Second Reading
Scotland Bill
5:19 pm

Moved By Lord Wallace of Tankerness

5:33 pm
Photo of Lord Wallace of Tankerness

Lord Wallace of Tankerness (Liberal Democrat)

My Lords, as your Lordships' House's Constitution Committee said,

"The Scotland Bill is a measure of clear constitutional significance".

Indeed, this Bill will strengthen Scotland's position within the United Kingdom by further empowering the Scottish Parliament and making it more accountable to the Scottish people. I do not think that I have said anything controversial.

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Lord Foulkes of Cumnock (Labour)

The Minister had said something very important: this Bill is a matter of clear constitutional significance, not just to Scotland but to the whole of the United Kingdom. Does he not think that it is a disgrace that we are starting to discuss the Bill at 5.35 pm, and that we are only going to have half a day for the Bill, when in 1998 the Scotland Bill had two days at Second Reading? Is that not outrageous, and are the Government Whips not culpable in relation to that?

Photo of Lord Shutt of Greetland

Lord Shutt of Greetland (Liberal Democrat)

My Lords, when the business was laid and agreed by the usual channels-I am delighted that the noble Lord, Lord Bassam, is here, and will be able to confirm that it was-it was not of course known how many speakers there would be. There are, I think, three dozen speakers on the Scotland Bill today. We did not know that when the business was agreed, but it was agreed. It is the normal way of things that when there is divisible business, that business comes first. Again, that was agreed by the usual channels for the convenience of the House. We have just seen this afternoon how convenient it is for the House, because in the two earlier Divisions just short of 400 Members went through the Lobbies. Clearly, it would not have been convenient for those Members to stay here until late this evening.

Three dozen people have put their names down to speak. It is not unusual for a Second Reading to go beyond the normal 10 pm deadline, and, as I say, it has been agreed by the usual channels. I think we would be better to get on with it, as otherwise it will get later still.

Photo of Lord Forsyth of Drumlean

Lord Forsyth of Drumlean (Conservative)

I support what the noble Lord, Lord Foulkes, has said. By the way, Second Readings are divisible, but the tradition is that we do not divide the House on Second Readings. This is an important piece of legislation, and I am afraid that this situation is not really for the convenience of those of us who care deeply about the legislation. If everyone took the 15 minutes which the Companion allows, I would have to wait until 2.30 am to hear the views of the only woman Secretary of State for Scotland, who is number 33 on the list. This is a scandalous way in which to treat Members of this House, and important constitutional business.

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Lord Soley (Labour)

My Lords, I, too, support what has been said. I have a strong view about this, because I regard it as an important issue for the United Kingdom. It is very important that we do all that we can to preserve the union. I think that, if we deal with Bills like this in this way-at this moment as far as I can see we are likely to go on beyond midnight-it cannot be desirable for the House. I have to say to the Government business managers that it is not good business management to end up in this situation. They have brought people back for two extra weeks as well as bringing the House back a week early, and yet we will still be dealing with this probably after midnight.

Photo of Lord Shutt of Greetland

Lord Shutt of Greetland (Liberal Democrat)

I hear what the noble Lord says, but there are a lot of people here anxious to speak. There are in fact three dozen such people. Some have come from Scotland-perhaps on the train or the aeroplane-specifically to speak. Therefore, it would be inconvenient if we did not continue. Everything we do in this place is important. I do not think that we should be looking at this in pecking-order terms. We do know that it is convention-just as the noble Lord, Lord Forsyth, said about voting convention-that we first have what is perceived as divisible business. The usual channels agreed this; it may have been some time ago, but it was agreed, and so I think we should proceed.

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The Earl of Shrewsbury (Conservative)

My Lords, forgive me for intervening, but would it not be much more sensible, for a Bill of this constitutional importance, to deal with half of it today, and half on Friday? Then we can all do it properly.

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Lord Bassam of Brighton (Labour)

My Lords, I only venture into this to say that I think that the Government are wise at all times to be flexible in their approach. Although I am part of the usual channels, I must say I did predict at the time that this would not be an easy passage for the Bill. I go no further than that, because I do not want to undermine the effectiveness of the workings of the usual channels. However, I think that noble Lords agree that these are points that are very well made to the House, and they have validity.

Photo of Lord Wallace of Tankerness

Lord Wallace of Tankerness (Liberal Democrat)

My Lords, both sides of the usual channels have no doubt heard the points that have been made. I reiterate the point that this is a Bill of constitutional importance, and I think that it is important that we now make progress to debate it. Given the quality of the speakers-as is the case in of all your Lordships' House's debates-I think that, looking down the list of former Secretaries of State, former law officers, former Members of the Scottish Parliament, former junior Ministers in the Scottish and Scotland Offices, we are clearly going to have a well-informed debate, and one that is worthy of the importance of this Bill. I believe that the Bill will strengthen Scotland's position in the United Kingdom, it will empower the Scottish Parliament, and it will make that Parliament more accountable to the Scottish people. It delivers on our coalition agreement to implement the recommendations of the Calman commission. It is in fact the biggest transfer of fiscal responsibility within the United Kingdom since the Act of Union in 1707, and delivers the first major change to the workings of the Scottish Parliament and Scottish Ministers since that Parliament was established in 1999.

For its first decade and more, the Scottish Parliament has been accountable to the Scottish people for the money it spends. We believe the time is now right to make it accountable for the money it raises-one of the fundamental changes that this Bill will bring about. Many noble Lords present will remember, and indeed took part in, the debates on the Scotland Bill in 1998 in one House or the other. They will recall, however, as any look at the record shows, the significant scrutiny that this House afforded to the Scotland Bill at that time. I notice the noble Lord, Lord Sewel, allowing himself a small chuckle. With all due respect to all the others who took part, he did much of the heavy lifting on that Bill and deserves credit for that. I have no doubt that those who served in scrutinising the 1998 Bill, and indeed many other noble Lords, will afford the current Bill the same level of examination to ensure that it too delivers the new powers that will benefit Scotland.

I believe that the Scottish Parliament has been a success and is here to stay. Indeed, that was the first conclusion of the Calman commission. The Scottish Constitutional Convention, of which I and other noble Lords were members, built up the case for the 1998 Act and set the country on the path towards creating a Scottish Parliament, which is now an important part of Scottish life. Decisions are now taken closer to the people they affect. Decisions on housing, education and hospitals are made in Scotland, for the good of the Scottish people by a Parliament that they have elected to serve them. Devolution in Scotland has delivered notable policy initiatives: free personal care; a Scottish Drug Enforcement Agency; long-overdue land reform; proportional representation for local government elections; a smoking ban in public places, which paved the way for a similar measure in other parts of the United Kingdom. In what seems a relatively short period, devolution has become central to the way in which we work. Many of us in this Chamber have worked either for or with devolution and the Parliament in Scotland.

The Calman commission was established to review the settlement in light of experience and to recommend changes to enable the Scottish Parliament to serve the people of Scotland better. Improving the financial accountability of the Scottish Parliament was an important part of the commission's remit, which was agreed by the Scottish Parliament and endorsed by the then United Kingdom Government. Membership of the commission included representatives from the three main United Kingdom political parties and from local government, experts in Scots law, business, education, community organisations and the trade unions. I must tell noble Lords that when, in 2008, I agreed to sit on the commission for the Liberal Democrats I was not anticipating that, three years later, I would be the Minister charged with taking the recommendations through the House-not that it would have had any influence on recommendations that I agreed to.

We wish to thank the chair of the commission, Professor Sir Kenneth Calman, the other commissioners and Professor Anton Muscatelli and the independent expert group on finance, which supported the commission in the work that it did. It was work invaluable to the future of devolution and I particularly look forward to the contributions of my fellow commissioners today, the noble and learned Lord, Lord Boyd, the noble Lords, Lord Elder and Lord Selkirk, and the noble Earl, Lord Lindsay, who brought their wealth of experience and understanding to the commission. The Scotland Bill has enjoyed widespread support across the political spectrum. Consensus on its purpose and direction has been the order of the day. This Government are delivering the next chapter in Scottish devolution and remain committed to doing so, with the support of the three main United Kingdom-wide parties. It is on the basis of cross-party consensus that the Bill has been taken forward, alongside a commitment to consider suggestions from others, including the Scottish Government, as we proceed.

Those of us who campaigned for devolution wanted more decisions taken in Scotland by a Scottish Parliament but we also wanted to retain many of the benefits, to both Scotland and the United Kingdom, which come from remaining part of our United Kingdom. The devolution settlement was about getting that balance right. Of course, there will always be those who think that the Scottish Parliament should be responsible for everything and there are those who think that devolution has already gone too far. However, by and large, we have managed to maintain consensus while bringing forward a strong set of improvements to the original settlement. The fact that the Calman commission was not inundated with representations to make fundamental changes to the division between devolved and reserved matters is, I believe, testimony to the judgment of the architects of the 1998 Act.

We will strengthen devolution by providing new powers to the Holyrood Parliament. In 1997, the Scottish public voted for a Parliament that could change the rate of tax within a limited margin. That power has never been used. In fact, the current Scottish Government who, as we know, are forever calling for new powers actually allowed this tax power to lapse last year. The United Kingdom Government do not want to see Holyrood lose its fiscal powers, rather the opposite. The financial powers contained in the Bill are, as I have indicated, the largest transfer of financial powers out of London since the United Kingdom was created. The Parliament will become accountable for raising more than a third of the money it spends.

The Bill will create a Scottish rate of income tax by cutting 10p from every income tax rate, reducing the Scottish block grant in proportion and obliging the Scottish Parliament to set a new rate to meet its spending plans. It will allow Scottish Ministers to borrow up to £500 million for current spending and up to £2.2 billion in capital spending. In the light of a request from the Scottish Parliament, we will make part of that capital investment available in pre-payments for approved projects by 2012.

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Lord Forsyth of Drumlean (Conservative)

The Bill abolishes the variable rate of income tax-the 3p rate, which was approved by a referendum of the Scottish people-so it is taking away a specific power approved by referendum. Why do the Government not think it necessary to have a referendum, given that they are going to introduce a further power that goes beyond the 3p they are abolishing and which was approved by the people in a referendum?

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Lord Wallace of Tankerness (Liberal Democrat)

The answer to that is that we have absolutely moved forward; the Scottish Parliament has been established and it is very clear that what we are proposing has commanded widespread consensus within Scotland. It was not only the product of a commission that took extensive evidence. It has been supported by the three UK-wide political parties and by the representatives of the Scottish people in the Scottish Parliament, as I will indicate later, by 121 votes to three. There is a broad consensus for that in Scotland and, with the honourable exception of my noble friend, I have not really heard any clamour for a referendum on the specific tax powers involved in this Bill.

As I indicated, it will also devolve landfill tax, stamp duty and the power to create new taxes. The Bill will phase in these powers up to 2016. It will provide a whole new set of policy levers that will be at the disposal of the Scottish Government elected in that year. In his David Hume Institute address last week, my colleague the Secretary of State set out some possibilities that would be open to future Scottish Ministers. With their new tax powers, the Scottish Government could stimulate the construction sector and boost the housing market by cutting stamp duty by, for example, 5 per cent at a cost of £25 million to the Scottish budget, or ensure that Scotland competes to be the greenest country in Europe by proposing innovative new green taxes, offset by other tax cuts, to ensure that Scotland moves the tax burden from people to pollution. They could use the new Scottish income tax to raise investment in public services higher than is the case in other parts of the United Kingdom, or do just the opposite-cutting the rate to attract bright and ambitious people to Scotland and reduce the brain drain from within.

Those are all options. We are providing the power; it will be up to the Scottish Parliament, elected by the people of Scotland, as to how those options are exercised. However, the Command Paper published in November alongside the Bill stated that for every penny by which one increases income tax, the yield will be around £450 million-or 1.7 per cent of the present Scottish budget. That gives a flavour of the considerable powers that this Bill provides to Scottish Ministers. This is a big shift to the financing of public services in Scotland. It will deliver real financial accountability, as more than a third of current spending will be funded by taxes determined and raised in Scotland. It will give the Scottish Parliament a real stake in Scottish economic performance, as a significant proportion of the budget for public services in Scotland will come directly from taxes set and raised in Scotland. Stability to the Scottish budget will continue to be provided by continuing block grant from the United Kingdom Government.

Delivering the Donald Dewar lecture in 2003, my noble friend Lord Steel of Aikwood said:

"No self respecting Parliament should expect to exist permanently on 100% handouts determined by another Parliament, nor should it be responsible for massive public expenditure without any responsibility for raising revenue in a manner accountable to the electorate".

I believe that this Bill addresses that critique. The Calman commission also concluded that the original divide, as I have indicated, between devolved and reserved policy powers was broadly right. The Bill therefore does not seek radically to alter the boundary but instead updates the balance between reserved and devolved powers in specific areas, as recommended by the commission. We are devolving the power to set the national speed limit and the drink drive limit, to regulate air weapons. Recognising that this is a two-way street, where a consistent approach across the United Kingdom is required, we will legislate at a United Kingdom level, specifically over the winding up of companies and the regulation of healthcare professionals, as provided for by the Bill.

The functioning of the Scottish Parliament itself will be improved by measures in this Bill. The Parliament will be able to elect additional deputy presiding officers, it will have greater discretion to set its own Members' interests regime, and there will be greater flexibility about the makeup of the Scottish Parliamentary Corporate Body. Closer working relationships between UK and Scottish Ministers will be required. Scottish Ministers have a role in the appointment of a Scottish member of the BBC Trust, and a Scottish Crown Estate commissioner.

The Bill also provides for some largely technical and relatively uncontroversial updates to improve the Scotland Act and help devolution to operate more effectively. Improving devolution for Scotland is an ongoing process, and while constitutional legislation is rare, the Scotland Bill provides an opportunity to make some amendments. In my role as Advocate-General, I am responsible for providing advice on Scots legal issues to the United Kingdom Government, and I therefore thought it right to take the opportunity to review the existing Scotland Act. There are a number of technical measures in the Bill.

I also took the opportunity to revisit an area of the Scotland Act which was raised with the Calman commission by the judiciary, but on which the commission made no recommendation. I established an expert group under Sir David Edward to consider the way in which acts or failures to act of the Lord Advocate that are incompatible with Community law and convention rights are dealt with. Clause 17 of the Bill implements the findings of that expert group and simplifies process, with human rights and European Union law issues being referred to the Supreme Court.

The Bill represents a large and historic change for Scotland, and therefore deserves proper scrutiny, which I am sure this House will give it. Alongside the scrutiny it received in the other place, the Scottish Parliament has examined and debated the Bill, and the Scottish Affairs Committee at Westminster provided a rigorous analysis of the Bill's provisions.

Your Lordships' House's Constitution Committee has noted that the Bill is of clear constitutional significance, but also said that there were no issues of constitutional concern in the Bill. I noted that the Committee welcomed the extensive deliberation which preceded introduction of the Bill. Those of us who are veterans of the PVSC Bill and the Fixed-term Parliaments Bill will be very pleased with that particular commendation from the Constitution Committee. The Delegated Powers and Regulatory Reform Committee also noted no issues in the Bill.

The Government welcome all these reports, and thank those who have worked to consider this Bill. While the Calman commission's balance and evidence process is the basis for the Bill, the Government have made it clear that we have never ruled out sensible and similarly evidenced suggestions for change. We have listened to recommendations made by the Scottish Parliament and the House of Commons Scottish Affairs Committee, and to advice from other stakeholders, and while we believe that the Scotland Bill package provides the right balance of powers for tomorrow's Scottish Parliament, we nevertheless have made some amendments to the Bill, and the supporting non-legislative package.

These will give Scottish Ministers greater flexibility to exercise their new powers effectively; for example, by bringing forward to 2011 pre-payments-a form of cash advance to allow work on the Forth replacement crossing to begin. The Government have listened to other recommendations and tweaked the finance and non-finance aspects of the Bill and its accompanying package.

We continue to believe that the package set out in this Bill and the associated Command Paper will strengthen Scottish Devolution and Scotland's place within the United Kingdom. It provides strong financial accountability to the Scottish Parliament, and the right balance of additional powers. It provides the Scottish Government and Scottish Parliament with new tools to deliver policies in Scotland to respond to new challenges.

The other place debated the Bill over three days in Committee on the Floor of the House. Committee days in this House subject to the Motion later, will take place as a Committee of the Whole House. It is right that legislation of such constitutional significance gains the level of scrutiny it deserves, and that no one is excluded from the process. The whole essence of the Bill has been about inclusion. All parties were invited to be involved in the Calman process, just as they were in the Constitutional Convention. Those parties and those people who accepted the offer have therefore had the biggest hand in shaping these, and therefore the future of devolution.

There is, of course, a relationship with another place, a place much affected by the provisions of this Bill, and that is the Scottish Parliament. As I have indicated, the previous Scottish Parliament overwhelmingly approved the Bill, with 121 MSPs voting for the legislative consent measure in support, three voting against, and one abstaining. The three main UK-wide parties, together with the party which currently forms the Scottish Government, voted in support of the Bill. I think we can say that the Scottish Parliament believes in the Scotland Bill.

A new Parliament with a new focus was elected on 5May, and as we are all well aware, it represented a landmark change in Scottish politics. This new Scottish Parliament will consider the Bill again, and we will consider sensible recommendations for the Bill made in time for this House's final amending stage. We will get the chance to consider any recommendations which come from the Scottish Parliament, and the Government will continue to work with the Scottish Parliament's Scotland Bill Committee, which is considering amendments to the Bill. My right honourable friends the Secretary of State and the Parliamentary Under-Secretary of State will give evidence to the Committee on Thursday of this week.

The noble Lord, Lord Sewel, who is with us today, has given his name to a convention that Westminster would not normally legislate with regard to devolved matters on Scotland without the consent of the Scottish Parliament. This convention has been developed and embodies the respect that this Parliament has for the Scottish Parliament. In keeping with the spirit of the convention, the Government will continue to work closely with the Scottish Parliament Committee reviewing the Bill, and we will look to maintain the support of the Scottish Parliament for the Bill.

As is well known, the Scottish Government have expressed their desire to see additions made. We will look at these further proposals and set them against three tests: that the Scottish Government provides detailed proposals to strengthen the Bill; that the proposals maintain the cross-party consensus that has been worked up and developed; and that any such proposals are beneficial to Scotland, without being prejudicial to the rest of the United Kingdom as a whole. I will of course keep the House appropriately informed of any developments in discussions with the Scottish Government, which will operate under a banner of mutual respect.

I have no doubt that in the course of the next few hours, many noble Lords will wish to debate not only the detailed provisions of the Bill, but also wider constitutional issues of importance to which this Bill is related. Of course, as I have indicated, the political landscape has changed since the Bill was introduced into the other place. Most obviously, the Scottish Government have claimed their election success as a mandate for a referendum on independence.

The Scottish Government have still got a lot of explaining to do when it comes to their main objective of separating Scotland from the rest of the United Kingdom. They do not want to provide any detail on how or when they will conduct a referendum. Nor do they want to explain in any greater detail, to date, what they mean by independence. The people of Scotland deserve to be told, and we will keep pressure on them to provide the facts to the people of Scotland. The Government, along with other noble Lords, believe that Scotland's future is a future within the United Kingdom.

The Scotland Bill is a vehicle for upgrading Scotland's devolution settlement. It is a Bill founded on evidence. It is a Bill with a clear purpose and clear principles: to strengthen devolution within the United Kingdom and to make the Scottish Parliament financially accountable. It fixes some things that have not quite worked; it makes the Parliament and the Government of Scotland more responsible for money they raise; and it allows the Scottish Parliament itself to run more effectively. Crucially, it will leave the Scottish Parliament with more powers than it had before; mature powers for a maturing Parliament.

The package strengthens the United Kingdom, by providing a settlement with financial responsibility, but it maintains the key elements of risk and benefit sharing that help the United Kingdom as a whole to perform effectively on the world stage and deliver fairly for all people. Stronger devolution which works for Scotland works for the United Kingdom, and I believe strengthens the United Kingdom for years to come. I commend this Bill to the House. I beg to move.

5:58 pm
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Lord Davidson of Glen Clova (Labour)

My Lords, we welcome this Bill in principle. Of course, it has been Labour, both in government and in opposition, which has been consistently in favour of devolution. It was the Labour Government who took the initiative in setting up the cross-party Calman commission, on whose work the Bill draws.

We must, however, recognise that the Calman commission produced its report in 2009. Many matters of significance for Scotland have occurred since the report. I will seek to look at a number of issues which have arisen in debate in Scotland that are not as yet found in the Bill. I accept immediately that not every new issue should be reflected in the Bill, but where an issue has emerged of constitutional importance, it should not be lost sight of. One does not anticipate that Scotland Bills will be a frequent occurrence, nor will opportunities arise often to correct constitutional difficulties.

First, perhaps I should say that at a time when economic growth in Scotland is hardly vibrant and unemployment threatens many in Scotland as well as in the rest of the United Kingdom, a focus on purely constitutional issues may seem to many to be at best a skewed priority. True, the Bill contains borrowing powers that could be useful if properly applied at this point in the economic cycle, but the welcome that such powers might receive will be muted if they are not put in place quickly.

I think that I understood the Minister to say that the borrowing powers may come into place in 2012. We certainly have called for them to be advanced to that year, and the Scotland Bill Committee and Scottish Affairs Committee reports both recommend that those powers be brought forward. We would welcome the Government bringing them forward to 2012. It would be useful for people in Scotland to know exactly when in 2012 the Government accept that capital borrowing powers will become available.

One should also observe the attention given to demands for new expanded powers, all claimed to be essential to the regeneration of the Scottish economy. This has led to scant scrutiny of the use of existing powers. The Scottish Government already have a wide portfolio of powers to contribute to economic growth. Their use, their non-use and the ostensible priorities might perhaps be subject to greater assessment and accountability.

I turn to the issue that the noble Lord, Lord Forsyth, has already referred to: a referendum on the question of the separation of Scotland from the United Kingdom, a subject that has engaged substantial debate in Scotland over a number of years. Since this year's Scottish Parliament election, the issue of a referendum has come very much to the fore. Although there is scant evidence of public demand for such a referendum, the SNP Administration have committed themselves to this at some unspecified point before 2015. While we see no public demand for such a referendum, the issue will not simply vanish, given the SNP's apparent commitment to it.

The prior constitutional question of law regarding any referendum is by what legal process such a referendum can be held lawful. To put it more acutely, can the Scottish Parliament lawfully put in place its own referendum on separation, set its own timing and questions and possibly ignore the obligations of Scotland to the rest of the United Kingdom? The question of lawfulness is inevitable, as in the Scotland Act 1998 the intention of Parliament was, unsurprisingly, not to put in place a mechanism for decisions on separation but solely to establish devolution in Scotland within the United Kingdom. It would have been remarkable if such a dramatic power to break the union by way of referendum had been included in the 1998 Act. After all, Section 29 of the Act provides that any reserved matter is outside the competence of the Scottish Parliament. Schedule 5(1) states:

"The following aspects of the constitution are reserved matters, that is ... the Union of the Kingdoms of Scotland and England".

Various ingenious attempts thus far to imagine some kind of power to hold a referendum-for example, "It's just an opinion poll, not a referendum; it's only advisory"-may at least be unlikely to survive a challenge in court. And no doubt they would be challenged, either by the law officers, the Presiding Officer of the Scottish Parliament or indeed by any concerned citizens or group of citizens. The question for the Government may become whether they should create a proper statutory power in the Bill for, say, a one-off referendum or whether they would countenance a unilateral, potentially unlawful declaration by the Scottish Parliament of its own power to run its own referendum, whenever. That would hardly be the chosen route of any Government committed to the rule of law. It would set a precedent with the most remarkable consequences for the UK. In any event, it would remain vulnerable to third party challenge with potentially hugely embarrassing results. I encourage the noble and learned Lord the Advocate-General to pursue this issue with his ministerial colleagues, perhaps before he is obliged to consider it as one of his statutory duties in his separate role as law officer. To waver accelerates tension on this issue. I accept that there are many political arguments for the Scottish Parliament to run its own referendum, but the rule of law does not yield to political convenience.

I move on to another constitutional issue: the Supreme Court. This has come to prominence recently because of certain criminal cases in which the role of the Supreme Court has been challenged. Contention has arisen regarding cases involving criminal matters due to some recent cases where an appeal has been made to the Supreme Court on human rights points from the Criminal Court of Appeal in Scotland. In those high-profile cases, the Supreme Court has overturned the Court of Appeal decisions. This has precipitated much debate, not least because of wholly inappropriate criticism of the Supreme Court by the First Minister and the Justice Minister in Scotland.

This Opposition agree that the UK Supreme Court should retain its sole role in determining human rights and European treaty issues. Section 17 of the Bill, however, seems to create a number of obstacles to the speedy testing of compatibility issues. We will want to scrutinise these closely in Committee. One concern is that where Scottish procedures contain an incompatibility, some such obstacle may simply defer and hence magnify the difficult consequences of any finding of incompatibility. The Minister will of course be acquainted with the problems that arose over the slopping-out cases in Scotland and the way in which delay can magnify problems. The Scotland Act 1998 permits a challenge to be made at any stage, thereby potentially avoiding the entire criminal process being run through, where there is an incompatibility discoverable by early challenge.

