace of Tankerness Lords Spokesperson (Attorney General's Office), Lords Spokesperson (Wales Office), The Advocate-General for Scotland, Lords Spokesperson (Scotland Office) 5:15 pm, 21st March 2012

It is very unlikely to happen, but let us say that the personal allowance had gone down rather than up. It would have been a windfall to the Scottish Government. The argument therefore is that on a no-detriment principle, it should operate both ways. I shall come on to explain that.

I shall try to make this as simple as possible, but it is not readily simple. From April 2016, the income tax base in the United Kingdom will be shared between the United Kingdom and Scotland. With 10p from all rates in Scotland expected to yield between £4.3 billion and £5.6 billion over the OBR's forecast period, the Scottish Government will receive around 3 per cent of UK income tax receipts. The Scottish Government will be responsible for setting their rate of income tax and the United Kingdom Government will be responsible for everything else, including, for example, personal allowances. In such a system, the UK Government must be accountable for decisions that they take on the structure of the tax. Conversely, the Scottish Government must be accountable for the decisions that they take in respect of the rate.

I shall give an example-the example seen in the letter from my noble friend Lord Sassoon, but seen the other way. Last year the United Kingdom Government decided to raise personal allowances from £6,475 to £7,475. This decision cost the United Kingdom Government approximately £3.5 billion across the United Kingdom. Since the proposal in the Bill is to devolve around 3 per cent of income tax, the cost to the UK Exchequer from raising personal allowances would reduce to 97 per cent per cent or around £3.4 billion. The remaining £100 million would fall on the Scottish budget. It would be a cost as a result of a decision for which the Scottish Government were not accountable.

If the Scottish Government had set a budget and a rate of tax and had planned their public expenditure on that basis, and then, some four or five months later, as the result of a decision for which they had no responsibility or accountability, they suddenly found that their budget was £100 million short, the no-detriment principle is intended to make up that difference because it is a decision for which the Scottish Parliament will not have had responsibility. That is why I believe that it is important for accountability, because not to do so means that suddenly a Scottish Government perhaps have to carry the can for particular expenditure to which they were committed but could not longer afford, not through any decision that they had made, but through a decision made by the United Kingdom. The obverse is true; for example, if the Scottish Government get a windfall because the tax base has changed, it is only right that that windfall is recovered by the United Kingdom Government.

Under the no-detriment principle, the UK Government would compensate the Scottish budget for any cost that led to a reduction in the tax, but at the end of the day the cost to the United Kingdom is exactly the same as it would be if this Bill were not implemented-that is, the £3.4 billion that it loses in revenue because of the increase in the personal allowance and the £100 million that it then gives to the Scottish Government.