Another concern is that, in respect of the certification of leave to appeal, Scottish devolution issues will be subject to an obstacle that does not apply at either Welsh or Northern Irish appeals on devolution issues. This seems to be creating an anomaly, and I look forward to hearing the explanation for it.

The apparent fortifying of the position of the Lord Advocate in that regard will also require scrutiny. It is presumably not the intention of the Government to erode the access to justice by persons prosecuted in Scotland. As a member of the legal profession, the Minister will be aware of the considerable disquiet that the Bill has caused in the profession in this area.

The Minister is also one of the many law officers required to look at Scottish arrangements. I move on now to look at the question of Scottish law officers. One of the notable constitutional features of the Scotland Act 1998 was the substantial role given to law officers in Scotland-namely, the Lord Advocate and the Solicitor-General. As part of the Government in Scotland, they are Ministers and bound by collective responsibility. The Lord Advocate-this is the unusual feature-is also the head of the system of criminal prosecution and may in fact lead any prosecution in court, make decisions directly on any part of any prosecution and make the decision on what plea in any prosecution may be accepted. These are wide-ranging responsibilities for a Minister, as I think this Minister would accept, and are increasingly seen as powers that do not belong as part of the responsibility of Ministers.

Having been appointed myself in the past to the position of Solicitor-General in Scotland, I was immediately struck by the tension between the roles of politically appointed Minister and prosecutor. It appeared that there had been no assessment of why Scotland did not have the equivalent of a Director of Public Prosecutions appointed by an open and objective process. When the Minister was Justice Minister in Scotland, he described the role of the Lord Advocate as both prosecutor and Minister as anomalous, and he was right. He would remain right if he were still of that view today.

Over the past decade, law officers have increasingly eschewed involvement in political issues. First the Solicitor-General, then the Lord Advocate, and now both law officers, have been drawn from the Civil Service staff of the prosecution service, a de facto if not de jure Director of Public Prosecutions. Given the awareness of the anomaly in having prosecuting Ministers and the desire on their part to avoid political association and political responsibility, this Scotland Bill is surely an opportunity to remove the anomaly.

The issue also contains within it the risk of yet further human rights challenges to the conduct of prosecution in Scotland, which has been somewhat battled of late. The Government might consider modernisation of the position. This is not merely a desirable adjustment. It raises profound issues as to the constitutional position of the Scottish prosecution system.

Another feature of the constitutional arrangements under the Scotland Act I wish to look at is the position of Auditor-General, who examines the economy, efficiency and effectiveness of Scottish Ministers discharging their functions. In the light of the trend to give greater financial powers and responsibilities to Scottish Ministers, the Auditor-General is likely to have, and certainly should have, a role of greater importance in scrutinising ministerial expenditures. A clearer, more transparent view of the Auditor-General's responsibilities might be helpful. It is hardly good government where the auditor is powerless to act when he is aware of proposed unlawful or wasteful actions, involving expenditure of public money. We suggest that this is an area which calls for clarification of powers and we may look at this more closely in Committee.

I move on to taxation. Part of the statutory purpose of the Bill is to create greater financial responsibility and accountability in Scottish Governments. The Bill sets out a Scottish rate of income tax. One understands and welcomes the purpose, but we will wish to examine in Committee the scheme of taxation proposed. One notes, for example, the provision that envisages the Scottish rate of income tax being set each year by resolution of the Scottish Parliament. In a sense one is familiar with such a process in annual UK Finance Bills. But one is also familiar with the potential for disruption to business and to the economy more generally where substantial shifts in taxation occur.

Some questions arise. What consequences do the Government foresee from this transfer of fiscal power to the Scottish Parliament? What costs to business will result? What greater administrative burden will the transfer impose on business in Scotland? Is the tax base in Scotland sufficiently resilient to absorb the use of income tax for the budgetary purpose envisaged? What problems do the Government foresee in respect of the residence definitions, and the checking of days spent in Scotland by those who may work or reside in more than one part of the United Kingdom? We consider scrutiny of these issues in Committee to be necessary.

In conclusion, I repeat the welcome that we gave to the principles guiding the Bill. However, it should be clear that we consider that this Bill should not miss out the areas where the experience of more than 10 years of devolution shows a need for constitutional clarification, at least. We look forward to examining the Bill and its various amendments in Committee.

6:14 pm
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Lord McCluskey (Crossbench)

My Lords, I declare an interest, and not a patrimonial one. The First Minister of Scotland asked me and three distinguished lawyers to look into the relationship between the Supreme Court and the Scottish criminal courts. That of course followed the somewhat acrimonious debate which the noble and learned Lord, Lord Davidson, has just mentioned. The review group's report will be published in a few weeks, perhaps less, and I hope that the Government will take notice of what we recommend.

However, when addressing your Lordships, I speak entirely for myself and not on behalf of my review group. I had intended to speak for between 20 and 25 minutes with plenty of forensic flourishes, as your Lordships would expect from an aged lawyer, but over coffee the noble Lord, Lord Hughes of Woodside, persuaded me that four or five would go down very well. Despite being a lawyer-bearing in mind that I am an unpaid lawyer of course-I shall try to be as brief as I can, and I shall concentrate on the one issue on which I can claim a degree of expertise. However, Clause 17 is a matter that will need to be looked at very carefully when we come to Committee, as both previous speakers have intimated.

Judicial decisions on human rights issues that have aroused public debate over the years have included the right to slop out, mentioned by the noble and learned Lord; the right of prisoners to vote; and, going back some years, the duty of the British Government to pay compensation to IRA hooligans, and their relatives, who had sought to murder a large number of people in Gibraltar. These decisions follow a kind of pattern from the court in Strasbourg, but ever since the Human Rights Act came into force in 1999, these decisions have been taken in this country. It is our own domestic courts that apply the human rights law in our domestic circumstances and in particular in Scottish criminal trials. Some of the decisions in those cases mentioned have caused enormous problems for the Scottish prosecution system.

The jurisdiction of the Judicial Committee of the Privy Council, created in 1998, has now been passed to the Supreme Court, which has taken some of the more recent decisions. As has been said, the debate about the Supreme Court was couched in offensive and unparliamentary language, and I totally and utterly deplore that. However, I shall confine myself to the merits of this particularly clause, Clause 17. As has also been said, we are not just legislating about a case or two, an insult or two, or a judge or two. We are legislating about a system that will probably endure for decades, so let us please concentrate on the principles and let us try to get it right this time.

The decision to create a right of appeal from the High Court in criminal cases, for the first time since 1701, was enacted in the Scotland Act 1998. The system that was set up was inserted into that Act as if it were a necessary by-product of devolution. In my view, that was clearly a mistake. The creation of a non-Scottish court with final say on the interpretation of the European Convention on Human Rights listed in the Human Rights Act 1998 for the Scottish criminal courts was necessary, but had nothing to do with devolution. I accept that there was a need, flowing from the new devolution system, to have a United Kingdom supreme court with a jurisdiction relating to the vires question: that is, the possibility that the Scottish legislature and Executive might exceed the limited and well-defined powers that were conferred and devolved to them under the Scotland Act.

We talked about this question of vires in 1978, when I had the privilege of helping to conduct the 1978 Bill through this House, and we reached certain views then about the need for the Judicial Committee of the Privy Council to look into these matters, which have nothing to do with human rights. As a consequence of devolution-I emphasise these words-there was no need to give the Supreme Court or its predecessor any right whatever to be involved in criminal cases except in relation to vires, and possibly in relation to defining the law.

Therefore, while I accept fully that legal disputes regarding vires must go to the Supreme Court and must be appealable to the Supreme Court-I have no quarrel with that because these are truly devolution issues-the decision to make the European Convention on Human Rights part of our domestic law was entirely separate from the matter of devolution and should not have been dealt with in the Scotland Act at all. It was an accident that it was, and probably came about because during the passage of the Bill it became plain that it was not going to come into force the same day as the Human Rights Act. A temporary expedient was invented and it went into the Bill without proper scrutiny of any kind.

The Human Rights Act 1998 imposed duties on all public authorities to act in accordance with the human rights in the convention. However, the public authorities included such people as the Attorney-General, the Director of Public Prosecutions, the police and the Lord Advocate, whether or not they were devolved persons. The Attorney-General was plainly not devolved, and nor was the DPP, but the duty was imposed on them, too. The acts of the Lord Advocate, in exercising what are properly called his retained functions-the functions, mentioned by the noble and learned Lord, of being in charge of prosecution and investigating deaths in Scotland-are, as they have always been, functions of a very special character. The Lord Advocate shares no responsibility with his fellow Ministers for his or her decisions in relation to these matters. There is no collective responsibility either way.

Therefore, it was constitutionally inept to do what was done by the Scotland Act 1998-to ask the courts to treat the acts of the Lord Advocate in exercising his retained functions as though they raised devolution issues. That was precisely what the Act did. I borrow from the expert report of Sir David Edward, which was mentioned by the noble and learned Lord the Advocate-General. I think the noble and learned Lord, Lord Boyd of Duncansby, was a member of that group. It got it absolutely right; it was constitutionally inept to do what was done. Sadly, however, I fear that what is now contained in Clause 17 is also constitutionally inept and seriously flawed. That is a matter on which I shall not detain your Lordships in any detail this evening. We can look at it in detail in Committee.

Let me just hit the main points. First, the new section still focuses on the acts of the Lord Advocate. There can be happenings, events and circumstances in the course of a typical trial that cause a breach of someone's human rights. However, they can be nothing to do with the acts of the Lord Advocate. They may be in spite of the acts of the Lord Advocate. The committee that I sit on could offer some examples of that. Not every incompatible act that happens in a criminal trial is an act of the Lord Advocate. It might be an act of the police, the Prison Service or the court itself. As far as I know, the Bill provides no route whereby breaches of human rights in criminal proceedings by persons other than the Lord Advocate can be brought to the attention of the criminal courts. That is a serious lapse.

I must also ask why it was necessary to give the Supreme Court extremely wide powers, as the proposed new section does in Clause 17. They are listed in new Section 98A(9). All that is necessary is for that court to define the convention law applicable, define the right, say whether there has been a violation and send the case back to the High Court of Justiciary to allow it to do what it has been doing since 1701 and apply the law to the facts and circumstances of the case in hand. In other words, that method of proceeding would enable the historical independence of the Scottish criminal justice system to be preserved.

There is also a question, which I shall not go into in any detail, about the procedure that is to follow this change. At the moment it is a rather complicated procedure. It is very messy, with lots of paper. It looks as though the new section will result in just a change of paper; otherwise it will be equally messy and equally likely to cause the delay that the noble and learned Lord mentioned.

I also touch on certification. No criminal case can go to the Supreme Court on a human rights issue in England, Wales and Northern Ireland unless the "local" apex court grants a certificate to say that a point of law of general public importance has been raised. Curiously enough, although the High Court of Justiciary has been the apex court for Scotland for centuries, the Scotland Act, in seeking to devolve power to Scotland, not only created a right of appeal for the first time in nearly 300 years but did not give the High Court of Justiciary the same right as is enjoyed in England, Wales and Northern Ireland. Why the court in Scotland should not be trusted to rule on this matter, I do not profess to understand.

In conclusion, the correct approach to this whole matter is to identify the true role of the Supreme Court in light of the Human Rights Act. The expert group, with whose conclusions-but not the consequences in the Bill-I agree, recommended that the legislation should,

"make explicit, and put beyond doubt, the nature and limits of the jurisdiction of the Supreme Court in relation to criminal proceedings ... in Scotland".

It goes on to say that the new,

"statutory formulation should be such as to concentrate attention on the compatibility with Convention rights of the criminal proceedings as a whole".

Therefore, my final point is that I agree with this approach, which Clause 17 fails to adopt. The words "as a whole" are key to the matter. Respect for the historical role of the high court in Scotland is an abiding principle that should be observed unless there is some powerful reason to depart from it. I hope that in the course of these debates we can persuade the noble and learned Lord the Advocate-General to persuade his colleagues that this approach should be adopted. I certainly hope to return to this matter in Committee.

6:26 pm
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Lord Forsyth of Drumlean (Conservative)

My Lords, it is a pleasure to follow the noble and learned Lord. I very much agree with what he said about the intemperate nature of the attacks that were made on the judges by the First Minister of Scotland. All I can say is that when I was Secretary of State, I made the odd intemperate attack-on the noble and learned Lord, actually-but had I done what the First Minister did, I am sure I would have been sacked the next day. I hope that lessons have been learnt from that.

I hope I shall not damage the position of the noble and learned Lord, Lord Davidson, by saying that his speech was absolutely excellent and that I agreed with many of his points. I shall come to that. However, because of the ridiculous position in which we find ourselves, I shall concentrate, for reasons of time, on Part 3 of the Bill, which is concerned with taxation. My noble and learned friend has said that this will bring accountability to the Scottish Parliament.

I am sorry that the noble Lord, Lord Robertson of Port Ellen, is not here. I have great affection for the debates that we had about devolution. I was opposed to it; he was in favour. He told me that devolution would kill nationalism stone dead. I have to say that the Bill looks curiously out of time. The world has moved on. We all know what the genesis of the Calman commission was. Wendy Alexander quite sensibly suggested that we should cut the Gordian knot and have a referendum on independence once and for all-that we should take the nationalists at their word. Unfortunately, she was not supported by the Prime Minister, so the three unionist parties got together and set up Calman in the hope that it would halt the nationalist bandwagon. That has not quite worked out. We now have a nationalist Administration without, it seems, any check or balance on it. The architecture of the electoral system under the Scotland Act, which was to prevent any party gaining dominance, has failed. We now have a nationalist Administration determined to use all the resources of the Scottish Office to break up the United Kingdom and pretending that it is in favour of an immediate referendum.

When my noble and learned friend says that the income tax powers will bring accountability, I very much doubt it. I give noble Lords a tale of woe as an example: the poll tax. We introduced the poll tax; it did not work out terribly well for us. The argument was that it would bring accountability to local government. The problem was that the proportion of the revenue that was raised, as with the rating system, was small. Therefore, to get a relatively small increase in resources there had to be a huge increase in the level of poll tax. That was the fundamental flaw. The idea of accountability is the same as the case that the Minister makes for income tax. I noticed that in his speech he said that a penny on income tax would raise £450 million.

Let us be clear about this: we are not talking here about the 3p variable rate on the basic rate of income tax. The Bill abolishes that, even though it was agreed by the Scottish people in a referendum, as I indicated earlier. We are talking about introducing, for the first time, a Scottish income tax that will apply at the basic, intermediate and top levels. The Minister said that £450 million was 1.7 per cent of the Scottish Budget. On my calculations, if we take £450 million as the product of that, a 5p increase in the Scottish income tax rate would give you an 8.5 per cent increase in the Budget, so to get 8.5 per cent more money you would have to increase the basic rate of income tax by a quarter.

The stoppages in most people's pay packets would go up by a quarter in order to increase the Budget by less than 10 per cent. That is disastrous in an environment that has changed, where there is a huge deficit and where the Scottish Parliament was given a year off by the Chancellor and it did not make the necessary deficit reductions. To bring this measure in now seems extraordinary because the income tax proposals suffer from the same gearing problems that applied to the poll tax, the rating system and now to the council tax.

Here, the Government and those who support these proposals have a problem. On the council tax, I think our policy is to freeze it. On the one hand we argue that the Scottish Parliament must have the right to put up taxes in order to have accountability, but in local government this does not apply. We have a new policy that where the council tax is to be increased by more than the rate of inflation, there has to be a referendum of the local people to approve it. I ask my noble and learned friend why that does not apply to the local income tax. Why is there not going to be a referendum first of all on the principle of having this? My noble and learned friend says that there is a consensus in Scotland and that everyone agrees with this. I wager that if you stop three people in the streets of Edinburgh and tell them that a Bill is going through Parliament that could put their income tax up by a quarter in order to increase expenditure by less than 10 per cent-or, in this case, maintain expenditure-

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Lord Wallace of Tankerness (Liberal Democrat)

First, I point out to my noble friend that it was in the manifestos of three parties at the last UK general election and endorsed. It is not intended that these powers will be made available next year in the midst of a recession. My noble friend must remember that the power to put tax up is also the power to bring tax down. Therefore, the question he is putting to the three people in Edinburgh is wrong on so many points.

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Lord Forsyth of Drumlean (Conservative)

My noble and learned friend has been here too long if he thinks that the electorate reads the manifestos of the political parties and bases its votes on that. As for the point that the power could be used to bring tax down, the Government are asking the Scottish Parliament to find deficit reduction expenditure of about £3 billion. On my calculations based on his figures, that would amount to a 7p increase in the rate of tax just on deficit reduction. While we are on the subject of Calman, my noble and learned friend says that it is not being implemented now, so that is all right because it will be not in his term of office but in 2016; someone else will have to explain the consequences of this policy.

My noble and learned friend says that the deficit will have been dealt with by then. He cannot have it both ways. He has told us that there is a great consensus for Calman. Calman says that we should move to a needs-based system of funding for the Scottish Budget. Furthermore, from the work of Professor Bell and others we know that that would result now in a reduction of £4.5 billion in the Scottish Budget, which is a lot to find in income tax. That is the Government's policy for the longer term, so we are going to have to have a higher rate of income tax in order to stay exactly where we are. I do not think that this has been thought through.

There are very few things that I agree on with the First Minister, Alex Salmond, but when he says that you cannot run an economy on a narrow tax base like income tax and that you need to have wider tax powers, he is correct. I am against having wider tax powers for the reasons that I will give shortly. I say to my noble and learned friend-and I will table some amendments in Committee-that he should consider whether it might not be right to have a referendum before these proposals on income tax can be implemented and, certainly in line with our policy on local government, to have a referendum if the Scottish Parliament chooses to set a rate of income tax that is higher than it is for the rest of the United Kingdom.

There is another aspect of taxation in this Bill that absolutely terrifies me; it gives the Scottish Parliament the power to invent new taxes altogether with no reference to anyone-not to the voters or to anything else. My noble and learned friend is shaking his head. Am I wrong about that? If they decide to introduce a local income tax, which is their declared policy, as I thought on these Benches-I am not sure what the coalition Government's position is on local income tax, but the Conservative Party has always been opposed to local income tax because we would have all the problems that we have just been hearing-we could be faced not only with having the highest rate of income tax in the United Kingdom but with having a local income tax on top of that. I see that my noble and learned friend is reading the Bill. I hope he realises that the Bill actually provides for the creation of new taxes. It specifies particular taxes in respect of land and landfill.

On top of all that, we have powers of borrowing, which are described as positive-and here I did disagree with the noble and learned Lord, Lord Davidson. I think that the Scottish Government must be the only Government legislating on the planet that thinks that now, with a huge financial crisis and huge economic problems, is the moment to have higher taxes and higher borrowing. That is what this Bill provides for. When my noble and learned friend says that the powers might be used to cut taxes and cut borrowing, what planet is he living on? I do not know a single serious politician looking at the Scottish Budget, at the problems and at all these goodies that the nationalists have provided-such as free prescriptions, free healthcare and free transport, all of which are desirable but none of which are affordable-who could believe that the result of these powers would not be that Scotland would become the most highly taxed part of the United Kingdom. As the noble and learned Lord said, at the moment Scotland is suffering the worst rate of growth and the biggest threat to employment in the public sector because of the size of the public sector. It just seems plain daft to do this.

Having dealt with taxation, I turn to the issue of referenda. I see that the Bill has sections on elections, on presiding officers, on deputies, on the Supreme Court, on Members' interests and even on Antarctica. I am delighted to see that Antarctica is not going to be in the province of the Scottish Parliament, having spent my Christmas there. Every corner of the world is covered except vires on referenda, which is the central issue in politics today in Scotland.

Why have the Government not taken the opportunity to clarify the point made by the noble and learned Lord, Lord Davidson? It is perfectly clear to me, from reading the previous Scotland Bill, and as the noble and learned Lord pointed out, that the Scottish Parliament does not have the power to run a binding referendum on the issue of independence for Scotland. The Scottish Parliament now has a majority of Members who are committed to doing so. We know that there is going to be a referendum. How can it be in anyone's interests not to ensure that that referendum is held on a proper basis with a proper campaign and with proper notice? Why on earth are the Government dealing with every other issue, including the name of the Government, but not dealing with the central issue, in my view, and providing the machinery for a referendum on independence? Of course, I am a bit of an extremist on some of these subjects, so I would prefer the Bill to say that the referendum is to be in October next year, because I think that it is deeply damaging to have this uncertainty.

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Lord Forsyth of Drumlean (Conservative)

A fixed-term referendum, as my noble friend says. Of course, I have always been a person who has sought out consensus, and I see no objection to putting the machinery in place. Then the First Minister can decide whether or not to use it. In my opinion, he will be absolutely terrified to use that machinery because he knows that he will lose. Then we can get on to discussing the real business in Scotland, which is how we are going to deal with the reduction in the public sector, the creation of jobs and the protection of services. To be fair to my noble and learned friend, the May election was a surprise, so the Government may not have thought of this and there is still time for him to come forward with amendments that reflect the new political reality.

I have one other point about my reading of the Bill that may interest your Lordships. The Bill is ludicrous because of its income tax powers. It creates non-doms within the United Kingdom. I thought, "Am I a Scottish taxpayer or not?". There are conditions A, B and C, which are a hugely complicated set of proposals. The Bill states that if you have a property in Scotland and a property in London, which I have, you have to count up the number of days for which you stay in each property to decide whether you are a Scottish taxpayer. Then I read another bit that states that if you are a Member of the House of Commons, a Member of the Scottish Parliament or an MEP, whatever the number of days you are automatically up for the Scottish income tax. There is no mention of the House of Lords, so the good news is that Members of the House of Lords will be able to become non-doms if they spend more time in London than in Scotland. Who writes this stuff? Are we all to be counting our days? Wait for it. The Bill also states that the Scottish rate of income tax will not apply to you in respect of dividend or savings income, so the good news is that Scotland will be a great place to retire, because if you have only dividend and savings income you will not pay the tax. If you want to set up, grow or expand a business, go to England. What sort of message is that to send to people who are concerned about our economy in Scotland?

I understand the politics of the Bill, but why are we giving the Scottish Parliament the power to have a different speed limit from that in England, or a different level for drink-driving? What is life going to be like in the Borders? You cross a bridge and suddenly you are illegal. Are you allowed two drinks or one drink? I am no great Euro fanatic, but if anything, I would say that we should have a common European view on speed limits and drink-drive limits if for no other reason than that everyone would know what they are. The idea that we should change it in Scotland and have something different in England only adds to bureaucracy and confusion and is being done for political reasons. I do not know anyone in Scotland who says, "We really ought to be able to decide our own speed limits, and it is an absolute scandal that we have to be stuck with what is being decided by Westminster as to the number of drinks that we can have in the pub before we go off in a car".

In conclusion, I am not really very happy with the legislation. I am not happy that we have had no time to discuss it. I look forward to an extended and interesting Committee.

6:43 pm
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Lord McConnell of Glenscorrodale (Labour)

My Lords, I suppose that the starting phrase should be, "Follow that!". In any debate on the constitutional position of Scotland, my starting point is what is best for the people of Scotland and what is best for Scotland-not what is best for the coalition Government, the Labour Party or even the union, but what is best for Scotland and the people of Scotland-whether it is best to be inside or outside the United Kingdom or, indeed, the European Union.

For me, devolution for Scotland, and for Wales and Northern Ireland within the modern partnership of nations that is the United Kingdom, is indeed the best arrangement for Scotland and for the people of Scotland. That is why in my very first vote I cast a yes vote in the 1979 referendum that the noble and learned Lord, Lord McCluskey, mentioned earlier. That is why I campaigned through the 1980s and 1990s and was involved in the convention that the Minister mentioned in his introductory remarks, and why I stood for the Parliament and had the pleasure of serving with my noble and learned friend-I call him my friend even though he sits on that side of the House-as First Minister and Deputy First Minister in that Parliament.

Do I believe that the Scottish Parliament has done everything right in the 12 years since 1999? No, of course not; no Parliament does everything right. Do I believe that the Scottish Government or all First Ministers have done everything right? No, of course not. All Governments and First and Deputy First Ministers will make mistakes from time to time. But is Scotland a stronger and a better place? I would argue that, yes, it is. Did we survive and indeed build on the electronics manufacturing meltdown in the late 1990s to ensure that our economy's growth rate matched that of the UK by 2007? Yes we did. Did we reverse the brain drain that the Minister mentioned in his introductory remarks and increase Scotland's population after years of decline? Yes we did, through policies pursued in the Scottish Government and the Scottish Parliament. Did we lead the rest of the UK in the smoking ban? Yes we did. Did we reform Scotland's land laws and criminal justice service? Yes we did.

Devolution has made Scotland a stronger and better place, but after 12 years it is right to review the settlement agreed by referendum and by this Parliament back in the late 1990s. Was Calman the right way to do that? I think, on balance, yes. I am not a great fan of committees of the great and the good or of trying to seek consensus for the sake of consensus, but on the issue of the constitutional position of Scotland within the United Kingdom I think that the attempt to find consensus and the way in which that was done was broadly the right approach. Do I believe that the proposals have merit? Yes. Initially, I was not convinced by the report of the Calman commission, but over time I have become persuaded that most of the proposals have merit. Are they perfect? Of course not, but I do not believe that perfection should ever be the enemy of progress, as has been said by others more eminent than me.

Do I believe that the Bill deserves scrutiny? Yes, I do, but I also believe that it will ultimately deserve support. It contains proposals that are both radical and reasonable. I will come to the radical ones in a second. Although some of the initial proposals may irk the noble Lord, Lord Forsyth, I believe that, subject to the scrutiny that we need to give them, they will ultimately be supported by this House and Parliament. I am sure that they will lead to sensible decision-making in Scotland and therefore deserve a fair wind.

On finance and taxation powers, the original tax power was conceived at a different time and in a different economic climate. Like the electoral system, it was part of a settlement designed to secure the progress of devolution. The power to increase income tax by plus or minus 3p in the pound has never been used. That is partly because the parties who would have used it lacked the courage to do so. The nationalists lost an election in 1999 because they proposed to use it by increasing income tax and never made that proposal again. I would argue that one reason why the Scottish Conservatives have been in the doldrums since then has been that they have never been brave enough to propose to reduce income tax in the Scottish Parliament. That power has now become redundant because the political parties in Scotland have never felt that it was an appropriate use of the powers of the Parliament.

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Lord Forsyth of Drumlean (Conservative)

One of the reasons it has not been used is because, when I was Secretary of State, the budget was about £14 billion. It is now about £30 billion. That was a period when there were vast amounts of money coming in. We are now in a period when the opposite is happening.

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Lord McConnell of Glenscorrodale (Labour)

I was just coming to the issue of the increase in the budget. In the mean time, the budget has increased from about £10 billion when I was the first Finance Minister to about £30 billion. A broad consensus has developed in Scotland over that time that there is not enough responsibility for spending in the Scottish Parliament and the Scottish Government and that there is a need to change taxation powers-the way that the Scottish Parliament receives finance and that the Scottish Government raises finance-to ensure greater accountability of decision-making.

I was not initially convinced by the proposal in the Calman commission but I have become convinced that it could indeed be workable and improve the governance of Scotland. As the noble Lord, Lord Forsyth, has just said, it is wrong to argue that the Scottish Parliament, perhaps alone among legislative parliaments in the world, is not fit to set taxes. As long as a parliament is held accountable for its decisions, it should be free to set some taxes. That opportunity in the Scottish Parliament would lead to more responsible decision-making than has perhaps been exhibited at some times over the last 12 years.

This power is also fundamentally different from the imposition of the poll tax back in the late 1980s. The difference is that income tax is income related whereas the biggest problem with the poll tax was not its gearing-although that was an issue-but the fact that it was correctly perceived to be unrelated to income and provoked a reaction and civil unrest across the country.

We should test the proposal here. The noble Lord, Lord Forsyth, made some important points about the need to test the detail. In my view, the principle is right. The Scottish Finance Minister having to set a budget every year and make a decision to raise taxes would enhance accountability and responsibility in the devolved settlement. However, since the Calman proposals have come forward-

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Lord Reid of Cardowan (Labour)

I agree with almost everything that the noble Lord, Lord Forsyth, said-which must be a first. On this point, I am inclined to agree with my noble friend the former First Minister. The reason that the 3p was originally introduced, in about 1980, into our plans for devolution was precisely in order to meet the requirement that a parliament-or an assembly, as it was then called-should not be able to spend endlessly without any obligation to raise its own tax, in answer to the electorate. The reality is that in all of the prior period since the formation of the Scottish Parliament, and precisely because there has been an increasing budget, there was no obligation in practice for it to do that. We may be in a different position now and the question is simply whether we should have a parliament that is allowed to spend tens of billions of pounds but has no obligation whatever to raise any of it or to answer to the electorate for raising that tax.

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Lord McConnell of Glenscorrodale (Labour)

I thank the noble Lord, Lord Reid, for that point. It reinforces the argument I am making.

The context in which the Bill is now in front of Parliament has changed since the Scottish election result in May. I would argue that a referendum on Scottish independence is now almost certainly going to happen-I suspect in around late 2014. The next three or four years will be very uncertain for those who want to invest in Scotland as well as for the people of Scotland more generally. At the moment, one side has the absolute power to shape the terms on which that referendum will take place. Unfortunately, it is also true that only one side is even in the park playing in this match.

The Scottish football team had another disaster at the weekend. We have learned in Scotland regularly to take an approach after these games of, "We were robbed". We are in grave danger here of having a referendum campaign in which, afterwards, potentially a majority of the Scottish population suddenly realise that something has happened and feel, "We were robbed". It will not be good enough for the mainstream political parties in the UK and other organisations to adopt that "We were robbed" approach afterwards. To use a wider analogy than Scottish football, we cannot give the pacemaker so much of a lead that we end up having too much to do on the last lap in the referendum campaign that will take place between now and, I suspect, 2014.

I believe absolutely that the best future for Scotland is as part of a partnership of nations that is the United Kingdom-not some 1950s Britishness that is part of our honourable and respected past but a modern, 21st century arrangement that is modern, multicultural, multinational and has a different vision for the United Kingdom and for Scotland itself. Some decisions are right to be made at the United Kingdom level and some are right to be made in Scotland. There is a fundamental choice between that vision and that of independence for Scotland. That is a once-in-a-lifetime choice and, perhaps even at this stage in the century, a once-in-a-century choice. It should not be taken lightly.

Scots deserve a full debate on this, in which both cases are positively put and clearly explained and the result is a clear resolution of the debate once and for all in our lifetimes. Those who support the alternative vision to that of the nationalists are in grave danger of sleep-walking into an irreversible decision. It is incumbent on political leaders, the business community and the civic Scotland that supported devolution 15 years ago to rise to this challenge by coming together to put forward a positive vision-not a fear of the alternative-of where Scotland can be in the 21st century. If we do that, we can make a decisive decision about that future that leads to a more prosperous and successful Scotland with devolution inside the United Kingdom and not the dramatic implication that would come from a decision to go independent.

6:56 pm
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Lord Maclennan of Rogart (Liberal Democrat)

My Lords, as the first Member of your Lordships' House contributing to this debate who has not held a ministerial office peculiar to Scotland, perhaps I may be forgiven for beginning by raising a question on the impact of the Bill in the wider constitutional context of the United Kingdom. If the Bill is to be a success it has to face up to the needs of balancing equitable distribution of our resources with devolved autonomy. The Calman commission did not attempt to do that. I defer to the five members of the commission present in the House today but it dealt with Scotland. In the very changed political circumstances that we face today, we cannot simply confine our discussions to those issues.

The financial austerity that we currently face in this country puts pressures on our constitutional arrangements which could lead to a fissiparous consequence-one certainly never considered likely when Calman sat and even less likely when the Scotland Act 1998 was considered. It follows that we must consider not only whether Scotland is being fairly treated with respect to other constituent parts of the United Kingdom such as Wales or Northern Ireland but also focus on what the consequence of the specific measures in the Bill-I do not intend to go into them in detail today because we shall have a plenitude of opportunities in Committee and on Report-will be upon the sense of well-being of our citizens. That is something rather different from the sense that they are masters of their own destiny. Both are requirements.

The consideration of the matters in the Bill is also enlightened by reference to another commission which has not so far been referred to in the debate. I refer to the Holtham commission on Wales. There are differences of approach in the report of that commission which should be considered in the context of what we are doing for Scotland. One of the reports from the House of Lords Select Committee on the Barnett formula stated:

"On every funding decision the Treasury is judge in its own cause".

I have to ask whether anything in the Bill really alters that. We need to recognise that in this carving up of the resources of the country the Treasury voice is strong. In the intergovernmental arrangements I hope that the Scottish voice will be strengthened and also that the voices of other parts of the country will be heard in these deliberations as well as the voices of other devolved governments.

There are some matters to which the Bill, as I have read it, does not refer although I am not yet a master of it. For example, the Treasury controls the year-end flexibility of expenditure. Is that a satisfactory arrangement? The limitations of revenue-raising which will flow from the Bill will be substantially reduced upon the present situation. That is welcome. However, I am bound to say that in the current circumstances I have a strong inclination to agree with my noble friend Lord Forsyth about the likely way that this power will have to be used. It is hard to believe that in the austere circumstances in which we live-it is optimistic to believe that in five years' time we will have completely resolved our current economic problems and that circumstances will have changed-we can foresee cuts in public spending.

It is somewhat surprising that the opportunity has not been seized to go for a system which distributes the central government grants more fairly. The Holtham committee in Wales and our own House of Lords Select Committee on the Barnett formula both indicated that that could be done without enormous difficulty. Without addressing that-and of course it has been deliberately excluded from the discussions-we are not looking at the economic situation of our United Kingdom in the round and we will create growing discontent with which I think it will be hard to battle. I am not suggesting that the Bill should have in it a formula in place of the Barnett formula, but I am suggesting that serious consideration should be given to the many views that have been expressed in academic circles, such as those of Iain McLean and a number of other very careful voices, as to how this should be tackled. Postponement will not cure the growing sense of injustice.

The extension of fiscal autonomy, which the Calman report recommends, does not go even half as far as we see in a number of other federal countries. Australia, which is one of the more centralised federal systems, has up to 55 per cent of its spending raised by devolved governments, so we are not actually doing something which is profoundly revolutionary when viewed in a global context. Other federal countries have even higher proportions of locally raised expenditure. But if we are going to do that we have to accept the consequences of the lower tax base of certain parts of our country and we must come up with equitable solutions to these problems if we are not going to a see a deepening of disquiet and discontent in the poorer parts of our United Kingdom.

There are many other matters that are worthy of deep consideration, but I will confine myself to what I think is intended to be the central issue of the Bill. I refer to the economic balance and the change in the direction of responsibility. My noble friend Lord Forsyth had a number of very good points to make about the sense of responsibility and the limits that the Bill has imposed on the process. I hope that in the time which will now elapse before we get down to considering these things in detail we will look at these measures in the context of the circumstances in which we are considering them, which are very different from those circumstances on which the Calman commission reported.

7:06 pm
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Lord Lang of Monkton (Conservative)

My Lords, I should perhaps begin by declaring an interest, or rather a lack of interest, in that I was invited, and declined, to serve as a member of the Calman commission. I have no regrets about that.

The first thing to be said about this Bill is that it is an admission of failure. It will solve nothing and it will endanger everything. Its arrival underlines vividly the shortcomings and the dangers that were always intrinsic in the other Scotland Bill of over a dozen years ago. Then we were presented with what the late Donald Dewar claimed to represent "the settled will" of the Scottish people. It was to herald a new age for Scotland. And now we have before us another Scotland Bill. Another Secretary of State hails it as the settled will of the Scottish people, and another new dawn beckons.

My Lords, I was present when we debated that Bill in this House, and my heart bled for Scotland, as I warned then that it was a Bill that I believed would break the back of Britain. I derive no satisfaction from seeing that prediction heading towards fruition. It is sometimes more painful to be proved right than to be proved wrong, but I believe that the new Bill represents one more fracture in that inexorable process. The "settled will" is looking distinctly unsettled.

Now, of course, the settled will has become an ongoing process, and an accelerating one. Does the Labour Party still believe that devolution will "kill separatism stone dead"? Surely not. Has it brought Scotland peace, plenty and contentment, even from the cornucopia of Mr Brown's borrowings and Lord Barnett's formula? Before the Act the Scottish National Party had almost no Westminster MPs and only a sprinkling of Scottish local councillors. Now, through the Scottish Parliament, it has overall control in Scotland.

One looks in vain for provisions in the Bill that might actually improve Scottish government, popguns and penguins notwithstanding. But the Bill will not work, firstly, because its powers will fall into the hands of the Scottish National Party, whose core objective is the opposite of this Government's. To pander to the nationalists has the same effect as paying Danegeld. Even as we debate this Bill, they seek to double their demands. The Bill offers them the chance to raise income tax, but they now want corporation tax as well, and capital gains tax, and excise duties, and fuel duty, and quarrying, and mining, and air travel, and, for good measure, the Crown Estate's Scottish revenues. We can be sure of one thing: they do not want to control all of these taxes in order to reduce them. My noble friend Lord Forsyth made that point in his very telling speech on the tax issues.

But yet another burden looms. Over the past decade, United Kingdom public spending, which determines the level of the Scottish block grant, has grown faster than Scottish income, which of course determines the revenue from income tax. UK public spending, of which Scotland has received its share and more, has grown by 94 per cent in 10 years, but Scottish income by only 48 per cent. Therefore, when the new Scottish income tax replaces part of the block grant, it seems that it will have to be raised above the United Kingdom rate for Scottish public spending just to stand still.

I accept, of course, that the Bill attempts to address the accountability issue-the worst shortcoming of the 1998 Act. Just as in the eurozone monetary union cannot work without fiscal union, so with devolution responsibility for spending is untenable without responsibility for taxation. However, here, too, the Bill will not work because, although it proposes to increase to 35 per cent the proportion of expenditure raised by the Scottish Parliament, the remaining 65 per cent will still come from the Treasury's block grant, so the Scottish Parliament will still be able to blame Westminster for starving it of funds and freedom. It raises another problem, touched on by my noble friend, which is that of gearing. Anyone familiar with local government knows that, where the bulk of its budget comes from central government and that amount does not increase, the whole burden of any spending increase must fall on the local tax base-so with Scottish income tax. With the 35:65 split between Scottish tax and block grant, if the Parliament wanted to increase spending by, say, 5 per cent, Scottish income tax would need to increase for that reason alone by 15 per cent.

The Bill will not work above all because Scotland's weakened economic base cannot support the spendthrift policies of its Government. When the Barnett bonus of some £4.5 billion starts to disappear in the shake-out of the new tax arrangements, the burden will get heavier and it will fall on a small tax base. We have fewer than 2.4 million individual taxpayers in Scotland-less than half the population. A large proportion of them are either employed by or dependent upon the public sector, where substantial cut-backs are inevitable in response to the deficit and debt crisis. Therefore, an even bigger burden will fall on the beleaguered private sector, yet that is where the only hope for future economic growth is to be found; that is where the spirit of enterprise lies. Enterprise is not a gift of government; it resides in people, not parliaments, and the more Parliament taxes it, the less it can succeed. That spirit has had little chance to prosper over the past 12 years while Scotland has languished under the cloud of what one might now call "Saltire socialism". In 2009, Scotland, with 170,000 more public sector jobs in just 10 years, was deemed in one survey to be the most state-dependent country in the world after Cuba and Iraq. Presumably they could not get hold of the figures for North Korea.

If income tax is levied in Scotland at a higher rate than in the rest of the UK, as it would have to be, targeting our brightest and most successful entrepreneurs, I foresee, as surely everybody can, a flight of capital, a flight of jobs and a flight of people, and it would be the brightest and the best who would go first. Already the uncertainty alone about Scotland's future is a major cause of concern to the business community.

So I say again: this Bill will solve nothing and endanger everything. It builds on failure. It offers help and encouragement to those who would destroy the United Kingdom. It will create fiscal confusion and grievance. In seeking to rectify the worst shortcoming of the Scotland Act-its lack of accountability-it will go far enough to alienate Scottish taxpayers but not far enough to enforce accountability, and it will bring with it an accumulation of painful and unforeseen financial consequences. The Germans have a word for it: Schlimmbesserung-an improvement that makes things worse.

I sympathise with my right honourable and noble friends in their dilemma. They inherited an Act that set Scotland on an ineluctable downward path towards separation. They cannot reverse it, but how can they try to slow it down and hope that it may come to rest short of complete break-up? If they do too little, the lack of accountability continues; too much, and the downward slide continues.

To conclude, I suggest that what is urgently needed is an injection of realism into this debate. What Scotland needs now is a dose of "tough love". The Government -by which I mean the UK Government-should withdraw this Bill and place it on hold in the light of the change of government in Scotland and the determination of the governing party there to use it to advance its separatist ends. They-the UK Government -should hold the independence referendum with which the First Minister of Scotland is toying, and they should hold it soon to remove uncertainty. Before that, they should spell out in complete and unqualified detail precisely what independence would really mean for the people of Scotland.

I do not believe that deep down most of my fellow Scots want to break away, but they quite enjoy having a nationalist Government to fight their corner within the United Kingdom. However, the danger is that step by step we pass the tipping point and, before we realise it, the union is lost. So let us have it all out now: no more pandering, no more fudging. I say to my noble and learned friend: lay it on the line now and let us clear the air.

7:16 pm
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Lord Sewel (Labour)

My Lords, here we are again. It seems like only yesterday that we were discussing the Scotland Bill. Over the intervening years, the cast of characters has changed in this Chamber, and I think we can say that it has been enriched, particularly by the noble and learned Lord the Minister, the noble Lord, Lord Forsyth, and my noble friend Lord McConnell. The one sad bit is that I think we all miss the contributions, which we learnt to love and appreciate, made by the late Lord Mackay of Ardbrecknish. His is a voice that will not be heard this time around, unfortunately.

I wish the Minister the best of good fortune in guiding the Bill through your Lordships' House. I make it clear that I broadly support the Bill, although I hope that we do not spend quite as much time in Committee this time as we did in 1998. I thought that I understood the 1999 Act pretty well inside out but it had passed me by that we had devolved Antarctica. Whether it meant that we could send the noble Lord, Lord Forsyth, on internal exile to Antarctica, I do not know, but at least it is some relief that we have re-reserved it.

There is one thing that I do not understand in the Government's approach to this legislation. This is undoubtedly a constitutional Bill, as the Minister made clear from the very beginning, so the question arises as to why the Government have sought legislative consent Motions from the Scottish Parliament. The position does not seem to be totally clear because the Secretary of State for Scotland was quoted the other week as saying that the Government would push on with these proposals, even if the Scottish Parliament came out against them. Why have a legislative consent Motion if you are going to do that? Are the Government going to use the "not normally" qualification in the Sewel convention? It would have been a lot better if the Government had said that this is a constitutional Bill and, because of that, it is a reserved matter, although of course the opportunity is there for the Scottish Parliament to express its views and to be involved in the consultation. However, I think that the approach taken by the Government so far is a bit messy.

As many noble Lords have discussed, the Bill has to be set in the wider political context of the debate about the relationship between Scotland and the rest of the United Kingdom, and indeed about the future of the union itself. I do not take the somewhat depressing view put forward by the noble Lord, Lord Lang. There is almost an element of political unreality in discussing this matter in your Lordships' House, where all the parties represented support the union-with one personal exception. The party that presently forms the Government of Scotland is committed, hook, line and sinker to the destruction of the union and we have to recognise that in the way that we approach and understand the terms in this Bill.

In 1998-I am sorry to keep on harping on about this-I said on one occasion that I was a devolutionist because I was a unionist. That is still my position. I think that the union is of fundamental importance to us all. The union celebrates diversity rather than imposing a stifling uniformity. Having lived in England, Scotland and Wales, I find that it is that sort of union and diversity, that mixture, that creates something rather special about the United Kingdom. It ought to be nurtured, celebrated and preserved.

Why are we dealing with a Scotland Bill a dozen years or so after the original one? Clearly it is sensible to take stock, to see how things have worked out, and to make some common-sense adjustments. I think that that is absolutely right now that the settlement has had time to work and some shortcomings-the very few shortcomings in the original Act-have been identified. Part of the pressure for additional powers has come from those who have argued that devolution is a process rather than an event. Within the United Kingdom as a whole, I hope that it is a process, but whether they want real regional government in England is up to the English to take forward at some stage. In Scotland those who have argued for the process rather than event case have done a disservice to devolution. Where is the process likely to lead? Is it not almost perverse to set in train a line of thinking that makes a major concession to your principal opponents, who want to destroy the union in the first place?

A major disappointment about political debate in Scotland since devolution has been that very few voices have argued the alternative case, that devolution gives Scotland the best of both worlds: the ability to devise Scottish solutions to Scottish problems set against Scottish priorities, while at the same time ensuring that Scotland enjoys the social and economic security of being part of a larger state, together with the greater political influence that that brings. Nowhere is that more the case than in Scotland's relationship with the European Union, where, because qualified majority voting is the normal system of EU decision-making, it is infinitely preferable to be part of a large member state with a lot of votes than of a small member state with few votes.

There are a couple of areas in the Bill where the Government ought to have seized the opportunity to clarify things. This is particularly the case with vires, which has been mentioned already. In Schedule 5, nuclear energy, for example, is reserved, apart from two exceptions.

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Lord Garel-Jones (Conservative)

The noble Lord mentioned qualified majority voting as being the norm, but I am sure that he would agree that an application by an independent Scotland for membership of the European Union, which it would have to make, would need unanimity.

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Lord Sewel (Labour)

Treaties do-a treaty change would require unanimity. In terms of the normal day-to-day policy-making of the EU, it is now virtually all qualified majority voting.

Can I get back to nuclear energy? Nuclear energy is essentially reserved, but the Scottish Parliament-the Scottish Government-is opposed to it, wanting to use, I suspect, their planning powers to prevent it. The issue is whether the use of the planning powers would pass the purpose test on vires which is in the Act. If there is doubt about that, surely this is the opportunity to make it absolutely clear where responsibility for nuclear energy lies. That is a big issue that we are going to have face up to in this country in the very near future.

The second area-the obvious one-is to do with the calling of a referendum on independence. As the Minister knows, that specific issue was a matter for debate both in the other place and here during the passage of the 1998 Bill. Perhaps I may read two quotations. One follows a question that was asked by the then Mr Michael Ancram of Donald Dewar particularly on this point. The Secretary of State replied:

"It is clear that constitutional change-the political bones of the parliamentary system and any alteration to that system-is a reserved matter. That would obviously include any change or any preparations for change. ... If one assumes that that is a way of changing the constitution, no, it is not in the power of the Scottish Parliament to change the constitutional arrangements ... A referendum that purported to pave the way for something that was ultra vires is itself ultra vires".-[Hansard, Commons, 12/05/98; col. 257.]

Those were the words of Donald Dewar. In this House, the Minister in charge of the Bill was also questioned on this issue. There was a specific amendment put down. In arguing that any act about the continuation of the union would be beyond the competence of the Scottish Parliament and therefore not lawful, the Minister said:

"Perhaps I may go through the three steps that lead to that conclusion. First, the parliament cannot legislate if the provision relates to a reserved matter. That is Clause 28(2)(c). Secondly, the Union of the Kingdoms of Scotland and England is a reserved matter by virtue of paragraph 1(b) of Part I of Schedule 5. Finally, legislation for a referendum on independence would be legislation about whether the Union should be maintained and would therefore relate to the reserved matter of the Union, and so be beyond the competence of the parliament. That is brought in by the purpose test [on vires]".-[Hansard, 21/07/98; col. 854-55.]

Do the Government still hold to that position or not? If they do not, they must in all fairness, honesty and transparency amend the Bill so that it deals with and faces up to the issue.

On the increase of non-financial powers, which are of mind-blowing importance, I welcome them. There is no fundamental change in them, which is perhaps because the original Act was quite good. The noble Lord, Lord Forsyth, has previously spotted the question of the poor guy who lives in England, drinks in England, but drives through Scotland to get there. At the beginning and the end of the journey, he is perfectly lawful, but for the five miles or so that he drives through Scotland, he is committing a crime. I am sure that this is not beyond the powers of the Government to sort out.

The real substance of this Bill is the financial powers. That is the real guts of the whole thing. I welcome the intent of those clauses. I believe that the one major mistake we made in 1998 was failing to ensure that the Parliament was financially accountable to the people of Scotland. That omission has meant that the crucial political decision of striking a balance between expenditure and taxation has been missing, and that has led to at least a rhetoric of irresponsibility. By giving this power, that is closed off, and I thoroughly support it.

However, I do not believe in fiscal autonomy, not least because devolution provides a structure through which the resources of the whole of the United Kingdom can be redistributed so that more wealthy and prosperous nations and regions of the UK can assist the less wealthy. That, at heart, is the social democratic argument for devolution.

As for the powers of the Scottish Parliament to create new taxes but only with the approval of the Parliament of the United Kingdom-a point which the noble Lord, Lord Forsyth, may have skipped over when reading the Bill-the issue is how that is going to be done. Will it be done by primary legislation? Will that approval be given by primary legislation, by resolution or by order? That has to be specified in the legislation.

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Lord Forsyth of Drumlean (Conservative)

I hesitate to interrupt-I have said too much already tonight-but, just on that point, if we cannot bring ourselves to deal with the vires, does the noble Lord seriously think that we are going to bring ourselves to contradict them if they introduce a new tax?

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Lord Sewel (Labour)

I think that it would depend on what the tax was. If it was a tax on left-handed people, I would happily vote against it. When it comes to taxation, nothing is ever simple-as the noble Lord, Lord Forsyth, knows. It is important to catch the right people and avoid creating the potential for someone finishing up being a territorial taxpayer in two jurisdictions. I am not quite sure that the Bill has that bit right. I remember long and interesting discussions on lorry drivers sleeping in their cabs at night north or south of Gretna and the great importance that that would have on whether they were a taxpayer. How anybody knew whether they were going to sleep north or south of Gretna, I never dared try to find out.

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Lord Lyell (Conservative)

I have all that debate-it is in vol. 593 -here with me. After I have been able to speak in this debate-perhaps in the morning-the noble Lord might be able to read that in Hansard. However, he is absolutely right. I shall never forget all the efforts that he made-it is all here. Alas, I was before him getting vol. 593.

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Lord Sewel (Labour)

I thank the noble Lord very much for that intervention.

Perhaps I may focus on one last thing. The really big difference is now that Scottish public expenditure will be financed by a combination of tax raised in Scotland and grant given to Scotland by the United Kingdom Parliament. Everything about Scottish income tax is defined and specified in the Bill, but the Bill is silent on grant, and that is still going to be the largest source of income for the Scottish Parliament. I think that that is a lopsided arrangement that really is unsustainable. We have got to the stage now where the grant element ought to be defined in legislation as well as the tax element.

I have spoken much too long. I think that this is a good Bill. It builds on the original Bill without fundamentally disturbing it, and I welcome it wholeheartedly. However, I think that we are going to spend quite a bit of time in Committee.

7:34 pm
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Lord Steel of Aikwood (Liberal Democrat)

My Lords, the late Donald Dewar once observed that devolution is not an event but a process. I very much agree with that, and I believe that we should look at this Bill as the second-already?

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Lord Sewel (Labour)

This phrase that it is a process rather than an event is attributed to Donald Dewar. I spent some time trying to trace the source of that comment, but I could not find any occasion when Donald Dewar said it. It was said ad nauseam by the then Secretary of State for Wales, for very good reasons, if you looked at what Welsh devolution was.

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Lord Steel of Aikwood (Liberal Democrat)

That has lengthened my speech already, before I finished my first half-sentence. Anyway, it was attributed to him, but the point is that it is true, and I regard this Bill as the second stage of the process of devolution, the 1998 Act being the first stage. It may not be the last stage; there may be a third or even, possibly, a fourth stage to come. I do not think we should be frightened of that. The truth is that we are wrestling all the time with the basic problem that we cannot have a proper federal constitution in this country because one component part is larger than the other three put together. That has been the difficulty with which Governments have had to wrestle, so we end up with what I have always called lopsided federalism.

When he opened, the Minister used a quotation from my Donald Dewar lecture in 2004 when I said that no self-respecting Parliament could exist permanently on the basis of a grant from another Parliament. I believe that is true, and although the speech of the noble Lord, Lord Forsyth, was very entertaining, he did not address that problem. This Bill at least attempts to do so. After I said that, people in my own party came to me and said, "You've made this pronouncement. We agree with it. Will you now chair a commission to work out what we do about it?". I was very reluctant to do that because I tried to follow the precedent of Speakers of the House of the Commons and not engage in party-political activity. However, I regarded it as a constitutional issue, and so I said I would chair the commission, provided that there were people other than the usual party enthusiasts appointed to it. I was greatly assisted by my noble friend Lord Vallance, who had then just retired as chairman of British Telecom and is a former director of the Royal Bank of Scotland, and my right honourable friend Chris Huhne, with all his economic expertise.

We came up with what became known as the Steel commission report, which was subsequently the substance of our evidence to the Calman commission. The one difference between the two-this has been commented on by many in the Liberal Democrat ranks-is that our commission recommended a far wider sweep of tax-raising powers than is in this Bill or was recommended by the Calman commission. The noble Lord, Lord Forsyth, put his finger on it when he talked about the possibility of having a wider net of tax-raising powers rather than focusing simply on income tax. The fact is that the Calman commission was the product of a consensus agreement between the three parties taking part in it, and the Bill is the result of a consensus agreement. I have always believed that when it comes to constitutional reform, you cannot expect any one party to dictate how exactly it should proceed. If constitutional reform is going to succeed properly, it has to be on the basis of a broad range of consensus. I therefore find myself in support of the principles of the Bill in its tax-raising powers, although clearly in Committee we can have much more discussion along the lines that we have heard already.

I was very interested in the speech by the noble and learned Lord, Lord Davidson, and the noble Lord, Lord McCluskey, about the fallout from the remarks by not just the First Minister but also by the Minister of Justice in Scotland about the Supreme Court decision on a human rights case. It seemed to me that they were quite paranoid about the court being in London and would be quite happy for cases to go to Strasbourg, which is a most bizarre position for them to adopt. I was incensed by the language used and the insult to prominent members of the Scottish judiciary who serve on the Supreme Court. I thought it was quite intolerable, and that is why I resigned as an adviser to the First Minister on the ministerial code of conduct. As I said to him in a letter at the time, I did so because if now that they had a majority that was how they were going to behave, there would be more and more complaints against Ministers, and I did not want to spend my time refereeing them. I do not regret that decision. However, the issue that they raised in the debate today was echoed by another Donald Dewar lecturer-namely, Elish Angiolini, the immediate past Lord Advocate-whose lecture I went and listened to. She devoted the latter part of her speech to this issue and clearly was not satisfied that we have yet solved the question of how we treat our engagement with the Humans Rights Act with the new Supreme Court. We should return in Committee to the points made by the noble and learned Lord, Lord Davidson, and the noble Lord, Lord McCluskey, and treat them very seriously. I welcome what they said.

One minor point which I am pleased to see in the Bill, in Clause 4, is about the Presiding Officers in the Scottish Parliament. It is a direct result of the evidence which I gave to the Calman commission. We had the embarrassing situation in 2002 where, despite juggling hospital appointments with the Easter recess, I had to take two weeks off from the Scottish Parliament for treatment for prostate cancer. My two deputies had a simply terrible time trying to cope with not just chairing the Parliament, because that is only part of the function, but chairing the committees, the Parliamentary Bureau and the corporate body. They had also to entertain the legions of visitors that we had, because the Foreign Office took it into its head to tell every visiting dignitary coming to this country, "You must go to Scotland and see this thing which has come to pass". We had constantly to give lunches and dinners to visiting people. My two colleagues told me that they were run absolutely ragged during that fortnight. It was intolerable that the Parliament had no power to appoint a third deputy even for a temporary period. I am delighted that that minor flaw has been put right in the Bill before us.

I share the surprise of others who have spoken that the Bill is silent on the question of holding a referendum. Again to be fair to the Government, I point out that the election of the SNP Government in May came subsequently to the Calman commission's deliberations and the drafting of the Bill. We should be quite open about that. The Bill has come to us; we shall have to deal with it in Committee; and we should look at that question. There is a real danger that Scotland will find itself sleepwalking into independence unless we tackle the matter. As others have said-the noble Lord, Lord Sewel, was right-this is quite plainly and clearly a reserved matter for the Westminster Government. It is not a question of the SNP Government saying, "Well, we're elected, therefore we can have a non-binding referendum which we devise-and we organise, by the way, not the Electoral Commission". That would be intolerable. We should make it quite clear in this Bill that, granted that the SNP has its majority and a mandate to hold a referendum, ensuring that it is done in a proper way is a matter for this Parliament. The Bill has to come to us late, but we have the responsibility to send it back to the Commons for further deliberation.

My right honourable friend the Secretary of State has asked some very pertinent questions of the SNP about what it means by independence, and I hope that we will in due course get answers to them. My heart sinks at the thought that we will have three years of debate and uncertainty about independence or not, with a permanent collective whinge from the Scottish Government that everything that goes well in Scotland is due to their magnificent government and everything that goes wrong is due entirely to Westminster. It is not a situation that we should allow to fester for three years.

The basic question which the SNP has to address is whether people in this country really want a situation where Scots people living and working in London are living and working in a foreign country, and English people living and working in Scotland are living and working in a foreign country. That is what independence means and we should not hesitate to say so.

I also believe that there is a common misunderstanding about the history of how the union came about. It is frequently said, "Oh, well, it was all bribery and corruption that the Scottish Parliament was abolished and people were against the union". They were not against the union. In 1704, three years before the treaty was signed, Fletcher of Saltoun said that he was in favour of the union,

"to do away with bloody and destructive wars".

The fact was that there was a perfectly good defence and foreign policy case for the union, just as there was an economic case following the collapse of the Darien scheme and the ridiculous notion that we in Scotland should compete with England in colonial adventures following that disaster.

When there were discussions between the two Parliaments in 1706, although the word "federal" may not have been used-it perhaps did not exist in those days-the discussion was of federal type constitution. When it became clear that the English representatives would not accept that, and that it had to be an incorporating union or nothing, that was the point at which there were riots in the streets of Glasgow and Edinburgh. The truth is that the abolition of the Scottish Parliament was never accepted by the Scottish people. We saw that-although there were other factors as well-in 1715, 1745, through the 19th century, through the early part of the 20th century, the campaigns in the Labour Party, the Liberal Home Rule Bills and the covenant campaign of 1950 which attracted millions of signatures. The abolition of the Scottish Parliament was never accepted. The 1998 Act put right something that was done wrong in 1707. But that is a quite different argument from talking about going back to pre-1707 years and having a completely independent state north of the border.

This Bill is simply a fine-tuning of the 1998 provisions. So long as we treat it like that, it should deserve our support and go through to success.

7:47 pm
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Lord Morgan (Labour)

My Lords, I rise with a good deal of apprehension as the first non-Scot to speak and one of three non-Scots altogether on the speakers list, but, as several noble Lords have said, the Bill raises some very important general issues. I also venture to take comfort from the fact that I once wrote a book on Keir Hardie, who I am absolutely certain would have been in favour of this Bill-so, I may say, would Ramsay MacDonald, but he is perhaps not so cherished a figure on these Benches.

We have had many constitutional Bills from the Government that have been piecemeal, open to objection and coloured in many cases by partisanship. This Bill is different and much better for it. It is better for two reasons: first, it seems organically connected with previous constitutional legislation, particularly the fact of Scottish devolution; and, secondly, unlike the previous measures, it follows careful, evidence-based examination resulting from the Labour Government's setting-up of the Calman commission and the consensual atmosphere in which its report was considered. The Bill, as we know, was carried unopposed through the House of Commons.

The Calman commission established an unalterable and questionable case for accountability: that an elected assembly should have not only political accountability but fiscal accountability. Many centuries ago, not quite as far back as the Act of Union, the American revolutionaries called for no taxation without representation. The corollary-it applies to Scotland as well as to Wales, which I shall mention later-is that there should be no representation without taxation. The reverse is also true: a proper democratic assembly should have its own resources and be accountable for them, not just for the money that it spends but for the money it raises. It should not be dependent, as the Minister said quite rightly, on handouts from others in the form of the block grant. Without that, the Scottish Government, or any government, are lacking in legitimacy and credibility.

I welcome the main thrust of the Bill-the Scottish Parliament will have the power to generate about a third of its revenues and the block grant will be adjusted accordingly. As noble Lords have pointed out, this will be done almost entirely through a Scottish income tax, within limits. The other taxes mentioned are really minor ones; income tax is the nub of the case. It will of course produce problems. Some have been mentioned-I think excessively so-about the yield that income tax would produce and the calculations. Cannot a democratic government be allowed to form their own judgment on these matters rather than people sitting in Westminster telling them how they are bound to get things wrong? As a Welsh-speaking Welshman I find that attitude really deplorable.

However, there is another point: income tax will be defined here in Westminster-the same tax rates and tax bands will apply. The Scottish Parliament will therefore have to accept the definitions and concept of income tax as sent down by a controlling Westminster Parliament, which leaves the possibility of conflict. This contrasts very much with the Holtham commission for Wales which, as the noble Lord, Lord Maclennan, rightly mentioned, went further and suggested that the Welsh Assembly should be empowered not just in having a Welsh income tax but in setting its own rates and deciding its own idea of progressivity. This is something that perhaps might be considered a shortcoming here. The Holtham commission also suggested other taxes, including corporation tax, but Calman decided, probably correctly, that that was too complicated.

In general, I support the principle of the Bill. It is a good, democratic principle. It enhances the practice and the spirit of devolution and gives the Scottish Government powers and tools to do the job. It has greater borrowing powers than previously proposed. I also support the greater legislative powers being given to the Scottish Parliament but I notice on the question of air guns that it is little guns that it will have power on and not big guns. The big guns perhaps symbolically will remain in the control of Westminster. It makes devolution more credible and more coherent and does so by also ensuring that the union will be preserved. I was very glad that the Labour Party supported the Bill in the Commons and, subject to serious amendment, I understand from my Front Bench that we are going to support it here. It is a good thing. Among other things it takes the Labour Party back to its early democratic principles-the principles of Keir Hardie and George Lansbury and the ILP and the founding fathers of the party. In my opinion that is where the Labour Party, as a socialist party, ought to be.

There are two other questions-one about Wales and one about England. What indeed about Wales? I am aware that my noble friend Lord Wigley is going to speak later so he will perhaps or perhaps not echo what I say. The lesser treatment consistently handed out to Wales stands out very vividly from the devolution process. It was highlighted by the referendum only a few months ago when only then did Wales get an approximation of full legislation authority. There should certainly be a Calman commission for Wales and, if I understood the Minister correctly in his announcement last July, I gather that is broadly what we are going to have. I was very pleased to hear the Government announce that they would produce an inquiry. This inquiry will find that much of the work has been done for it by the Holtham commission. It was an excellent commission. It shredded the Barnett formula as unfit for purpose. It spelt out a clear way in which Welsh funding could be indentified in the overall funding process. It spelt out a way in which Welsh needs could be defined. It asked, as I mentioned, for Wales to have control of its own tax bands and rates and exceptions and to determine its own policy in taxation. All these might or might not be accepted, but as they say, a lot of the heavy lifting has been done by Holtham and should ease the commission the Government have in mind. Otherwise, Welsh devolution has always been a hesitant process. Wales has lagged behind. It lagged behind Scotland 80 years in getting a Secretary of State. It lagged behind in devolution. It is now advancing. The Welsh Government can do their work only with proper fiscal tools including the power to introduce new taxation and the borrowing power to finance capital expenditure. I hope we are going to have a Holtham-style agenda for Wales. I would be grateful if the Minister could tell us what progress is being made in setting up the inquiry he announced.

Finally, what about England? England, as the noble Lord, Lord Steel, said, is the largest partner. Calman sought a solution within the United Kingdom. It wanted to preserve our increasingly confederal union state and very much so do I. Problems are likely to arise between Scotland and England-about tax rates, about the extent to which the Scottish Assembly can borrow as it wishes and, perhaps, about something which was alluded to earlier: the definition of Scotland's share of the block grant and how that will be arrived at. All these are presently determined by decision-making in London. Whether one likes it or not there is a Government of a very different stripe in Edinburgh that may well take a different view. England will be even more displeased by the Barnett formula. It is manifestly unfair to Wales. It gives the English regions too little, particularly at a time of extreme economic difficulty, and it gives Scotland too much. Whenever the issue of the Barnett formula is raised by anyone in Edinburgh, to quote the title of a famous song, there is "The Sound of Silence" and the sound of silence echoes through the realm. Holtham has dismantled the ideas behind the Barnett formula and it seems to me wrong-I hope that we can look at this in terms of an amendment-that the finances of a self-governing Scotland should be examined while the really inequitable Barnett formula is left undisturbed.

As we have heard from other noble Lords, the authorship of this cryptic phrase has been disputed-devolution is indeed a principle. It is an ongoing process; it does not obviously have an end any more than any other political process has one. There is no period when, like Fukuyama, you say that history has stopped. It has not stopped over devolution. There are many sources of possible conflict that will arise as the process of Scottish devolution unfolds. Some have already emerged; for example, over university fees and the very wrong attitude taken in Scotland there. I hope we will help along the process of devolution by allowing a clear analysis and definition of what tax powers are to be devolved and what are not. There should be a much clearer division of resources than perhaps this Bill presently allows for. Otherwise, while the Bill is full of admirable intentions, it may lead, I fear, to perhaps a more disunited kingdom.

7:59 pm
Photo of Lord Selkirk of Douglas

Lord Selkirk of Douglas (Conservative)

My Lords, it gives me great pleasure to follow the noble Lord, Lord Morgan, who is a very distinguished historian. He is right to remind us of the powerful call, "No representation without taxation", and as a historian he will remember that the American colonists particularly had the request of "no taxation without representation". Both requests are very powerful.

It is customary for Peers to mention past interests before speaking, and in my case I have two. While several of us have served in three parliamentary Chambers, only four members of the coalition in this Chamber have been elected to the Scottish Parliament. Three of them, including the Minister taking this Bill, the noble and learned Lord, Lord Wallace of Tankerness, are Liberal Democrats, but for some reason, which I am sure must have involved a great deal of good fortune, I happen to be the only Conservative in this Chamber to have served for eight years in the Scottish Parliament. The other past interest is that I served on the Calman commission, with other members of this House, including the Minister and the noble Earl, Lord Lindsay, from the Conservative Benches. Along with Labour Members and many others, after more than a year of hard work, we produced a report which was unanimous, and the legislation we are considering is based on those conclusions.

In the 1998 devolution referendum, some 74 per cent of voters in Scotland were in favour of establishing a Scottish Parliament, and the Conservative Party, rightly in my view, decided that it would be wrong to act as disgruntled bystanders on the sidelines and instead that it should participate fully in the democratic process, with a view to making the new institution work successfully in the best interests of Scotland and the union. The noble Lord, Lord Sewel, rightly in my view, said that it was right after a number of years to review the devolution Act and to suggest adjustments. The noble Lord, Lord Steel, said that he regarded this as a second stage. If I may say so, in 10 years' time there may well be another review and another stage, and that would not be unnatural, given the fact that we are discussing the terms of a voluntary partnership.

When the Calman commission reviewed the devolution legislation and received evidence, the responses were overwhelmingly to the effect that the Scottish Parliament had been a success and indeed a majority of those giving evidence believed that it should have more powers. This brings me to the principles that underlie this entire subject, these being accountability and equity. The Secretary of State for Scotland said:

"The Bill is not about transferring power for power's sake; it is about creating accountability".-[Hansard, Commons, 21/6/11; col. 282.]

I have to make my own position very clear on this principle of accountability. I am strongly in favour of it. If the Scottish Parliament is given additional tax-raising and borrowing powers, it is a fallacy to believe that these would necessarily be used irresponsibly, for a very simple reason. All Governments wish to be re-elected, and no Scottish Administration will be returned to power if they force up taxation to an intolerable extent or cut essential services far more than is acceptable to the electorate. Finding the most appropriate level between levying taxation and funding public services will always be a matter of balance and judgment. The devolved Parliament should be allowed to reach such conclusions and put them before the electorate.

The Scotland Bill does not make any specific changes to the method by which grant is allocated by Westminster to the devolved Governments, but I would like to refer to the calls by the noble Lord, Lord Barnett, for his long-standing population-based formula to be replaced by one based on need. The noble Lord, Lord Morgan, referred to the importance of this subject. The position of the coalition Government, as I understand it, is that the top priority is to tackle the deficit and to stabilise the public finances. There is of course no consensus on the needs indicators that would have to be chosen if the formula was ever to be replaced. My own position is that until the legislation we are considering is enacted and is operational, the Government should stay their hand over changing the formula. The Bill we are debating will give the Scottish Parliament the new powers and flexibility it would need if Barnett was to be changed with far-reaching subsequent effects on the block grant.

The executive summary of the Calman commission report made this statement:

"Until such time as a proper assessment of relative spending need across the UK is carried out, the Barnett formula should continue to be used as the basis for calculating the proportionately reduced block grant".

I mentioned that a needs assessment would be contentious. I can only say that if the results of that assessment reduced the Scottish block grant significantly this would give rise to a third principle. There should be the possibility of substitution if there is to be reduction. In other words, if several billions of pounds were to be chopped off the block grant overnight, the Scottish Parliament would need to have the necessary flexibility to be able to find the most appropriate balance between funding services and levying taxation. This Bill will help to meet that point and makes the Parliament more accountable for the level of a substantial portion of its tax and spending. Indeed, I would contend that if there were to be a reduction in the Scottish block grant without the possibility of substitution, which this Bill will allow, there would be an adverse reaction and friction in Scotland, which could inflict lasting damage on the union.

The question that those who oppose a measure of financial autonomy for the Scottish Parliament have to answer is, "Why are the Scottish people unfit to be allowed a measure of financial responsibility?" I believe that their duly elected representatives should be allowed more discretion to frame their own fiscal policy. They should be allowed to raise more of their own funding as well as to engage in expenditure. While the centuries-old ties that bind the Scots to their more numerous southern neighbours may have been loosened somewhat in recent years, it must be emphasised that the Scots people have shown no appetite for breaking them completely, but they have consistently expressed a desire for their Parliament to have more power.

One of the great benefits of the union is that it replaced centuries of warfare across the border with a sustained era of peaceful development, notwithstanding the odd Jacobite rebellion. In the case of my own family, I am descended from both the Douglases and the Percys, who used to kill each other in very considerable numbers. It always struck me that this was not the best way to settle disputes and, fortunately, the Act of Union 1707 consigned such hostilities to the dim and distant past. In fact, with my father being a Douglas and my mother a Percy, it could be argued that I am a product of the union.

I intend when the time comes to commend to Scottish voters the case for the continuity of the United Kingdom. I take absolutely the point of the noble Lord, Lord Steel, that there must be a straight question on whether or not the people of Scotland want independence, and not a slanted question. I would wish to campaign in the strongest and most positive terms when the planned referendum is held. I do not believe that passionate support for the union is in any way incompatible with backing for giving the Scottish Parliament increased powers, especially over financial matters.

In conclusion, I would like to commend to the House the splendid words of Scotland's national poet, Robert Burns, when he wrote his famous poem, The Dumfries Volunteers. His words were as follows:

"Be Britain still to Britain true,

Amang ourselves united;

For never but by British hands

Maun British wrangs be righted".

Just to reassure the House, Robert Burns was by no means a dangerous revolutionary but was indeed one who understood the importance of fiscal responsibility. Just in case anyone may wonder, he was in fact by profession a tax collector and exciseman, who believed in the rule of law.

This legislation delivers an important coalition commitment. It will increase the responsibility and accountability of Scottish legislators and allow the devolved Parliament to come of age.

8:09 pm
Photo of Baroness Ramsay of Cartvale

Baroness Ramsay of Cartvale (Labour)

My Lords, this Bill is the second major constitutional change for Scottish devolution that this House has considered. It is natural that those of us who were closely involved with the first Scotland Bill, the Scotland Act 1998, have many memories of that Bill revived by this one, as the noble Lord, Lord Sewel, indicated. It is perhaps difficult for those who were in neither House of the UK Parliament at that time to appreciate the enormous sense of excitement, and of making history, which so many of us felt. Having heard the noble Lord, Lord Lang, I do not say that all of us felt it, but certainly the vast majority of us felt it.

As one of the three government Front-Benchers who took that Bill through this House, along with the noble Lord, Lord Sewel, and the noble and learned Lord, Lord Hardie, then Lord Advocate, I remember what a marathon that Bill was: 10 days of Committee, and many sessions late into the night, and two days for Second Reading. I have vivid memories of how nervous I was as a comparative newcomer to have to open the second day of a major Second Reading debate. Those of us involved all felt it was a great privilege because, for most Scots of my student generation, a Scottish Parliament was something we had wanted all our adult lives, and although we all believed the words of the late John Smith-I think they were the words of the late John Smith-that it was,

"the settled will of the Scottish people",

we had had to fight hard to win the national referendum held immediately after the 1997 general election.

None of us has witnessed, either before or since, the joyful scenes when the Bill finally passed in this House, and Scottish Labour MPs flooded into this end of the building in a wave of euphoria. We were aware of course even then, in the midst of the euphoria, that this was no permanent or perfect template and that it would require revisiting once the Parliament was up and running. So it was absolutely right for the Scottish Labour group in Holyrood, with the agreement of the Scottish Liberal Democrats and the Scottish Conservatives -but not, of course, the SNP-to set up the Calman commission in 2008 to review the provisions of the Scotland Act 1998 in the light of experience, and, as was said,

"to recommend any changes to the present constitutional arrangements that would enable the Scottish Parliament to serve the people of Scotland better, that would improve the financial accountability of the Scottish Parliament and that would continue to secure the position of Scotland within the United Kingdom".

It is natural that, after some 10 years, experience would reveal the requirement for some such change, even though the contents of the White Paper preceding the 1998 Bill had been prepared from unprecedented wide consultations and debate throughout Scottish civic society, over some eight years, by the Scottish Constitutional Convention. I should declare an interest here as one of the final two co-chairs of that body, along with the noble Lord, Lord Steel of Aikwood.

Although there might not be the same degree of excitement and sense of history about this Bill, I have to say that, in so far as it contains much of what the Calman commission recommended, it is to be welcomed. The Calman commission acted in the best Scottish traditions of wide consultation throughout civic society as practised by the Scottish Constitutional Convention.

Specific points in the Bill can be considered at the appropriate later stages of the Bill. I want-very briefly in view of the long list of speakers and the time-to lay down a marker about two subjects that are not included in this Bill, although much discussed in connection with it; indeed, both were the subjects of amendments and debate in the other place.

The first point is corporation tax. In considering a different rate of corporation tax for Scotland, one cannot but be worried about the consequences for the UK as a whole. I agree entirely with the views summed up succinctly by the Chair of the Scottish Affairs Select Committee in another place, when he said that,

"beggar-my-neighbour politics on corporation tax is not helpful. The risk of driving that divide between England and Scotland by achieving a marginal gain in corporation tax revenue in the short term is not worth the candle".-[Hansard, Commons, 21/6/11; col. 269.]

The Calman commission did consider and reject a different rate of corporation tax for Scotland, and in my opinion was completely correct in doing so.

The second point is the Barnett formula. I have heard many times in this House the views of my noble friend Lord Barnett, for whom I have the greatest affection and respect but with whom on this particular topic I do not entirely agree. In any case, whatever one thinks about the future of the Barnett formula, I think it correct that it should not be considered in this Bill. As the Minister in another place said:

"The current formula is an administrative procedure and does not appear in legislation".-[Hansard, Commons, 21/6/11; col. 229.]

He then pointed out very clearly that it was a mechanism for allocating funding across all four countries of the UK, which would make it quite inappropriate to legislate in this Bill for Scotland in isolation.

Finally, we should be careful about this Bill. We should not of course do too little in it, but I think we should be very wary of trying to do too much. It should not, as they say, be used as a Christmas tree. In so far as this Bill satisfies the recommendations of the Calman commission, I welcome it and wish it well. I look forward to more detailed discussion on some particular aspects in the future stages of the Bill.

8:16 pm
Photo of Lord Wigley

Lord Wigley (Plaid Cymru)

My Lords, I hope it will not be considered impertinent of me to contribute briefly to this debate. I do not come from Scotland, and I do not speak on behalf of the SNP, although my party, Plaid Cymru, and the SNP are Celtic cousins, and both aspire to the maximum level of self-government for their two countries and a new relationship between the nations of these islands. What happens in Scotland, however, does matter to Wales. It has a direct bearing on other parts of these islands, but particularly on Wales, because our constitutional aspirations have developed side by side with Scotland over the past 50 years. There is some irony in the fact that the debate to empower the Scottish Parliament further is taking place now, just as we in Wales thought we were catching up, after the referendum in March that gave us primary law-making powers.

While Wales and Scotland are two different countries with their own different needs and aspirations, there is undoubtedly a mindset in Wales that says, "If it is good enough in Scotland, it is good enough for Wales too". I think that the Government appreciate that dynamic to some extent. Large parts of this Bill have grown from the Calman commission and the Government announced in July the intention to have a Calman-type committee in Wales. However, I suggest very strongly that the work of the Holtham committee, which several speakers have mentioned tonight, should be the basis of the report and that Gerry Holtham himself should be involved in the work to save duplicating what has already been done.

My point is that issues arising in this Bill, such as the borrowing and tax-varying powers of the Scottish Parliament, will inevitably also arise in a Welsh context. There are other matters which MPs sought to add to the Bill in the debates in another place earlier this year, such as the need to review the Barnett formula and the pressure for Scotland's Parliament to have the right to vary corporation tax, which mirror similar arguments now being heard in Wales and, I believe, in Northern Ireland. I believe there is a feeling today that the Treasury is prevaricating on the question of corporation tax. The issue of year-end flexibility has also been mentioned, which again has a bearing in Wales and, I believe, in Northern Ireland and needs to be resolved.

What this Bill reflects, to my mind, is an ad-hoc piecemeal approach that has been taken by successive Governments at Westminster to the issue of devolving power to Scotland, Wales and Northern Ireland and, indeed, the failure to address the consequences here in England-either in terms of greater regional government or where devolution has left England's legislative capacity in matters such as health, education or housing, which are devolved to Scotland, Wales and Northern Ireland. In the 19th century, there was much talk in this Chamber of the Irish question. Dare I suggest that there is now a need to address the English question? I noted that the noble Lord, Lord Sewel, touched on this earlier.

Because of the lack of any overall vision, what we are seeing in this measure and in others is a salami-type concession that this power or that function may be devolved but with no framework to ensure balanced devolution or any idea of what is the ultimate destination. Indeed, many of my friends in Scotland, while accepting the provisions of the Bill as far as they go, feel that it has already largely been superseded by events-a number of noble Lords have touched on that this evening.

The May elections in Scotland represented a political earthquake and a wake-up call which Westminster will ignore at its peril. It also sent a message that this Bill goes nowhere near addressing the political agenda as it is rapidly developing in Scotland. I see that an opinion poll in Scotland reported yesterday that if a referendum were held now, 39 per cent of respondents would vote for independence and 38 per cent against it. Whether that is a stable ongoing position only time can tell, but this week we have also heard a call for a new, centre-right political party in Scotland because the London-centric Conservative Party is widely seen as not serving Scotland's needs. Might I suggest that against the background of May's election, Alex Salmond's triumphs and the recent opinion polls, some are seeing the UK in its present form as not serving Scotland's needs? Before the Bill even reached this Chamber it has largely been overtaken by events, as the noble and learned Lord, Lord Wallace, recognised in opening the debate.

On 25 June, the First Minister of Scotland, Alex Salmond, called for a more ambitious borrowing framework, fit for the long-term needs of Scotland and particularly for the Scottish Government's borrowing capability of up to 2 per cent of their annual resources, with capital borrowing being capped at 20 per cent of annual government resources. Furthermore, this demand has the unanimous backing of Scotland's Parliament, as shown in the Committee that reported on the Bill in March. There are further calls for strengthening Scotland's voice in Europe, with statutory rights for Scottish Ministers to be part of the UK delegations attending European Union meetings such as the Fisheries Council. There are feelings in Wales, and, I suspect, in Northern Ireland, particularly on matters that are unique to those two countries.

There has also been a call by the Scottish Government for this Bill to be enhanced to include the transfer of broadcasting to Scotland, including public service broadcasting institutions and future licence fee arrangements. These are all demands that could be widely echoed in Wales, particularly against the background of the disgraceful way in which DCMS treated the Welsh fourth channel, S4C, earlier this year. My point is that the time will come-perhaps it has already come -when sticking Elastoplast over the growing divergence of aspirations in these islands will just not work.

In an address to the Ditchley Foundation on 9 July, the former Prime Minister, Sir John Major, made a radical proposal which I believe the Government would do well to study. He called for the devolution of almost everything to Scotland except defence, foreign affairs, broad economic policy and the monarchy. That approach is surely more commendable than a piecemeal, grudging, reluctant approach.

Photo of Lord Maxton

Lord Maxton (Labour)

That, of course, is not what the Scottish National Party wants. It wants an independent, separate state established as Scotland. It is not really interested, although it may demand it, in more powers for a Scottish Parliament.

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Lord Wigley (Plaid Cymru)

I appreciate that that is the position of the SNP. I do not think it has been in any way coy about it. I do not believe it has ever shied away from making it quite clear that independence is its objective. One may or may not agree with that, but that is its position.

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Lord Maxton (Labour)

The fact is, however, that it never tells us exactly what it means by the term "independence".

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Lord Wigley (Plaid Cymru)

Let me make it clear that if I used the term "independence", I would not use it in the way that UKIP uses it-wanting to pull out of Europe and believing that you cannot be independent without being a state with a wall around it. I believe there has to be co-operation between independent countries and within frameworks such as the European Union. Indeed, there has to be co-operation within these islands, but that relationship may be a new relationship.

The reason I was pointing out the speech made by Sir John Major was that it should be relevant to the parties opposite. It should be relevant that their former Prime Minister made a far-reaching proposal that may well be relevant in the context of what the noble Lord, Lord Lang, spoke about earlier in this debate, and this should be considered.

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Lord Forsyth of Drumlean (Conservative)

The noble Lord has put a lot of emphasis on the membership of the European Union, but does he recognise that an independent Scotland would have to apply for membership in the European Union? It would have to take its place in the queue, it would require unanimity, and it would almost certainly be blocked by countries such as Spain and others. What he is proposing is not attainable in a realistic timetable.

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Lord Wigley (Plaid Cymru)

I am very familiar with the arguments about Spain fearing what will happen in Catalonia and the Basque country. If those two national groups within Spain do move towards independence, Spain itself will face that question, but that is a matter for Spain. It is a matter for the European Union whether it would prefer to see a Scotland outside the European Union in those terms.

I certainly would not want to see Wales outside the European Union, but I believe that there has to be a change in the relationships within these islands that respects our ambitions to take every decision that we can for ourselves, whether in Scotland or in Wales, while working together and having an effective voice at other levels where decisions are taken that cannot be taken within our two countries.

This approach is surely a force that the Government need to address, and the consequent agenda is currently being neglected. First, there is a need to ensure balanced, symmetric devolution throughout these islands, especially to Wales and Northern Ireland. Secondly, and crucially, there is a need to address the unspoken cry of, "What happens to England?" and indeed, how Westminster institutions-including this Chamber-can be re-engineered to help address an agenda whose force is not yet being heard but whose consequences cannot be avoided.

8:27 pm
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Lord Foulkes of Cumnock (Labour)

My Lords, given the plethora of criticisms of this Bill, and of suggested amendments-I have one or two more to suggest-I must say it is very fortuitous, and the Minister must be very glad, that it is going to be at least three months before we get to the Committee stage. May I make a helpful suggestion to the coalition Government, which is not something I often do? They might consider some government amendments to take account of some of the very good suggestions-some of them detailed, some not controversial, and not necessarily political-that have been made during the course of this Second Reading. They should look at Hansard very carefully and consider that, as it would help our debate and discussions at Committee stage.

Last Saturday, I was with about 50,000 other Scots at Hampden, and about 1,000 Czechs, and I cheered with them when Kenny Miller and Darren Fletcher scored. I even joined in the singing of "Flower of Scotland"-fortunately, not many people heard me-with all its words about sending proud Edward's army home to think again, but that did not mean that all of us there wanted to see Scottish secession. Patriotism, or pride in one's own country, does not mean that you want to see the break-up of the United Kingdom. When we come to consider these decisions, all of us in Scotland will be using our heads, not our hearts, to make that decision.

I see colleagues here-I was going to say from all parties, but there are not many Tories although there are Liberal Democrats and Labour Members-who campaigned for devolution again and again. We have got the campaign medals from 1979 and 1997. In the battle for devolution, it was not just the Tories who were posted missing. The SNP was missing also-not missing in action, just plain missing. At the time, fundamentalism ruled within the SNP. Rightly, in my view, it saw independence and devolution as two totally different concepts. I say that to the noble Lord, Lord Lang, because I do not accept his pessimism; we have to look at this carefully, turn things round and fight for the cause that we believe in.

Now, though, that fundamentalism has been put to one side and we have Salmond's opportunism taking over, trying to get independence by stealth and taking advantage of step-by-step devolution. That is why I hope that the noble Lords, Lord Steel and Lord Selkirk, who say that there are to be third and fourth stages, are wrong. They are playing into Salmond's hands. He wants, having had three or four steps, to think that there will then be just one more little step to independence, and that is where the danger lies. This is a nonsense; that would be the biggest step of all, crossing the Rubicon once and for all. It would be a major step that could not be gone back on. As others have said, it would mean the splitting up of the United Kingdom.

The UK has been the most successful economic union over a long period anywhere in the world. Our flexible constitution means that what we now have with this variable geometry, this quasi-federalism, this phased federalism, has been possible. I say to my friend, the noble Lord, Lord Steel, that it is a nonsense to say that federalism, which I support-unfortunately, the Liberal Democrats seem to have abandoned it-is impossible because of the size of England. They just assert that without any argument or justification. There would be nothing wrong with having an English Parliament dealing with devolved affairs, as Scotland, Wales and Northern Ireland do, and having this federal Parliament dealing with the reserved areas. That would not impinge on Scotland, Wales or Northern Ireland. It would be perfectly logical and it is the one stable solution that we should be moving towards in the longer term; otherwise, the only two stable solutions are centralised government, which we have left behind, or independence for each of the units.

Secession would be a disaster, as I say, but we should avoid saying that Scots could not govern an independent Scotland. Of course they could; it is entirely possible. Many Scots have governed the United Kingdom one way or another as well as other parts of the world in colonial days-it was not the English but the Scots who did most of the colonisation-so we should not argue that. Scots could govern a separate Scotland effectively; that is not the question. The question is whether we are better off in or out of the United Kingdom.

As others have said, and this bears constant repetition, the uncertainty that is being perpetrated by the Scottish Government is harming Scotland. Linda Urquhart, the chairman of CBI Scotland, spelt it out the other day. Others have said to me that people do not want to invest in Scotland. The UK Government will think twice about putting, let us say, the green bank or some other development in Scotland because of the uncertainty regarding the future of Scotland within the United Kingdom.

As my noble and learned friend Lord Davidson of Glen Cova said, in what I thought was a brilliantly constructed speech full of crucially important points, and as others have confirmed, constitutional issues are a UK Parliament competence. It is our responsibility, and it is about time that we took that responsibility. This is why I am proposing to table an amendment for consideration in Committee-I know others have thought about this and perhaps we should discuss it-that the UK Government organise a referendum as quickly as possible to end the uncertainty. We should also choose the wording of the question, which is very important; look at the wording in the Herald opinion poll to find out why that had the result it did. The wording should be: "Do you want Scotland to remain part of the United Kingdom-yes or no?" We would campaign for the yes side.

The timing of the election should also be our decision. We should not concede that the Scottish Government should run the referendum; we should not leave it to Salmond's trickery. It would be a loaded question, and the timing would be his timing to make sure he got the best possible result. If a referendum is inevitable, as people seem to assume, it is for us here in the United Kingdom Parliament to take responsibility for it.

I have a few additional points to make. Notwithstanding my noble friend Lady Ramsay's plea that we do not use this Bill as a Christmas tree, I want to suggest that there are one or two things that we should consider adding to it. For example-I have started to consider an amendment for this as well-both the Scottish Constitutional Convention and the Arbuthnott report suggested that we should review the electoral system for the Scottish Parliament. It is crazy. I got elected to the Scottish Parliament without any campaigning at all. I campaigned not to get elected: I campaigned for constituency members to be elected. I did not spend a penny on the campaign, and I got elected. It is a crazy, crazy system. Regional list MSPs and constituency MSPs just do not go together.

As someone said earlier on, the electoral system was supposed to prevent any party getting an overall majority. Well, it clearly does not do that. It is weighted against Glasgow, Edinburgh and the central belt in favour of the rural areas where the SNP has its stronghold, and that is why the party has done so well. It is a distorted system and it needs to be reviewed. Now, of course, we will be accused of calling to review it because of the outcome of the last election. We should have done it before-I accept that-but why bother about what we are going to be accused of when we will be accused of these sorts of things anyway? We should take up this recommendation and review it.

I have also started drafting an amendment to prohibit the Scottish Government from charging huge fees for students coming to Scotland from England, Wales and Northern Ireland. It is a disgrace, an absolute disgrace, that Edinburgh University is to charge these students £9,000-that is £36,000 in fees for a four-year course-whereas students from Poland, Lithuania and other parts of the European Union will get in for nothing. Which students will be able to afford to come to Scottish universities from England? Maybe the old Etonians and old Harrovians will get in, but ordinary students will not be able to do so. That is not that only reason for an amendment. The current arrangement is discriminatory and unfair and, with no disrespect to Christmas trees, we should take the opportunity to legislate on this.

In conclusion, we federalists, devolutionists and unionists-but not separatists-should take the initiative once more, as many of us did when we set up the Scottish Parliament. Like the noble Lord, Lord Forsyth, I have a few more amendments up my sleeve. I am looking forward with great relish to the Committee stage of this Bill.

8:40 pm
Photo of Lord Sanderson of Bowden

Lord Sanderson of Bowden (Conservative)

My Lords, I never thought that in this House I should have to agree with almost every word that the noble Lord, Lord Foulkes, said. However, that was one of the most interesting speeches that I have ever heard him make; I agree with just about every word.

I understand why we are being asked to pass this Bill into law as a result of the unionist party's Calman commission. It is a good idea that we should do it. We should, wherever possible, have taxation with representation. Accountability matters in these affairs. However, like my noble friend Lord Forsyth, I am worried about tax rates. Everyone who pays income tax in Scotland must be worried when we know that only 2.3 million people in Scotland pay income tax. However, I agree with the Secretary of State for Scotland, who says about this Bill: this far and no further. The reason for that is that there are many things that should be in place before going any further. Can the law be implemented fairly? Do we know for certain that HMRC can cope with the implementation? Most important of all, what is to be the future position of Scotland as a nation?

As someone who has been involved in business in Scotland all my life, I believe that we must have confidence in the future of Scotland, particularly if we are to invest. To have a possible independence referendum hanging over us for any length of time is very damaging to business. I am not at all surprised to see it resulting in decisions in Scotland being delayed. I see from official figures published in July that Scottish GDP increased by only 0.1 per cent in the first three months of this year, compared to 0.5 per cent across the UK in the same period. Scotland avoided another recession, defined as two successive quarters of falling GDP, only narrowly after the economy contracted by 0.5 per cent at the end of 2010. Over the past year, Britain's economy has grown by 2 per cent, compared to 1.3 per cent in Scotland. Surely these comparisons do nothing to give confidence to those of us in the business community in Scotland.

This Parliament has the ultimate responsibility for the well-being of the whole United Kingdom, as has been so well put by the noble and learned Lord, Lord Davidson. The parties represented in this Chamber all believe in the future of the United Kingdom, yet the SNP Government have said that they will hold a referendum at the time of their choosing-no doubt with their own question or questions on the ballot paper. I ask my noble friends on the Front Bench whether we, as the sovereign body, should not be taking a more proactive role in this whole business before we go further down this devolution path. In other words, the test of this legislation for unionists such as me is whether the passing of the Bill helps or hinders the unionist cause.

The problems confronting the union are now huge and must be put right if it is to survive. What is to be done about the Barnett formula and the clear need for change? What is to be done about Scottish MPs voting in the other place on matters in which they have no say in their own constituencies? If any noble Lord wants to read an interesting book, they might like Off Message by Bob Marshall-Andrews. On page 167 he makes his views about that very clear. I am sure many of his colleagues feel the same when things that are debated in the other place-matters that are of no concern to Scotland-get pushed through by the votes of Scottish Members of Parliament.

Then there is the recent example-here I come to what the noble Lord, Lord Foulkes, said-which, as a Scot and a unionist, I find hard to bear. Why must we have students from England, Wales and Northern Ireland paying student fees at Scottish universities, and-pardon the pun-European students and locals getting off scot free? This can only divide rather than unite, and I believe that this sovereign Parliament should ensure, by altering the devolution legislation, that matters such as these are put right. After all, this Parliament has given power to the regions, and it is in Parliament's hands to alter those powers if we think that they are being flouted. Indeed, the chairman of the Scottish CBI said,

"constitution is a reserved matter".

It must always remain so.

I believe that we are nearing the crossroads for the United Kingdom remaining united, and I hope and trust that the Benches opposite, with such high representation in the other place from Scotland, realise that the ice is getting very thin as a result of a lopsided arrangement, which is indeed the Scotland Act. Other countries have proper devolution on a federal model, but this is not the case at the moment in the United Kingdom. I say in the strongest terms possible that our Government must look urgently at this matter of the Scottish referendum. There is no doubt that Scottish business will suffer as long as that uncertainty remains.

As far as the Bill is concerned, can we have an assurance that no further powers in relation to corporation tax-here I agree with the noble Baroness, Lady Ramsay-will be taken until a referendum in Scotland has been held? The Northern Ireland situation is totally different. I know what they are thinking about there. There is no chance that the people of Northern Ireland seek to separate from the United Kingdom, unlike what the Scottish National Party intends to try to do in Scotland.

In preparation for this debate, I came across an article in the Times of 15 October 2008 with the heading:

"Scottish Dependence-The case for independence was never strong".

It was written at the time of the spectacular collapse of the two big Scottish banks. Some of it bears repeating now as this House considers the wider implications of this Bill. It says:

"The credit crunch has already claimed some significant victims. The credibility of Scottish independence is next".

It goes on to explain the case for independence based on North Sea oil reserves, saying that the case now for the small nations, such as Ireland, Norway and Iceland, looks very flimsy. It goes on to say that, given the Scottish banks' situation, an independent Scotland would now be,

"negotiating a rescue package with a foreign central bank".

The article continues:

"It is difficult to argue that the Union is a shackle when, in a strange echo of the generous Barnett formula, a great deal of taxpayers' money is heading from South to North".

That was written in 2008.

I finish with what is said at the end of this article, because it is very relevant:

"The First Minister"-

that is, Mr Salmond-

"is, of course, playing a very long game indeed. He has a strategy of inevitable gradualness in which independence is secured in 2017 after a spell of sound SNP government and a Scotland-denying period of Unionist Conservative rule from London".

The article concludes with the sentence:

"The Union that has served them for three centuries may be the only asset in Scotland that has not depreciated sharply",

over the last two weeks of the banking crisis. Those were very difficult days in 2008, but it is interesting that the leading article in the Times should make such comments about 2017-a date that is now much closer.

I hope all sides of the House will appreciate that we cannot allow the First Minister of Scotland to make all the running when the future of the union is at stake. We should use the opportunity of this Bill to start flexing our muscles and fighting back.

8:50 pm
Photo of Lord Boyd of Duncansby

Lord Boyd of Duncansby (Labour)

My Lords, it was a privilege to serve along with other Members of this House as a member of the Calman commission, and it is pleasing to see its recommendations in legislation before this House, so it will come as no surprise to learn that I support the Bill. In fact, there were two reports from the Calman commission. The first, in December 2008, looked at the broad principles and, as no one else has referred to it, if noble Lords will bear with me I shall consider some of the issues from that report. We attempted to put together principles that would guide the work of the commission and to set out the issues and context for the final conclusions. We asked: what do we understand the union to be? First and foremost it is a political union, a constitutional monarchy that has over 300 years evolved, as the commission stated,

"common political and constitutional values and institutions, which form the bedrock of our liberties".

We share on these islands a profound commitment to democracy and the rule of law. We have a common citizenship that includes a commitment to human rights and their safeguarding for all our citizens. An integral part of the Scotland Act is the embedding of the European Convention on Human Rights within it.

I am genuinely pleased to see the noble and learned Lord, Lord McCluskey, in his place. He and I have had our differences of opinion, but I recognise his commitment and the contribution he has made not only to Scots law but to this House. I read the debates on the 1978 Bill, which formed a substantial contribution to the 1998 Act. No doubt we will debate the Supreme Court, but I recognise a degree of common approach from the group of the noble and learned Lord, Lord McCluskey, and that of Sir David Edward. I served as a member of the Advocate-General's expert group. For my part, I think that Clause 17 is about right, but we will no doubt debate that in Committee. I will certainly approach it with an open mind.

Scotland benefits from being part of a state whose overall influence may have waned as the Empire has diminished and is now challenged by new emerging states, but we remain a part of a United Kingdom with a permanent seat on the UN Security Council, a permanent seat on the G8/G20 and a commitment to membership of the European Union. Scotland's influence would be substantially diminished if that union were to go.

We also recognise that the union is an economic one. Sometimes we forget that there were substantial economic reasons for Scotland to join the union in the first place: the establishment of a common currency and a customs union. As the commission stated, we have,

"a deeply integrated economic Union",

with a,

"well-integrated single market in goods, services, labour, capital and knowledge",

with common institutions that support the structure within which the market operates: the Bank of England, the FSA, HMRC, the Treasury, and so on. Although the commission did not highlight this, there are other parts of the regulatory framework, for example Ofgem in the electricity market.

The commission was united in stating that that single market and the framework and institutions necessary to sustain it should remain. The irony is that we now have a Scottish Government who wish to secede from the union, with all the advantages that it brings, only to embed Scotland even more deeply in another Union-one that would, over time, require Scotland to adopt a different currency from the rest of the UK and in which it would have less influence.

The United Kingdom is also a cultural union. We speak with substantially the same language. There are substantial ties of family and kinship. We belong to cultural, social, professional, scientific and business institutions that operate across the United Kingdom, albeit ones that often appear to have a Scottish face within Scotland. We share a common history. Together we forged an industrial revolution, built an empire and struggled to provide a better future, securing rights for workers and providing a free health service, education and social welfare. We fought two world wars together and have taken part in many more-some ill-advised and wrong, some heroic and right. In all of that, Scotland has made a contribution to the common history well in excess of its size relative to the rest of the United Kingdom.

In recent decades, we have seen new immigrants to Britain. These have contributed substantially to the cultural diversity of these islands and the multiple identities which Britain holds within it. For all the tensions that that sometimes brings, Britain remains a fundamentally tolerant society. The commission recognised that, as it did the cultural institutions, for example the place of the BBC as a public broadcaster-much criticised at times, sometimes flawed. While some change was necessary to ensure a distinct Scottish influence, fundamentally we did not wish to see the break-up of that institution.

There is also a social union. We share assumptions about the provision of social benefits. We sometimes disagree about how these should be delivered. Despite growing diversity in education and health, we remain across these islands committed to free education-at least up until secondary level-and free healthcare at the point of delivery.

I am sorry that these parts of the first report did not perhaps get the attention that they deserve. Together, these factors are substantial arguments in favour of a United Kingdom. The debate thus far has become somewhat sterile. On the one side, we now have the SNP talking of a mixture of independence-lite or devolution-max without any great attempt to define what it means by that and promises to lull us into a sense of false security that not much would happen were a divorce to take place. On the other side, the language has not always been wholly helpful. We have talked incessantly about separation or secession. It is right to warn people of the dangers of secession but we cannot frighten people into supporting a United Kingdom. Until we start talking the language of inspiration and aspiration, we will continue to lose the argument. I hope that, whatever else we do, we start to talk that kind of language and give people a sense of purpose as to why Scotland should remain part of the United Kingdom.

On the issues of financial accountability, I do not intend to dwell long on the details but certain principles were fundamental to our approach. We were given the remit of addressing the issue of improving financial accountability of the Scottish Parliament. We were greatly helped by the independent expert group led by Professor Anton Muscatelli, which began by setting out a series of principles that would guide its work. The commission itself then refined six of those principles into three broad areas.

First, on equity, does a funding system allow levels of funding and hence a distribution of public services generally accepted as fair? Secondly, on efficiency, in both economic and administrative senses, does it impede the efficiency of the system? Thirdly, on accountability, does the devolved body have the autonomy to make spending and taxation decisions for which the electorate can hold it accountable? All of these in my submission are important principles. But there is a balancing act. No solution is ideal, and they will always be traded off, one for the other. We will no doubt debate whether the commission in its recommendation came up with the right mix. I believe it is broadly right because it produces an element of accountability that is not now present, but we will no doubt debate that.

My noble and learned friend Lord Davidson raised the issue of the position of the Lord Advocate, and the suggestion that we should be looking at separating out the role of the Lord Advocate as head of the system of prosecutions from the other functions that he has, perhaps with the appointment of a Director of Public Prosecutions. This of course is not a new idea; it has been around for some time. The role of the Lord Advocate has evolved greatly over the centuries; it is an office that goes back at least until the 15th century. At one time the Lord Advocate effectively ruled Scotland; in the days of Dundas his powers were immense. Sadly, by the time I came into office they had somewhat diminished. But the role of the Lord Advocate did change with devolution, because the spotlight was very much more on the law officers.

I remember when my noble and learned friend Lord Hardie was Lord Advocate-he sat in this House-and I recall in particular a question on search warrants. There had been a number of instances in Scotland where search warrants had been granted by justices of the peace with important pieces missing, and the result was that they were ineffective, and questions were asked about that. The only place where he could be asked questions about them was in this House. That was a pretty ineffective way of holding the Lord Advocate to account, because he was removed from Scotland, and of course this is a House in which only a small minority of Members would have a particular interest in such matters. Suddenly, when we became law officers in the Scottish Parliament, there were 129 MSPs, all of whom had large mailbags full of substantial complaints about the prosecution system. It was, at times, pretty uncomfortable. The noble and learned Lord, Lord McCluskey, helped that process at times, if I may say so, with quite proper concern about, for example, the death of Surjit Singh Chhokar, which he will no doubt recollect. There were other instances, too, where it became extremely uncomfortable to have to answer questions about the prosecution system. When the noble Lord, Lord Steel, who is not in his place, was Presiding Officer, I remember being called to the Scottish Parliament to answer an emergency question on a prosecution matter.

Whatever happens in the future, I believe that that accountability is actually good, although it is uncomfortable. The fact is that I was able, as Lord Advocate, to take through the most far-reaching and profound changes in the prosecution system in Scotland, I have to say with the great help and assistance of the noble and learned Lord the Advocate-General, and more particularly perhaps with the First Minister of the time, my noble friend Lord McConnell. I would not have been able to do that were it not for the accountability that was brought by the Scottish Parliament to those proceedings.

I do not shy away from looking at these issues, but I have to say to my noble and learned friend that my own view is that this is more properly a matter for the Scottish Parliament initially to debate, and for us, the United Kingdom Parliament, to engage with it. That is where the impetus should come from for such a debate, not from the Chamber of this House.

The Scotland Act 1998 was a substantial achievement. The Scottish Parliament got extensive powers. The Canadian provinces have substantially less power in relation to criminal justice than the Scottish Parliament, and that is just one area where the Scottish Parliament has competence. It was, I believe, a considerable achievement but, as the noble and learned Lord said, one of the commission's conclusions was that devolution had been a success. It had worked for the people of Scotland, it gave people greater access to those who made the decisions and it increased accountability. I believe that the changes in this Bill will strengthen the devolution settlement, make Parliament more accountable for its decisions and strengthen the union.

9:06 pm
Photo of The Earl of Mar and Kellie

The Earl of Mar and Kellie (Liberal Democrat)

My Lords, I have no difficulty in welcoming this mild and tame devolution Bill. It is worth recognising its introduction at this time as a Liberal Democrat achievement in government. The Bill makes some progress towards greater self-government but is unlikely to be the last word on the subject. I expect that it will be amended by addition, rather than by deletion.

I am interested in what this Parliament recognises as the desirable endgame. The strength of desire in Scotland for self-government is considerable-maybe up to 75 per cent. Many of that 75 per cent are still cool to the traditional 19th century nation state concept but they definitely want greater political autonomy-just within a British state, and why should they not do so?

This United Kingdom, from 1603, could be restructured to suit the democratic will. After all, it was in 1707 and 1999. That further restructuring can be done by legislation alone and without the endless international legal agreement processes which formal separation leads to and requires. What I am referring to may be called home rule and it includes a Scottish Treasury. This is probably what the Scottish negotiators wanted in 1706, although they certainly did not get it.

It is probably instructive to look at Denmark's Home Rule Act 1948, and I thank those in the Library for their help. This granted sufficient autonomy to Greenland and the Faroe Islands to make their own decisions, even about foreign policy. Greater Denmark is therefore primarily a defence union. Greenland, after all, decided to leave the European Union with compensation for damage done to its fishery, and the Faroe Islands decided not to join the European Union. I know that this Parliament does not like examples of good practice from abroad but I believe that this example of home rule is relevant and, what is more, it has been happening for the past 60 years quite near by. Conversely, it has to be said that this Parliament has recently acted in favour of promoting democracy in Iraq, Afghanistan and, one hopes, Libya. Full democracy is desired in Scotland. Could it be that this Parliament is resisting such a development?

It is quite helpful to have a constitutional referendum in 2015 in the background to the Bill. I believe that it would clearly be sensible to legislate for this by amending the Bill, rather than just relying on the electoral mandate won in the summer. The outcome of such a referendum will be determined, in part, by the response of this Parliament to the request for additional powers. A favourable response is likely to lead to something akin to home rule-that is, a British solution. A negative response will enhance the vote for formal separation. Jealousies and personal insecurities among parliamentarians need to be suppressed during the passage of the Bill.

In conclusion, the Bill is a mild response to the growing need for self-government in Scotland. It is too mild and further legislation will be required quite soon. Noble Lords should be quite relaxed about this. Robert Burns derided the Scottish negotiators of 1706, but the Parcel of Rogues did quite a good job. While the parliament was lost, the Scottish state was not smashed. I can understand how Queen Anne and the Earl of Godolphin wanted control of just one parliament. This was a problem of regal personal rule. Now of course Governments are derived from democratic election. The process of re-establishing the Scottish state has been running for the last 150 years. It should be met by accommodation rather than intransigence.

9:10 pm
Photo of Lord McAvoy

Lord McAvoy (Labour)

My Lords, I will be particularly brief. I am not as erudite as many of those who have spoken so far, but I have some knowledge of and involvement in the historical and political events that have been outlined. I find it irresistible to take part not to settle a few scores but perhaps remember a few things.

There has been a lot of mention, particularly by the noble Earl, Lord Mar and Kellie, of the 1706 negotiators and of the reasons for the negotiations for the Act of Union. The one that he has not mentioned is that many people feel-though not all historians agree, and here we start to wander down highways and byways-that the real reason was the existence of someone called James Francis Edward Stuart, the Jacobite King James VIII and III. That was why the English Parliament wanted control of Scotland- the Scottish Parliament had the right to pick a separate monarch. The fear among the English and a lot of the Scots was that the Jacobite King James would be brought back from St-Germain-en-Laye. So there is a wee bit of history there as well that I do not agree with.

Going on to more serious matters, I want to comment briefly on why we are here at this time of night, on the stage that we are at and on the speakers list. I would like to echo what the noble Lord, Lord Forsyth of Drumleen, said about the positioning of the noble Baroness, Lady Liddell of Coatdyke, in the batting order-an absolute disgrace upon the former Secretary of State for Scotland to be put in that position. I do not know who makes up that list, but that was a bad, bad, bad mistake and I hope that there is some acknowledgement of that. I really think that it was pretty poor. Naturally, as a Labour and Co-op Peer and a member of the Front Bench I support the Bill.

Listening to a lot of the comments about the make-up of the Bill, it is coming across to me that yet again it is a rushed one. We have a rushed process. We started this Second Reading debate at 5.45 pm and are going to finish around 1 am. I do not think that is right. I also think it is bad politics for the Government because in Scotland it will, wrongly, be seen as Scotland being shoved to the back and put into the early hours of the morning because who cares about Scotland? It was not because of this side of the usual channels. It was the Government. Let us be clear: it is the Government who put business on, not us. It is typical of the situation we are in at the moment where they are mishandling every Bill. What is coming across quite clearly to me is a level of incompetence. I do not know whether they are getting tired, whether they have been around too long or whether they are just trying to do too much, but the Government's timetable is in a mess, and they are trying to compensate for that by rushing things through here, and it is showing up. I think this Bill will be scrutinised very thoroughly now that we have seen what I think is a level of incompetence in bringing the Bill forward. I think that is pretty poor.

The noble and learned Lord, Lord Wallace of Tankerness, mentioned the Scottish convention that started the process of getting a united front for a Scottish Assembly and a Scottish Parliament. I am not point-scoring or settling any scores or anything like that but, once again, it brings to mind how when the Liberals get to the top table, they always seem to look after themselves very well. Out of those arrangements the Liberals got two seats for Orkney and Shetland, for instance, and, quite frankly, the Labour Administration at the time could not wait to get into bed with them, metaphorically, and form a coalition, so they always do well. Conservative colleagues in this House would do well to observe the Liberals very carefully and make sure that their back pockets are not picked before they go.

What we are getting is something rushed and incompetent. At the risk of ruining his reputation, the contribution by the noble Lord, Lord Forsyth of Drumlean, was a tour de force by exposing and putting to question the tax issues and all the other matters. They might not be right, but they certainly sounded very credible to me. They are going to be meaty issues for the Committee process. I promise not to call him Comrade Forsyth-that might perhaps be going too far-but he was certainly the best speaker tonight as far as I am concerned.

It is about time somebody paid tribute to the nation of England. It is a bigger nation by far and financially supports Scotland, Northern Ireland and Wales. It is about time there was more recognition of that. I do not recognise this mass force in Scotland that wants separation. I just do not see it, but real separation will come if this Government allow the SNP to foster division, resentment and bitterness against England, English people will get fed up with it and will say, "If you want to go, off you go then". That is a bigger danger than perhaps folk think. We have this infamous phrase that devolution is the settled will of the Scottish people. As soon as we got devolution, the people who wanted to go further kept coming back looking for more. They describe it as a process. With due respect to them, I do not think that they are being dishonest, but it is dishonest to say that it is an ongoing process because what they are really saying is, "We are going somewhere, we don't know where it is, we can't tell you anything about it, but we are going on anyway". That is wrong. There should be clear statements about where we are in Scotland and in any devolved area, and it should be done by consensus.

I hesitate to have a go-to cross swords rather, as I had better use the proper language-at the noble Lord, Lord Steel of Aikwood, especially when he is not in his place, but he made a very profound statement that I 100 per cent agree with, which is that no constitutional change should take place unless there is consensus. That was not the case with the Parliamentary Voting System and Constituencies Bill which went through this place and altered the constitution. Lasting damage will be done by that. The referendum must obviously be discussed very thoroughly in Committee. We cannot have Scotland and Scottish business subjected to years of uncertainty. Whatever the ultimate decision, I look forward to the Committee stage where we can try harder to get some answers out of the Government.

9:19 pm
Photo of The Duke of Montrose

The Duke of Montrose (Conservative)

My Lords, I pick up the danger referred to by the noble Lord, Lord McAvoy, of the way that the pushing back of our debate to so late in the day will play out outside this building. It has been very interesting to see how each noble Lord has given his perspective on the history of the devolution Act and on the relationship between Scotland and England. Short of the struggles that have occurred over Ireland, the relationship between Scotland and England has been one of the most well known and contentious areas of our national life. Throughout our history, each side has won some and lost some. Certainly, in the first 500 years before the Act of Union, my family was quite heavily involved in every scrap that came up and at least six members died either in battle or by execution at the hands of rival factions-and that is without going into family squabbles, mentioned by the noble Lord, Lord Selkirk. To be a leader in Scotland was not always found to be a very cushy ride.

It is a well recognised fact that there can be nothing bloodier than a civil war. We do not need to look beyond the current situation in Libya to see this being fulfilled as we speak. As with Fletcher of Saltoun, mentioned by the noble Lord, Lord Steel of Aikwood, this might have weighed on the mind of my ancestor, the 4th Marquis of Montrose, when, as President of the Council in the Scottish Parliament, he sent the commissioners to negotiate the Act of Union. As the noble Lord, Lord McAvoy, said, the Scots at that point were regarded in England as potential troublemakers. However, considering the state of the Scottish economy at that time, it has always seemed to me remarkable what sort of a settlement they were able to achieve. The Scottish historian Tom Devine points out in his recent book:

"Far from being a junior partner of England, Scotland played its distinct and ... often larger part in building British influence and prosperity. In finance, engineering, commerce, medicine, education, the military, etc, it was at the heart of British global expansion, in good causes of human development, and in bad ones like the West Indies slave plantations".

Even today, the areas of co-operation and distinctness that the Scots laid down have proved a useful foundation for the modern approach to devolution.

This issue of devolution, and even home rule, has been raised in the forum of politics periodically during the past 100 years. On occasions in years following the Irish Home Rule Act when the topic came up in relation to Scotland, my grandfather's name was frequently associated with it. In 1932, a letter which he had sent to the Times, in which he expressed the view that nobody denied the great benefits which Scotland had obtained from the Act of Union, was quoted in the other place in the debate on the Address at col. 243 on 24 November. As far back as 1926, slightly presupposing the line taken by the noble Lord, Lord Steel of Aikwood, he wrote in the Glasgow Herald:

"I cannot believe that for all time coming Scottish affairs will continue to be settled by Englishmen sitting in London".

His campaign was for devolution to a Scottish Parliament, but not for separation or independence. I am sure that he would have regarded it as a great step forward that we are now marking the first 10 years of the Scottish Parliament.

Major issues in the Bill have been dealt with by many other noble Lords. Perhaps I may raise a small but fundamental one: we are now the third legislative Chamber to have been given the opportunity to scrutinise it. It was obviously a major task of the Calman commission to look at mechanisms for strengthening relations between the Parliaments, and it is interesting to see the Government's response as contained in their Command Paper. However, there is one question about its progress which I should like to put to the Minister-it was raised also by the noble Lord, Lord Sewel. What is the place of the Sewel convention in all this? How are these conventions established and who gets to interpret what they contain?

During the past 10 years, I have been a keen watcher of the use of this convention and the very essential channel that it has provided between the two legislatures. There are proposals in the Command Paper to have it strengthened. My question is quite well illustrated by the Explanatory Notes. Line 6 of paragraph 8 states:

"The Sewel Convention provides that Westminster will not normally legislate with regard to devolved matters in Scotland without the consent of the Scottish Parliament".

I have always taken it to refer to matters that are devolved. However, the paragraph begins with the words:

"At introduction, this Bill contains provisions that trigger the Sewel Convention".

Maybe some of it does, but by way of illustrating its argument, it advances Clauses 11 and 24, which relate respectively to the Firearms Act 1968 and the Road Traffic Act 1988. In the Scotland Act 1998 and up until now both of these were reserved matters under Schedule 5.

In my recollection, the use of the Sewel convention was to obtain the consent of the Scottish Parliament when modifications were needed to devolved legislation. A recent exercise which comes to mind was the Marine and Coastal Access Act 2009 where Scottish inshore waters were already devolved and the application of the Food and Environment Protection Act 1985 under Scottish jurisdiction was already devolved but the Bill had to encompass all these and therefore the Sewel convention was very appropriate.

This Bill has been subject to consideration by the Scottish Parliament and in its final form it appears it will be subject to its consideration again. It is not my purpose to question whether it was a good idea to see what the Scottish Parliament thought of it. However, to consider the holding of that consultation to be part of the Sewel convention seems to me to constitute rather a new precedent that should not be entered into just by default. If what we are considering is a necessary political adjustment and perhaps the handing over of entirely new powers, perhaps it should be subject to a rather different form of negotiation. Perhaps it is something new that we require, even a Wallace convention. The handing over of entirely new matters that were not previously devolved is a more serious matter than simply making adjustments.

I see that the establishment, and we touched on this earlier, of who will be regarded as a Scottish taxpayer is now said to be already laid down in relation to the previous tax-raising powers of the Scottish Parliament. At least it is reassuring to know that HMRC are looking at it again in the light of the situation in which we find ourselves. Will the Minister bring these findings to the House before we complete Committee stage? They will be very relevant to how we regard the approach on this matter.

The question of how the Treasury will be able to tell the actual size of what is termed "the equivalent sum"-to be removed from the block grant to match the removal of 10p off all levels of income tax from individuals designated as Scots-throws up an enormous list of allowance and adjustments. My noble friend Lord Selkirk of Douglas in a debate on the Barnett formula used the comparison of Lord Palmerston's explanation of Europe's understanding of the Schleswig-Holstein issue. We are now winding the whole financial settlement up several more levels and I can only wish the Minister well in his attempts.

9:27 pm
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Lord Elder (Labour)

My Lords, I start by declaring a minor interest as a member of the Calman commission which led to this Bill. It will come as no surprise when I say that, as a result of that, I enthusiastically support this Bill. That does not mean to say I will not participate in Committee, nor that I shall not seek amendments, but it does mean that I fundamentally and enthusiastically support what this Bill is trying to do. A huge number of points have already been made and, judging from the length of the speakers list, a huge number of points are going to be made this evening so I will limit myself to three brief points: about the economic commission; about the financial recommendations in which I was heavily involved; and, finally, about a referendum.

The Calman commission made a very comprehensive study of the legislative powers which had been devolved in the 1998 Act and it reviewed very carefully whether there should be further changes. Further changes have been proposed but it is a measure of the strength of the original legislation that very few were suggested. The settlement, in most important matters, has stood the test of time.

The Calman commission was a good process and I regret that the SNP chose to stand aloof from it and to make passing remarks from the sidelines. The SNP should have made the effort to participate. We wanted the parties who were involved in it to look after the best interests of the good governance of Scotland for the people of Scotland. The SNP, I fear, wanted to reserve its position for independence irrespective of the consequences of that for the people of Scotland. I regret that.

The point about the financial settlement proposal is that the Scottish Government will have to set a rate for tax and will then either benefit from the additional taxes if the economy prospers or face a reduced income if the economy does less well. The budget will, to an extent, be tied into the success of the economy, and that is an important change. Some of the ease with which London is blamed when things go wrong will be passed back to Scotland properly. Had we known back in 1997, 1998 or 1999, when devising the original scheme, that the tax-varying power was not going to be used, then we would either not have put it in or, I believe, sought just the kind of arrangement that the Bill proposes. But it was intended to be used, and that is why it was a separate question in the referendum.

Some of the additional taxes proposed to be devolved on the financial side in Calman were, to be honest, put in at the last minute to get the total tax take up to a higher percentage. They were never central to the scheme. I hope that the Minister will not mind me pointing out that, as he was responsible for putting them in at the last minute by and large to get the total tax take up to a certain percentage, it is not without irony that the Government have taken some of them out since. They were never central to the scheme, because the central part of the financial settlement was always what was happening on income tax. That is a very important step, which is still absolutely at the heart of the Bill.

I would like to say a few words about a referendum. For whatever reason, back in the 1970s and in 1997, we held a referendum on the main question of setting up the Parliament, and in 1997 on a separate question on giving it financial powers. Had we known that those powers would never be used, I am not sure that we would have felt the need to have a referendum. However, having created that precedent, I think it is impossible not to have a referendum on proposals which contain new powers on tax which will have to be used in setting a tax rate. Therefore, there should be a referendum, and the only question to be resolved is whether it should a question on the SNP proposals as well. I think that it should be. I note that the noble and learned Lord the Advocate-General referred to Pujol a few days ago. I would not like Scotland to get caught in the trap of a supposedly nationalist Government always asking for more from the centre but never being prepared to ask the fundamental question themselves. I regret that, for whatever reason, the other place did not seek to introduce such a question. It might, however, be appropriate for this House, at least in the first instance, to give it the chance to reconsider the matter in due course.

Too often these days, discussion about devolution as against independence is caught in the past. No one is suggesting a return to the pre-Scottish Parliament days. One of the changes of the last five years, which I at least am grateful for, is that we have heard precious little of late from the First Minister about the arc of prosperity that he was so keen to join-Iceland and Ireland being his role models only five years ago. In a referendum, what the present Scottish Government want would have to be defined. To take just one matter of some importance, in the current financial climate, the central banking function would not surely be taken on by a new independent Scottish central bank, so it would have to be decided whether it was going to be the Bank of England or the European Central Bank in Frankfurt. I have to say that, if nothing else, that would smoke out what I fear many nationalists actually are, which is not so much pro-Scottish as anti-English-and that I deplore.

There are many things still to discuss in the Bill, although as I say I fundamentally support it, and I look forward to the further stages.

9:33 pm
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Baroness Linklater of Butterstone (Liberal Democrat)

My Lords, there are so many infinitely abler, wiser and more experienced speakers in this important debate. As I am 21st on this list and we are just about halfway there, noble Lords will be pleased to hear that I have considerably filleted my speech.

There is no doubt that, as devolution has developed in Scotland, the appetite for more powers for the Scottish Parliament has grown rather than declined. Every poll suggests that and every survey of public opinion confirms it. What the Scots seek is not so much more power for its own sake as better, more effective government that addresses and tackles the serious problems confronting the nation, including the need to turn around its economy, improve its schools and do something to improve its appalling health record, to mention just three. When Sir Kenneth Calman's commission examined what steps should be taken to enhance the role of the Parliament, it bore this issue very much in mind.

There has been a huge debate in Scotland over whether Calman goes far enough, and whether this new Scotland Bill properly reflects that appetite for change. There was, however, general agreement that giving Scotland greater tax-raising powers was an essential next step. A devolution settlement which simply continued the reliance on a block grant from Westminster was ultimately no settlement at all. It not only embedded a dependency culture, it offered no stimulation to the spirit of enterprise which is the vital spark of a vibrant economy, and for which Scots have been so famous in the past.

Unless Scotland is allowed greater opportunities to stand on its own feet, and to take responsibilities for raising, as well as spending, its own taxes, it will never truly rediscover its innate potential. This Bill, unlike its groundbreaking predecessor-in which I was proud to be involved-is work in progress to that end. That it is cautious seems good to me, and a good thing particularly in the midst of a global crisis, when it would surely have been foolhardy to attempt any major leap into the unknown. There has been much talk in the north of fiscal autonomy, but far too little real work on what that actually means, what its implications would be, or, above all, on whether Scotland is actually ready for it. There are far too many questions still to be addressed to be able confidently to say that we are ready for wholesale fiscal reform.

This Bill will give the Scottish Parliament responsibility for raising and spending about a third of its taxes. This will undoubtedly increase over time; but it will increase only if the measures contained in the Bill are seen to work. Scots, I believe, are essentially pragmatic and canny, and want sensible, workable progress, not leaps into the unknown. There is no mandate for independence, but there is a mandate for moves towards greater fiscal responsibility, which this Bill represents. It gives the Scottish Government the potential to benefit from its own economic achievements, to expand the tax base, and potentially to increase the revenue base-despite the problems and pitfalls that have already been so graphically and thoroughly described this evening.

I have one, overarching, concern, to which Calman also alludes: the nature of a practical, working relationship between England and Scotland in the new, devolved world. It is not a specific issue for this Bill, but it concerns the way we work together. I have watched with concern a sort of disengagement, which I think reflects a lack of active, practical connection between our two Governments. People in Westminster and beyond have almost no idea what is going on in Holyrood, what the big issues are or how things are tackled-and vice versa. It is not antipathy, but I think it is apathy. I declare an interest as my husband is deeply involved in press matters in Scotland as the editor of the Scottish edition of the Times, and issues which may be the stuff of headlines in the Scottish press simply do not get a mention in England. It is as though for those down here the Scots and their issues have floated off their mental maps, leaving those in the north to get on with our separate business. It may be not entirely irrelevant that there are very few English men or women participating in this very important debate. Indeed Calman recommends,

"a greater degree of engagement between the two Parliaments",

and he is right. It is not an active problem yet, but it is a matter of regret and should be kept under review.

As was mentioned earlier, it was the Welsh politician, Ron Davies, who first said that devolution was,

"a process, not an event",

and "process' is the right word, because the scope to explore the opportunities as well as the pitfalls of devolution is still relatively new and still being developed. It was Scotland's first First Minister, Donald Dewar, who personified that sensible, pragmatic approach. His early death was a tragedy for Scotland but his legacy is the successful process of devolution that has taken Scotland forward over the past decade to where we are now. It will and must maintain its active participation in a United Kingdom while developing its own distinctive policies. That approach is reflected in the Bill. Donald Dewar would, I am sure, have approved of it-and so do I.

9:40 pm
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Lord Hughes of Woodside (Labour)

My Lords, I wonder if I might as a brief introduction point out that, as some Members of your Lordships' House may recall, in the 1970s when we were debating the setting up of a Scottish Assembly, and indeed later, I was not exactly an enthusiast for devolution. In fact, I still have the scars on my back to prove it-I think they have mostly healed by now.

Having said that, I commend what the Calman commission has done. After more than a decade of the Scottish Parliament, it was right and proper that there should be an assessment made. Where there is a genuine need for a change or for a transfer of power in the interest of good government, we should of course go ahead. However, I should point out that some still argue that it is necessary and desirable to increase the powers of the Scottish Parliament in order to stem the demands of the nationalists. Sir John Major said that in the speech to which the noble Lord, Lord Wigley, referred. I profoundly disagree with that. If you believe that ceding more powers will stem that side of nationalism, you must believe that if you feed a carnivore more and more meat it will one day turn vegetarian. The truth is that the nationalists cannot be bought off in any way.

I wish that we had time to debate fully the merits of, and differences between, fiscal responsibility and fiscal autonomy. I was always in favour of fiscal responsibility and I recall that some of my colleagues in the other place were in some great odium for suggesting that there should be what is now received wisdom-tax-raising powers for the Scottish Parliament. In those days I kept good company: the late Robin Cook, the late Norman Buchan, Tam Dalyell and even George Cunningham, then the Labour MP for Islington. The battle was generally won, if not by us, and it became the perceived wisdom for what became the Scottish variable rate. It is not only a scandal that the power was never used but an even greater scandal that I do not think any single party in the Scottish Parliament ever said in an election manifesto that it would use the powers.

Now we are told that there will be a different system and that there has to be direct responsibility. I am somewhat confused as to what the process is in this. I know that, under the Bill, the Scottish Parliament has the power to raise taxation-it does not say that it must raise it but that it has the power to do so-and, as I understand it, there is to be a deduction of the direct grant. How does one fit the other and which comes first? Is it the reduction in the government grant, so that the Government in Scotland will have to raise an equivalent amount of money? Or, if there is a reduction, can they raise less money? Do they have to raise the full amount? How will the reduction in the government grant be arrived at? Will it be by negotiation or discussion with the Scottish Parliament, or will it be mandatory and decided by the UK Government?

I may be overly pessimistic but I fear that the tax-raising powers proposed in the Bill will never be used by an SNP Government, because the SNP thrives on conflict and grievance, real or imaginary. I can see the possibility of the grant being cut and the Scottish National Party in government saying, "Well we can't provide this service because we just had a grant cut. If we are going to increase taxes, it is because the central Government in Westminster have cut the money that we are getting". The possibilities of the ways in which Salmond can exploit the differences are legion.

What of the future? Are we simply to pass this Bill and allow events to unfold north of the border? Even if we give this Bill every fair wind and turn it into an Act, notwithstanding the rather vague dates on commencement in the Bill, we are a long way from seeing these provisions in action.

The SNP has a manifesto commitment to having a referendum on separation. If my memory serves me right, SNP policy at one stage was that, if the nationalists gained an overall majority in the Scottish Parliament, that would give them a mandate to negotiate secession. Of course, they have changed their minds. Now they believe in a referendum. One would have expected that, flush with the results of the latest Scottish Parliament elections, the nationalists would have considered this a propitious time to call a referendum. So why have they not done so? Of course, they know, and I know-we all know-that the majority of voters who voted SNP at the last Scottish parliamentary election were not in favour of separation.

Nevertheless, we would have expected a positive response from the Scottish Government as to when and how the referendum might take place. Alex Salmond is no shrinking violet, so why is he so coy in pressing home his advantage? As I said earlier, the SNP thrives on grievance and conflict, and he will wish to engineer a whole lot of dissatisfaction, grievance and perceived slights to maximise his chances. This is why I do not believe that in any circumstances he should be allowed to pick a date of his choosing. There has to be, and must be, widespread debate, discussion, and consultation on this matter, so that the true voice of the people of Scotland can be heard, and after mature consideration we could have a referendum. One would hope that the result could be accepted, whatever the outcome, but I am afraid that past results of referendums prove that the losers never give up.

9:47 pm
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Lord Watson of Invergowrie (Labour)

My Lords, I welcome the Bill but I fear that in many ways it is too timid. The coalition Government had a commitment in its agreement to,

"implement the proposals of the Calman Commission",

but they have fallen some way short of that. We have heard about the aggregates tax, which has been left on the shelf and, pending developments, may yet be brought forward. There seems to be no such proposal on air passenger duty. Half of the yield from tax and savings and investments was recommended by Calman-we have heard nothing of that-and there is to be a restriction on the borrowing powers to £500 million with £200 million in any one year. That is still an increase in one sense, but both the legislative consent committee of the Scottish Parliament and the Scottish Affairs Committee advocated going farther. The Scottish Affairs Committee suggested a figure of £1 billion, with £500 million in a year. I hope that the coalition will be amenable to amendments to that effect at the Committee stage. The powers on borrowing should be brought forward. They are scheduled to come into effect in 2015 and I hope that that can be brought forward to at least 2013.

The additional tax raising powers mean that the Parliament will become more dependent on the tax revenue it raises itself. That is surely a positive move, both for the standing of the Scottish Parliament and in terms of its legislative programme and the work that it carries out. I do not share the fears of the noble Lords, Lord Forsyth and Lord Lang, as to the effects of the Bill's proposals. The noble Lord, Lord Lang, questioned the settled will of the Scottish people both in terms of the original Scotland Bill and indeed of this one. It is quite clear that the 1977 referendum bore out the assertion that John Smith had made some three years earlier. I would accept that there is no settled will as such among the people of Scotland on this issue largely because it has not had anything like the publicity or coverage, discussion or debate that the original Bill had. However, I believe that there is an expectation that the much quoted "process, not an event" should be borne out.

Around 170 orders under the Sewel convention have been passed through the Parliament over the 11 years of its existence. That is one of the signs of development. There has been a constant change and improvement in the way that the Parliament operates and indeed in its relationship with the UK Parliament. Evolution or devolution is a natural process, though, and should be expected by Scots. The Bill meets their expectations to some extent. I disagree with my good and noble friend Lord Foulkes of Cumnock on one of the points that he made. He fears a process whereby step by step we get closer to what I think he described as the edge of independence. I have more faith in the Scottish people's understanding of the issues involved in such a major change and what it would mean for their lives.

I also believe that up to now the people of Scotland, when asked to vote on the issue, have shown a clear differentiation regarding what it means to vote for the SNP. The reason for voting for it in Scottish Parliament elections and in UK elections-they voted for it in droves in May this year-was not that the main goal was independence; it was about the perceived competence of the SNP Government over the previous four years. People are capable of making those distinctions. If and when the referendum campaign comes-I support my noble friend Lord Foulkes in saying that it should come sooner rather than later, and I will back him when he comes forward with his amendment in that regard-and the debates and discussions are held, the Scottish media will be well able to air the issues.

If I am confident of anything, it is that the political parties that want to maintain the union will be able to make their case convincingly, although they need to make it more convincingly than they have been doing up to now. If there is no movement with regard to devolution 12 years down the road, while I do not believe that we will have a revolution if there is no evolution-there will not be an insurrection-there could be a revolution in constitutional terms if for some reason it is seen that only the SNP is interested in trying to advance the interests of the people of Scotland, develop its democracy and to some extent meet their needs in terms of greater accountability over the people elected to legislate.

People have mentioned UK-wide parties, but that is probably not quite correct; it is GB-wide parties that we are members of. Those of us in those parties have to accept that political opposition to the SNP's bid for independence is often based on scaremongering. We seem to be very much on the defensive; we are on the back foot, and generally that is not a position from which anyone has achieved a victory. I have to say on behalf of the Labour Party that we found that out to our cost just four months ago. We largely fought the Scottish election campaign on the back foot, and we are now paying a high price for what I would say was our inability to articulate in advance a positive rather than a negative case for winning support.

To some extent, that is the elephant in the Chamber this evening. Since the Bill was introduced some months ago, not only the goalposts have shifted; we have moved on to a different pitch with a completely different surface. Let us not make any bones about it: the SNP recorded a stunning success in May, one that was supposedly impossible under the electoral system that obtained for the Scottish Parliament. It is wrong to blame the electoral system for what happened. I was personally in favour of that system at the time and remain in favour of a more proportional system. I shudder to think how much more decisive the SNP victory could have been if it had been under first past the post; there would have been no representation by other parties. It is interesting to see the Advocate-General nodding his head there; I think that he would support that point. For all its faults-it is not a perfect system; there is no such thing-by and large the Scottish Parliament's electoral system has served the Parliament well because it has drawn a line between what happens at Westminster and what happens in the devolved Administrations, and the same is true of Wales and Northern Ireland.

The SNP presented a positive programme for Scotland and was rewarded for that; this is how we in the three GB-wide parties should react. We have not reacted in Scotland since the election in May. There has been a pretty mute response to be honest, partly because the parties are still shell shocked. The Lib Dems have chosen a new leader-I am not sure whether there was an election-the Tories are in the rather entertaining process of doing so, but the Labour Party has so far left the SNP facing an open goal because we have not even been able to put forward a candidate. I hope that will be put to rights soon. All the while, the SNP is getting on with business and is presenting a face to the people of Scotland which no other political party in the country is able to do.

I was interested to see the TNS-BRNB poll on independence published this week. A chart was drawn going back to August 2007, which I believe was when the SNP first published its White Paper on Scotland's future and mentioned eventually holding a referendum. The question asked-I agree with my noble friend Lord Foulkes that in any poll the questions are fundamental- was: do you agree that the Scottish Government should now negotiate with the UK Government on independence? In August 2007, 35 per cent agreed, while 50 per cent did not. At the time of the May 2011 elections, these figures were 37 and 45 respectively. Now, 39 per cent believe negotiations should be undertaken and 38 per cent do not.

I do not think anyone should be in any way surprised at these figures, given that since the May election virtually nothing has happened in Scotland in political terms that has not been driven by the SNP. This is the wider context of the Bill that we are discussing today and that we will be discussing in the early part of next year. The political landscape and the political context of Scotland have changed dramatically since this Bill first appeared. The Bill is more important than ever because it is a tool which demonstrates to the Scottish people that there are progressive moves-I understand that the noble Lord, Lord Forsyth, will not see it in these terms-within the UK Government on behalf of Scotland, and that the SNP are not making all the running. That is a very important message to get across.

The Bill's proposals will make a difference to the way the Parliament is perceived because of the accountability that it will bring in terms of tax-raising powers. However, as I said earlier, I agree with my noble friend Lord Foulkes that we need to get moving on the referendum. I urge the Advocate-General to think very strongly about including this in the Bill when it goes to Committee. The delay can serve only the nationalists. If they felt strongly enough about their position, they would have called the referendum more or less immediately after the election in Scotland. Clearly, they do not feel that strongly, so why should we wait and allow them to call it at time that is most beneficial to them, as they would do naturally as a party? Let us get this debate up front and let us give the Scottish people the chance to make their decision on a straightforward and unambivalent question.

It is quite clear from the debate that took place in another place on this Bill that the SNP is still more concerned with arguing about the inclusion of corporation tax and what it calls full financial responsibility, neither of which, I am sure, would do anything other than reduce the block grant for Scotland. On that point, I would urge some caution with regard to tampering with the means by which the block grant is calculated. My noble friend Lord Morgan urged ending the Barnett formula for reasons that he outlined very clearly-it does benefit Scotland-and your Lordships decided in Committee two years ago that it should be replaced. I understand that, but one has to be careful what one wishes for if one values the union, because ending Barnett, or even changing it dramatically, would be an absolute gift to the SNP.

Finally, I will say a word about the concerns of the noble Lord, Lord Forsyth, regarding the definition of a Scottish taxpayer. I share those concerns. The Law Society of Scotland stated in evidence to the legislative consent committee of the Scottish Parliament that,

"it would be much better if there was a simpler definition that anybody could pick up and read".

Clause 32 of the Bill was inserted after Report stage in another place, but it has not provided a simple definition. Indeed, proposed new Section 80F, which remains, talks of spending,

"more days of a year in Scotland than in any other part of the UK".

As the noble Lord, Lord Forsyth, says, your Lordships are not excluded from the elected parliamentarians in respect of that. Just think for a second: it is not at all unusual for your Lordships' House to sit for 150 days a year. If some of your Lordships were to travel from Scotland on a Sunday-remember, it is where you end the day that counts-that could add to that figure. There are also weekends, the time you may spend out of Scotland during recesses and so on. It would not be difficult to get from 150 days into a position where you were spending more than half of that year in London or another part of the UK rather than Scotland. That needs to be clarified and, I hope, laid out clearly in the Bill.

In closing, I believe that the Bill contains many positive proposals. It enables us to advance to the people of Scotland the case that we can have the best of both worlds-being part of the United Kingdom, while having a devolved Parliament that is responsive to the needs of the people of Scotland and will now have substantial tax-raising powers. I look forward to discussing these and other issues in Committee.

10:01 pm
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The Earl of Shrewsbury (Conservative)

My Lords, in welcoming this important Bill, I must declare my interests. I am the honorary president of the Gun Trade Association and of the British Shooting Sports Council. I am a member of both the British Association for Shooting and Conservation and the Countryside Alliance. On my past record in defending and promoting the shooting sports over the past 20-odd years, it will come as no surprise to your Lordships that I wish to address several issues raised by Clause 11, in which it is proposed to devolve the power to regulate air guns to the Scottish Parliament.

Since 1920, legislative control of all firearms, including low-powered air guns, has rested with the Westminster Parliament and legislation has been applied to England, Wales and Scotland. A different regime of controls applies in Northern Ireland. Low-powered air guns are those that generate not more than 12 foot-pounds of energy at the muzzle in the case of air rifles, or six foot-pounds in the case of air pistols. While such air weapons are subject to an extensive system of controls, they are not subject to licensing. It is now proposed in Clause 11 to devolve controls of low-powered air weapons to the Scottish Parliament. Controls of other classes of firearm, including high-powered air guns, will remain with the Westminster Parliament. There is little intimation of what controls are planned by the Scottish Government but it seems likely that additional restrictions will be imposed in Scotland, creating a different regime in one part of Great Britain.

The Gun Trade Association has estimated that around 4 million people in Great Britain own and use some 7 million air guns. In Scotland, around 700,000 people own approximately 1 million air guns. Between 150 million and 200 million air gun pellets are fired in Scotland each year. Air gun owners invest heavily in their guns and in accessories such as telescopic sights. The air gun industry has a turnover of around £750,000 per year in Scotland. There is, in addition, a considerable trade in both air guns and accessories with other parts of Great Britain.

Air guns are extensively used by responsible owners for legitimate reasons. Ten-metre air rifle and air pistol events for men and women will feature in the forthcoming Olympic Games, as they do in the Commonwealth Games, European games and other major international and national competitions. The starting point for all competitors in these events is the local shooting club, and the well-being of those clubs is the key to success at national and international level. Competitive air weapon shooting demands very high levels of fitness and, perhaps most of all, discipline. Air gun shooting is seen as very much a character-building sport by organisations such as the Scout movement.

Air weapons are extensively used to control pests such as rats, rabbits and some birds. In many rural communities those linked to agriculture see air weapons as essential tools in their work. Among the wider shooting community, air weapons are seen as a vital training tool, allowing mentors to instil high levels of skill, discipline and safety into newcomers to shooting sports, particularly youngsters. Most of today's sporting shooters made their start with an air weapon of some description.

Perhaps the most extensive use of air guns lies in informal shooting, with parents or elders teaching their youngsters to shoot in the privacy of their own garden. Shooting sports are a major source of income in Scotland. In 2006, a report to be found on the VisitScotland website shows that direct income from providing shooting for visitors is estimated at £80 million per annum, with two-thirds of that coming from outside the country. Many of those visiting Scotland to shoot will take along an air weapon so that they may supplement their sport on the deer by indulging in pest control and informal target shooting.

Like almost every instrument known to man, air weapons are misused. However, the evidence is that the misuse of air guns is very low and is susceptible to control by vigorous policing. At the most serious end of the spectrum, air weapons are very rarely involved in homicide. In England and Wales during the period 1983 to 2002, there was an average of 0.6 homicides per year in which an air gun was involved. In Scotland, from 1998 to 2005-06, the comparable number was 0.2 cases per annum. Comparative statistics work better with larger numbers. The number of offences for all classes in England and Wales in which air guns were involved during 2000-01 was 10,227 cases. The figure peaked at 13,822 in 2001-02. There was a slight and insignificant reduction in the following year, but a dramatic fall from 2004-05, which has been sustained to date.

In seeking an explanation for a halving of the number of offences in England and Wales, researchers have pointed to the Anti-social Behaviour Act 2003, which took effect in January 2004 and which created a simple and easily enforced provision in the case of someone having an air weapon in a public place, whether loaded or not, without a reasonable excuse. Other new controls included restricting selling by way of trade to registered firearms dealers and new age limits for acquisition and use. Linked with an extensive programme of education by shooting organisations, these have provided the police with the tools they need to control the problem without imposing major restrictions on legitimate users.

In Scotland the picture is a little different. In the 1990s, the number of air gun offence cases per year was around the 1,000 mark, but from 2000-01 to 2009-10 that number has been driven down to an average of about 500 cases per annum. Comparison with the figures for England and Wales shows that police in England and Wales have driven that number of cases down to a level comparable with that in Scotland. The indications are that continued police efforts in this field are capable of driving down this problem of air weapon abuse much further without the need for a new or different regime of control in one part of Great Britain.

All the evidence shows that the police have an ample range of powers to deal with the misuse of air guns and that the UK Government have been ready to consider the evidence and implement additional controls where appropriate. The result over the past two decades has been a halving of the number of reported offences, first in Scotland and then in England and Wales. Misuse of air guns has been consistently lower in Scotland than it has been in England and Wales, and no evidence is available to show that further restrictions would be beneficial to Scotland.

The absence of any detail about what the Scottish Parliament proposes in respect of air guns makes it impossible to understand what consequences will flow from this clause. There has been an indication, via press releases in 2008, that a proposal to license air guns in the same manner as rifles has been under consideration. It is understood that officials have liaised with the Irish Government about the licensing system there. The intention is to license only those people who use air guns for occupational and sporting uses. That implies a system akin to that for the current firearm certificate, which involves a great deal of police time and effort in inquiring about the nature of the use of the gun, the background of the individual, storage arrangements et cetera. Police in England and Wales have estimated the cost at £102 per certificate. The cost of the certificate may therefore exceed the value of the air gun in some cases. Less well disposed owners may simply decline to submit to this bureaucracy and there will be no mechanism for tracing them. No one in Scotland knows precisely how many air guns are currently in circulation and, more importantly, who has them.

The administrative burden of introducing an air gun licence will be enormous. There will be potential demand for 700,000 certificates, although the history of the gun control regime suggests that actual take-up will be far less-perhaps half a million, almost certainly decreasing with the passage of time. If the "good reason" requirement is imposed, many certificates will be refused, and the administrative burden of a refusal is much greater than that of a straightforward grant. There will be appeals to the courts with high costs involved.

There are currently about 50,000 shot gun certificates and 26,000 firearms certificates in Scotland. The overlap-those who hold both certificates-is not officially published but has been estimated at 17 per cent of shot gun certificates, being 8,500, making a total of 67,000 certificate holders. The added burden of air gun licensing on the police might initially increase the current burden on firearms licensing departments. With government cuts, they are losing staff right, left and centre, seven or eightfold.

Many Scots will be able to cross the border into England to purchase air guns and their accessories, and the nature of the border is such that no one will be any the wiser. Visitors from England may in ignorance continue to bring their guns with them, or they will require a visitor permit. Visitors involved in sporting shooting are most likely to leave their air guns at home, with loss of revenue to providers of the sport. Those competing in major national shooting events, such as the annual Scottish shooting meeting, will be seriously inconvenienced and will incur additional costs. Many are likely to restrict their efforts to events in England and opt out of the Scottish events. The problem will extend to events such as the Commonwealth Games, in which air gun events are mandatory. There will be considerable difficulties continuing with the major role of the air gun, which is training young shots in informal target shooting. The trade in air guns would be very hard hit by any such change and it seems highly likely that many suppliers, especially specialist suppliers, will simply go out of business.

Trade sources have calculated that, of the 5.1 million Scots, 700,000 own air guns, which is 137,000 air gun owners per million population. In Northern Ireland, 1.5 million people own 20,000 air guns, which is 13,000 air gun owners per million population. Thus, over a period of years, the imposition of an Irish system would eliminate 90 per cent of the law-abiding air gun users who apply for a licence, leaving about 70,000 as a long-term burden on the police-still a greater burden than that of administering the current firearm and shot gun certificate system, but a shadow of the present legitimate air gun owning population.

In conclusion, I look forward to tabling amendments in Committee.

10:12 pm
Photo of Baroness Kennedy of The Shaws

Baroness Kennedy of The Shaws (Labour)

My Lords, it will surprise none of your Lordships to hear that I am not going to speak about air guns.

I was very proud to be among those who championed devolution for many years as chair of Charter 88, and I was in this House to see the passage of the first Scotland Bill, which fundamentally altered the constitutional architecture of the United Kingdom. I endorse what was said by the noble Baroness, Lady Ramsay; it was a time of excitement and exhilaration for so many of us who had wanted it for so long. It was not about holding the Scottish nationalists at bay. For us, it was about strengthening democracy and letting people make decisions closer to home on matters that affect them directly. I think that the reforms have been a success and that the new Parliament has made a real difference to the lives of everyone in Scotland.

There has been a bit of an argument about who said that devolution was a process, not an event. Donald Dewar recognised that we would continue to see a transfer of power from the House of Commons to the Scottish Parliament as the new Parliament bedded down and gained the confidence of the people. I know that because he told me so. Like Donald Dewar, I am a strong believer in genuine devolution. I do not support independence, because I think that the unity of our island gives us greater sway in the world. I think that huge benefits come from our union, from our partnership of nations but, as in the best of contemporary marriages, I think that strength comes from recognition of the distinct identities of the partners-that they are complementary yet separate entities within a conjoined state.

Few modern women would want to go back to the marriage of old, where their status was second-class and survival depended on the good will of their man, without recognition of their huge contribution to the family and where their autonomy and ability to make choices on matters directly affecting them were profoundly constrained by their spouse. A modern marriage involves constant evolution. Donald Dewar always recognised that Scotland would have to have its own fiscal powers, and the first drafts of the devolved powers included fiscal powers. It is claimed that it was our then Chancellor who quashed those plans.

As my noble and learned friend Lord Davidson and the noble and learned Lord, Lord McCluskey, said, there are matters to resolve around the Supreme Court. I hope at some point in Committee to add my voice to those concerns and my belief that the Supreme Court plays an important role for our whole United Kingdom.

There is much that I support in the Bill. It accepts that greater financial powers should be devolved to the Scottish Parliament. I welcome that shift-in principle. I am rather tired of the talk of whinging Scotland. As has my noble friend Lady Ramsay, I have listened over the years to speakers in this House complain about the Barnett formula and the way in which Scotland has apparently benefited disproportionately from the Westminster grant. Nothing is ever said in those debates about the reciprocity involved: the benefits to the United Kingdom as a whole of the North Sea oil revenues over many years or the intellectual property brought to the United Kingdom by Scottish inventions from Watt to Macadam. We can name those great inventors, and they still exist in Scotland. We even gave you capitalism, for which you should still be paying us commission.

The Barnett formula has not been mentioned in the Bill. That causes me concern, too. It does not have to be mentioned because it is an administrative arrangement, but I suspect that it will be altered once the Bill is passed. It seems clear to me that it is an intention of Government to have a staged withdrawal of that grant. We should be clear, and there should be discussion in Committee, on what the implications of that are and whether increases in taxation are actually going to meet the default.

The people of Scotland want to see the functions of their Parliament strengthened. They want their Parliament to have greater fiscal responsibility so that it can be held accountable. They would accept the Calman proposition that the Scottish Parliament should not be there simply to divide up the block grant but that it should have fiscal accountability. Currently, the budget bears no relation to economic performance in Scotland. The Bill replaces the Scottish variable rate of income tax with a new Scottish rate that will be decided by the Scottish Parliament annually and applied consistently to the basic, higher and additional rates of tax.

Although there are other areas where the Scottish Parliament can make changes, the noble Lord, Lord Forsyth, told the House that Alex Salmond said that you cannot make an economy run on a narrow tax base. On other occasions, the noble Lord described it as,

"You can't play golf with just one club".

You cannot limit financial responsibility to income tax and stamp duty if you want to manage the economy. If the Scottish Parliament is to have responsibility, it must be responsible not just for varying tax but for its own economy. The noble Lord, Lord Forsyth, said that and I agree with him. Scotland has to be given the levers to grow its own economy, then it really can be self-reliant on taxation, otherwise Scots are going to suffer. That means that there have to be increased borrowing powers. We have already seen those in the Bill, but they are not adequate to the task. Nor, as my noble and learned friend Lord Davidson said, are they coming into force soon enough. The limited £500 million borrowing powers are allowed only if tax receipts fall short of those anticipated. That puts Scotland under pressure to make significant cuts should a shortfall arise.

What are the implications of that? Scotland should be allowed to say that it might choose a different route out of recession than the one selected by the current Westminster Administration. Many in the House are against the idea of Scotland being able to set its own corporation tax. That corporation tax and other fiscal matters have to be thrown into the mix if Scotland is to be able to choose a different set of priorities. I say this as someone who would like to see the harmonisation of taxation across Europe, but we are certainly not going to see that delivered by this Government. How can Westminster think of allowing Northern Ireland to set its own corporation tax but withhold such powers from the Scots? You cannot do that. Think of the feelings of inequity that that is going to create in Scotland. Think what that is going to mean in terms of adding to the numbers of those who will vote for the Scottish nationalist party.

The problem with this Bill is that it might create unintended consequences. It gives just enough tax powers to make the Scots parliamentarians more accountable, but not enough to enable a truly different set of economic choices.

Unlike the Scottish nationalist party, I do not believe that the people of Scotland as a whole want independence. What they want is a different visioning of their destiny from the one that is being offered by the coalition Government. They do not want the slash-and-burn approach to public services and the introduction of extortionate fees for a university education. They do not want sado-monetarism. They are revolted by the triumphalist language surrounding the cuts, where toughness is good and compassion is deemed pathetic. They find the current economic policies of Westminster morally repellent. They are revolted by the characterisation of the public sector as some kind of parasite, draining the wealth of the nation.

Scotland is a nation that has been built on respect for learning and public service. There is still huge admiration in Scotland for teachers, doctors and nurses, for academics and ministers of the churches. The Scots do not want the brand of global turbo-capitalism to which Westminster is so wedded, which sets itself up in hostile opposition to professional public service. They want something different. They want a modern mixed economy of private enterprise, creativity and public service, a mix of commercial success, social responsibility and civic engagement. They have turned to the Scottish nationalist party out of disdain for the three main political parties, disdain for the modern Conservative Party, disdain for the changes and shifts that the Liberal party has made, and disappointment that Labour failed to create a distinct social democratic model. They have watched the honourable, law abiding Adam Smith tradition of wealth generation being trashed, and have seen it give way to a system in which the big corporations and the bankers and the Murdochs of this world can suborn any elected Government with threats of taking their ball elsewhere; where the masters of the universe can get laws changed that in any way interfere with their super-profitability, and blackmail Governments into doing it all their way.

Well, it is not the Scottish way. This is not the model of capitalism that the Scottish people want. The deficit-cutting strategy of the coalition Government is not going to create growth in Scotland, and the Scots know it. It is going to bring higher unemployment and misery.

Around me on my own Benches-they are all absent because they are all down in the bar, I am sure-are the many who fear that giving greater powers to the Scottish Parliament will provide a gift to Alex Salmond, who will use increased borrowing powers to protect Scots public sector workers, maintain things such as free prescriptions, and increase his chances of winning a referendum on independence. Well, I think you are all underestimating the canniness of the Scottish electorate.

The Scottish nationalist party is not in government in Scotland because of the folly of devolution. It is not in government in Scotland because of some kind of peculiar election system. It is there because of the failure of the main political parties. And I am afraid it is there because of the folly of new Labour in failing to have a sufficiently social democratic agenda. If Labour wants to recover in Scotland-and I say this to my own party-it has to stop defending its romance with neoliberal economics. It has to stop canoodling with Thatcherism and revive its belief in equity and social justice. It has to embrace new models of enterprise fit for the 21st century, and provide Scotland's Parliament and people with the powers that they really need.

One day, I hope, we-Labour-will want to exercise those powers. The noble Lord, Lord Wigley, got it right when he said that the United Kingdom in its present form is not serving Scotland's needs, and we should take lessons from that. There is plenty of evidence that the people of Scotland want a stronger form of devolution. We now have a unique opportunity to reshape how that devolution works. Therefore, I welcome the Bill. I welcome the opportunity that it provides to us to strengthen and change it, and I hope that in its passage through this House it will become more empowering and more reflective of the concerns of the Scottish people.

10:25 pm
Photo of The Earl of Lindsay

The Earl of Lindsay (Conservative)

My Lords, I thank my noble and learned friend the Minister for introducing the Bill to the House. I declare an interest as a member of the Calman commission and, in doing so, I express my broad support for what the Bill intends to achieve and the opportunity that it provides for implementing the recommendations put forward by the Calman commission.

I have listened with care to the concerns and fears that a number of noble Lords have expressed about the fact that the landscape and circumstances have moved on since the Calman commission reported in 2009, as well as concerns that there may be unintended consequences from some of the Bill's provisions. The value of the process that the Bill will be subject to in this House is that we can both test those fears and test the robustness of the provisions that were rooted in the Calman recommendations in the light of modern circumstances.

Equally, I should like to caution noble Lords against seeing the proposals in the Bill purely from the political end of the telescope. Those of us who served on the Calman commission were struck by the extent to which there is a real appetite within civic Scotland for an increase in choice and responsibility and the extent to which there is a desire within the Scottish Parliament to serve the people of Scotland better. There is a real appetite for a Scottish Parliament that is more financially and fiscally accountable to the people of Scotland. Therefore, there is not just a political manifesto lying at the root of the provisions of the Bill; there is a real strength of view in non-political Scotland that these provisions will be good for Scotland, and the quality, quantity and diversity of the evidence that we took from civic Scotland underpinned that assertion.

The noble Lord, Lord Elder, made a brief reference to the process of the Calman commission, which helps to underline the point that I have just made. We sat for well over a year. We met almost weekly at times. We received a substantial amount of evidence in a variety of formats designed to engage with the widest possible range of views across Scotland. We sought views on everything that was raised with us and we also sought counterviews. We did that not once but twice in that the commission had a two-part process. We also sought independent expert advice as necessary, and we spent some considerable time understanding the experience of other countries with devolved Governments.

The sum of those efforts was that our report was shaped not by our own preconceived views or by the political mafia but by the sheer weight of evidence, submissions and advice that we received across the length and breadth of Scotland, and largely from civic Scotland. To further put the Calman commission report into a proper context, the report and recommendations were unanimously endorsed by all its members. The commission had a majority of non-political members from different parts of Scotland, as described by the Minister in his opening speech, and we shared a wide range of backgrounds. However, the endorsement of our recommendations was unanimous, and I take this opportunity to pay tribute to the deft and wise chairmanship of Sir Ken Calman.

Since the Calman commission formulated those recommendations, the proposals in this Bill have been further subject to scrutiny, amendment and improvement within the Scottish Parliament and in the other place, as well as by committees, as described by my noble friend, in your Lordships' House. I hope and believe that the proposals that we are looking at are going to deliver the benefits that we were tasked with securing when we set forth on the Calman commission remit. Ten years after the Scotland Act 1998, a review of how it worked and a revision of certain boundaries has been a sensible exercise. Queries raised by various Members about specific proposals in this Bill with respect to some of the changes in devolved or reserved matters can be studied in greater detail in Committee. It illustrates that there are boundaries between devolved and reserved powers which require continuing surveillance and discussion.

The improvement in the financial accountability of the Scottish Parliament is also going to be a beneficial step. The extent to which beyond the Scottish income tax it is able to raise new taxes, which my noble friend Lord Forsyth mentioned, is, I understand, subject to the approval of the United Kingdom Parliament, but perhaps my noble and learned friend might confirm that. The commission recognised the complexity of the recommendations for a Scottish income tax. We recognised the need to understand and anticipate the logistics, administration and operation of such a proposal before it came into effect. We recognised the need to avoid unintended consequences from the proposed Scottish income tax. We were categorical in our view that no such proposal should take effect until considerable time had been spent preparing and understanding the ground, and that that prior work should be followed by transitional arrangements when the Scottish income tax was introduced so that further teething problems could be properly dealt with.

The Scotland Bill takes forward the commission's recommendations that require primary legislation. These are set out in parts 3, 5 and 6 of the commission's report. I would like to draw the House's attention to part 4, entitled "Strengthening cooperation", as the commission saw the recommendations set out there as being of special relevance to the recommendations requiring primary legislation. Tonight's debate on the various proposals for legislative change, and some of the comments and concerns that noble Lords have expressed, further emphasise the importance of this part of the report in dealing with the relationships between Governments and Parliaments.

In paragraph 4.2, at the start of part 4 of the report, we state:

"Between the UK and Scottish Parliaments and Governments, issues regularly emerge that require discussion, co-ordination or joint action. On some occasions this may involve disagreements about policies or priorities. On others there may be broad political consensus but a need to ensure that joint interests are co-ordinated, information is properly shared, the impact of the choices at one level on the responsibilities of the other are recognised, or that different circumstances or institutional background are taken into account."

In paragraph 4.6 we make the point, and I paraphrase, that wherever there is a boundary between reserved and devolved powers and responsibilities, there is going to be a need for mechanisms to manage the issues that will arise around that boundary. Some of the topics of concern cited tonight range from speed limits to air rifles and energy policy. Wherever there is a division in responsibilities, powers and interests, there is a need for mechanisms that can ensure and manage discussion around that division.

We were firmly of the view that a vital element of the success of any devolutionary settlement is the strength of those relations, both formal and informal, between Governments, Parliaments, other democratic representatives and institutions of the state. This prompted us to look closely at how the arrangements for dialogue, collaboration and dispute resolution worked in practice and had worked since 1998 and whether they could be improved. In doing so, we also received extensive evidence on the widely seen need for Governments, officials and Parliaments to work together and, indeed, on the widely held expectation that, on behalf of the wider public good, such joint working and collaboration would be the norm, not the exception.

In respect of Government Ministers and officials, we considered and took evidence on a number of the mechanisms, such as the Sewel convention, the memorandum of understanding, the various departmental concordats and the joint ministerial committees. We also looked at inter-parliamentary relations. There, we found relatively few mechanisms to promote communication, dialogue, information exchange and even access between Members of the Westminster and Holyrood Parliaments. The evidence that we heard suggested that there is significant room for improvement and a need for more structured relations between parliamentarians and parliamentary committees in London and Scotland.

The general picture on cross-border co-operation was not without one or two brighter spots. We acknowledged that the two Governments can and have worked well together on some issues-for instance, on civil contingencies and in response to bio-security scares. We also recognised that there is a good example of the two Governments and two Parliaments working together regularly and effectively with what is known as the Sewel convention, which, as has been explained by various noble Lords, enables the UK Parliament to legislate for Scotland on devolved matters with the agreement of the Scottish Parliament. I regret that, overall, these examples were relatively few in number, and we were struck by how underdeveloped inter-governmental and inter-parliamentary arrangements are.

This was especially striking when looking at other countries where there are not dissimilar arrangements between sovereign and devolved levels of government. In other countries, these relationships tend to be much better organised, and they are seen as being a key ingredient of a resilient, flexible and successfully functioning devolved constitution.

We therefore came forward in part 4 with a series of recommendations to strengthen the degree, effectiveness and transparency of co-operation at all levels. In fact, of the 63 recommendations made in total by the Calman commission, over one-third of them-23 to be exact-dealt with strengthening co-operation, dialogue and collaboration. Noble Lords will be glad to hear that I shall not go through all 23 recommendations, but I shall give a flavour of one or two of them because they are relevant to the proposals in the Bill and to some of the fears and concerns expressed by noble Lords in relation to the Bill.

In regard to collaboration between Governments, Ministers and officials, our recommendations included reinvigorating and further developing the joint ministerial committee structure and network, making it subject to greater parliamentary scrutiny and transparency. Importantly, we want to see its remit developed so that its primary purpose is to champion and ensure close working and co-operation on joint interests, rather than merely being a dispute resolution of the last resort.

In regard to Parliaments, we made a number of recommendations. These included strengthening the Sewel convention and ending the United Kingdom Parliament's self-denying ordinance of not debating devolved matters as they affect Scotland. If we ended that self-denying ordinance, we would achieve some symmetry with the Holyrood Parliament, where there is no self-denying ordinance to prevent it discussing reserved matters. We recommended introducing a regular "state of Scotland" debate in another place, an initiative that we may want to consider in this House as well. We also recommended strengthening the existing mechanisms of both Parliaments for working together and communicating with each other, either in respect of the Sewel convention or on other matters.

We proposed that a standing joint liaison committee of the UK Parliament and Scottish Parliament be established to oversee the strengthening of inter-parliamentary relations and consider the establishment of subject-specific and ad hoc joint committees of the two Parliaments. Likewise, we proposed that committees of the United Kingdom and Scottish Parliaments should be able to choose to work together when appropriate and that any barriers should be removed in terms of reciprocal access, sharing information and evidence and holding joint evidence sessions. In recognition of the importance of the joint interaction between both Parliaments and Governments, we felt that both United Kingdom and Scottish Government Ministers should commit to respond positively to requests to appear before committees of the other's Parliament.

We brought forward a large number of considered recommendations in this section, covering other matters such as the conduct of inter-governmental ministerial meetings and Europe. Importantly, we felt that there should be ongoing UK parliamentary oversight and stewardship of the constitution by way of regular scrutiny of the shape and operation of the devolution settlement.

I raise this part of the Calman commission's report and its 23 recommendations in this evening's debate for good reason. The ability of different Governments and Parliaments to work together in a constructive and structured manner is a fundamental dynamic in the management of a series of divided and overlapping responsibilities and powers. The ability to manage and collaborate around the boundaries between reserved, devolved and overlapping interests has a bearing on all the proposals in the Bill.

I welcome the Bill. We need to test in Committee and on Report both its proposals and the concerns that have been expressed today. I would welcome an update from my noble and learned friend the Minister on the progress that is being made with the recommendations in part 4 of the commission's report, because it has underlying relevance to the Bill and to the whole constitutional relationship between Holyrood and London Governments and Parliaments. I would welcome information also on any other relevant plans or initiatives.

10:43 pm
Photo of Lord Soley

Lord Soley (Labour)

I strongly believe in the United Kingdom as an entity. It is one of the most effective political and economic unions that the world has ever seen. It virtually put an end over a relatively short period to the internecine warfare around the area. Importantly, it also launched Britain as the world's first industrialised, unified economic and political system, which produced great freedom under the rule of law. We should be proud of that and stand up and fight for it.

One of my regrets about today's debate is that the Government have chosen to put it all into one day. My noble friend Lord McAvoy pointed out that it would make people in Scotland feel that they have been pushed to the end of the day. Although they would be right to feel that, it is also the United Kingdom which has been pushed to the end of the day, because there would be many more speakers here from elsewhere in the United Kingdom-from England, Wales and Northern Ireland-if this had been a two-day, rather than a one-day, debate. That is a serious failing on the part of the Government.

I am also a strong believer in devolution. I think we got it broadly right and that the broad thrust of this Bill is right but I am worried about the development of the nationalistic agenda in Scotland. I have never really liked the push towards nationalism. One of the things that perhaps Alex Salmond needs to recognise is that if you wrap yourself in the flag of one part of the United Kingdom and suddenly start arguing that you can separate in some clean break into just two separate systems, you are forgetting that there are other parts of the system-Wales, Northern Ireland and England. I might add that the people of Shetland do not talk about Scottish oil. They talk about Shetland oil. I have just come back from a delightful holiday in Orkney. I counted in the first four days there no fewer than 14 Norwegian flags. If I was somebody representing Orkney or Shetland I would be insisting on a referendum in Scotland including a referendum on the future of Orkney and Shetland in Scotland. It is one of the reasons I make this point. The Minister will know the importance of the Orkney one.

One of the important points that has been made-I hope the Government will accept it-is that the referendum needs to be held, as I think the noble Lord, Lord Steel, said, under the Electoral Commission for the United Kingdom. It is completely wrong to leave it to the existing government of Scotland to develop the rules and regulations for an election that affects not just Scotland but the whole of the United Kingdom. We should also remind ourselves that in the settlement on Northern Ireland any referendum in Northern Ireland on its future also requires a referendum in the island of Ireland. There is a very strong case for saying that any referendum on any part of the United Kingdom breaking away ought also to be a referendum within the United Kingdom in much the same way we have agreed for Ireland. That has all sorts of dangers. I am not necessarily recommending it, but follow the logic. If you say one part can just break away the changes will be very significant and very dramatic and we should not go down that road. I actually think the Scottish people will be far too sensible to do that. At the end of the day there is not the will for that degree of independence.

I want to make another point about which I also feel very strongly. It is the idea that somehow or other on this island of just 60 million people, where for 1,000 years we have been mixing and interbreeding, you can suddenly come out and say that this person is English, that person is Scottish and that person is Welsh. I often get people saying to me, "You're English". I speak with an English accent. I was born in East London so you could say that makes me English. However, if you look at my background it is actually Welsh, Scottish and Northern Irish. What suddenly gives Alex Salmond or anyone else the right to tell me that I am English? If you ask me what I am I do not say English. I have never identified with England as an entity. I identify myself as British and for me that is important. It seems to me that I have a right to vote in a Scottish referendum if I regard myself as Scottish. I am in the process of looking for a house in Scotland. If I get one in time suddenly I will be Scottish and will be able to vote.

This sort of nonsense makes sense in a larger continental entity. If you are in a continent the size of Europe with 400 or 500 million people you can do this but in an island the size of Britain with four nations it does not make sense. I have strong objections to people telling me what my national identity ought to be. Much of my life has been spent in close connection with Scotland. In many ways, as my noble friends will know, the Scottish education system saved me. I left what by any definition was a failing school in East London aged 15 in the early 1950s. I was turned down even by Ruskin College, believe it or not, but I was accepted by Newbattle Abbey College near Edinburgh. I was accepted by Strathclyde University as an adult student even though I did not have the proper qualifications. I was even, I might add, accepted as a bus conductor on what used to be known as Alexander's Buses in Scotland where doing the Ruchazie, Castlemilk and Easterhouse runs on a Friday or a Saturday night required a great deal of nerve and the recognition that paying your fare on those nights was a voluntary activity, particularly when someone turned round to you and said, "What is a Sassenach doing taking my money off me?". This nationalism that has suddenly convinced Alex Salmond that he has some great national identity that he can give to the rest of us is profoundly wrong and profoundly dangerous. When national identities break up, they do not always break up neatly; they often splinter, and splintering is dangerous, which is why I mention this issue of where the referendum is really held-not because I recommend it but because I know that that can be the end of the road if you go down that line.

I would like to talk a bit about the tax issue that the noble Lord, Lord Forsyth, mentioned, but at this late hour it would be better if I did not. He is hitting on a very important point about the impact on the union at the end of the day and the similarities between the various parts of the union. One issue that we have yet to face up to-the noble Lord, Lord Sewel, touched on it-is that in a way the United Kingdom was the first invention of a type of federal system, but it was not and could not be a full federal system because, as he said, England is too big compared to the other parts. But we should consider the relationship between the Parliaments and institutions of the various parts of the United Kingdom. That touches on what the noble Earl, Lord Lindsay, said about the report, which again I would have liked to talk about more. We need to do much more work on that. It has often occurred to me that although I would not recommend that this second Chamber became simply a chamber for the regions of Britain, there is a way that we could use it on occasion for debates about the regions. That is particularly true if you develop devolution within England. The problem is that very often it is said that the Scots feel that they are governed by London and that everything is decided down here. You can have a similar conversation in Cornwall and in parts of the north of England. They feel that London dominates. If you look at the population of the United Kingdom, 25 million people are in that south-east corner bordered by Cambridge, Milton Keynes, Oxford and Southampton. Of course that area is going to dominate the rest-but that makes other people in further-out regions, not only Scotland, Wales and Northern Ireland but other parts of England, feel marginalised. I do not think that the answer to that is to have an English Parliament, but the devolution option is a real and sensible one. Then you would need to find ways in which to discuss the matters that affect all of us, which could be one of the roles-perhaps a limited role-of a second Chamber. It is something that we have never really looked at or thought about in any depth.

I want to end on this point. The United Kingdom is immensely important. If we risk breaking it up, it does not follow, as the SNP needs to understand, that it is going to be a nice, neat, clean split. It could be much more splintered and unpleasant than that, and it would certainly lead in my view to many problems that none of us need have. But to win that argument we need to think about the structures again. The noble Earl, Lord Lindsay, is right to spend some time on that. We need to think about the tax issue, because of the differences that that can create. Other noble Lords have mentioned things such as the educational grants and so on; all these things accentuate difference and play into divisions.

The United Kingdom is a very impressive asset for us. It is particularly suitable to an island of this size; we are not a continent but an island, and it is important to remember that. It is those structures that we ought to look at. I do say to the Government, "For heaven's sake, in future if you do constitutional Bills like this, don't think that it just relates to that part of the United Kingdom that we are talking about-it relates to all of us, and we all need to have a say on it".

10:54 pm
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Lord Stephen (Liberal Democrat)

My Lords, I begin by agreeing with my noble friend Lord Soley that the timing of this debate, given its self-evident importance, is less than ideal. However, there have been many very valuable contributions. It is perhaps worth starting with the summary given by my noble and learned friend Lord Wallace about the history of all this. This particular Bill and review all began back in 2007, immediately after the Scottish election that took place in that year. There was a sense that, after 10 years or so of its operation, we needed a full and serious review of the working of the Scottish Parliament and its effectiveness and the possibility of more powers for the Parliament. We needed to put in place what became the Calman review to achieve that.

It is important to underscore that the scale of this review has been extremely serious, significant and substantial. In my view, great credit should go to the noble Lord, Lord McConnell of Glenscorrodale, for helping to trigger the review. He had just fought a very close election campaign, essentially on a manifesto of no change to the powers of the Scottish Parliament, yet he took on the proposal to trigger this review. So too did the leader of the Scottish Conservatives-now their outgoing, and perhaps final, leader-Annabel Goldie. Not everyone in her party agrees with this review, as we have seen in the Chamber this evening, but she was prepared to put her reputation at stake and work with the Labour Party and the Liberal Democrats to trigger the review.

My position at that time, as leader of the Liberal Democrats in Scotland, was a far easier one, because, as noble Lords will be aware, the Liberal Democrats support home rule, a federal structure for the United Kingdom, greater powers for the Scottish Parliament and more decentralisation. My concern was that the whole thing would not go far enough and that it would not be substantial. To give one simple point of clarification, I should point out to the noble Lord, Lord Forsyth, that in establishing this review, we had to wait for the election of Wendy Alexander as the new Scottish Labour leader before finalising the commission, its membership and so on. The plans were already in place when she became party leader, and therefore her plans to support the referendum-to "bring it on", as noble Lords may recall, and as he referred to earlier-did not actually come until later in her leadership.

I would like to pay tribute particularly to Professor Sir Kenneth Calman, but also to the lay people-businesspeople and young people from across Scotland-as well as the senior party political figures who participated in the Calman review. I would also like to pay tribute to the noble and learned Lord, Lord Boyd, the noble Lords, Lord Elder and Lord Selkirk, and the noble Earl, Lord Lindsay, and particularly to the noble and learned Lord, Lord Wallace of Tankerness. I am delighted that he is now in charge of the Bill in this House. I think it should also be mentioned that there was one other political activist involved in all of this, Audrey Findlay. She deserves considerable credit, not least for her work alongside the noble and learned Lord, Lord Boyd, the noble Lords, Lord Elder and Lord Selkirk, the noble and learned Lord, Lord Wallace of Tankerness, and the noble Earl, Lord Lindsay. It was quite a task for her to be part of that heavyweight team.

It was hard and serious work, but we achieved unity. That involved compromise. It could have been simply tinkering at the edges-a polishing of what was achieved in 1998-and, at one point, I feared that it might be. Yet, in my view, the commission came up with a radical set of measures particularly in relation to taxation that went far beyond what we were told that the Treasury would live with when the review was first established. That is another point to emphasise: getting the UK Government to support the Calman commission, and getting the Treasury directly involved in the review, was difficult to achieve, but we got there in the end and they played a very important role in shaping the proposals that are now part of this Bill.

It is simply not tenable for any Parliament to receive a £30 billion cheque each year but have responsibility only for spending that money without having any role in raising a single penny. I tried to explain the system once to the Chinese Finance Minister during a visit to St Andrew's House in Edinburgh, probably just after a lunch with my noble friend Lord Steel as Presiding Officer down at the Parliament. After I had given the best explanation I could, he responded by saying "Ah, I understand now. It's very similar to the way we fund Tibet". At that point, I wondered whether the problem was my explanation or whether we perhaps had a fundamental problem with the system in Scotland. The Scottish Parliament was, and today still is, 100 per cent dependent on another Parliament for its funding. In my view, that is not sustainable and more powers to create a more buoyant tax base are required. Perhaps more powers than are in this Bill are required in time, but this remains a strong start.

For the Liberal Democrats all of this was, as I have mentioned, a natural progression building on our original commitment to home rule, our commitment to the Scottish Constitutional Convention, the progress through Parliament of the Bill which became the Scotland Act and then the excellent work of the Steel commission, chaired by my noble friend Lord Steel, in looking at how to create a stronger, more effective Scottish Parliament. This Bill is not only of great significance but has been progressed far more quickly than we might have imagined when the Calman commission was established. Having been thought of in the summer of 2007, the commission was established by the Scottish Parliament in December that year, with an interim report in 2008 and a huge volume of work done by the commission and its members in the period up to the final report in 2009, which was at the 10-year mark. It was then endorsed at a UK general election in 2010 and is moving forward into legislation in 2011. It has moved speedily-far more so than I originally anticipated-and has had a far greater impact on Scotland than the Scottish Government's "national conversation", which took place over the same period.

In my view, the UK remains too centralised. We have heard discussion tonight of some other nations. My noble friend Lord Maclennan mentioned Australia, in some parts of which 55 per cent of the tax base is raised at the state level. In some regions of Spain, 100 per cent of taxation is raised at the regional level. The USA, Canada and Germany-the list goes on-all raise substantial taxes at a federal or regional level and all have substantial devolved powers. Democracy can still work-indeed, can flourish-with systems of devolved administration and federal taxation. Wide, broadly-based tax-raising powers at local or regional level, in my view, give strength to democracy rather than undermine it. We need to see more of this in the United Kingdom. Some would argue that 33 per cent is not enough; my noble friend Lord Forsyth mentioned that. I have some sympathy with that view but this Bill is, I repeat, a substantial start and should be strongly supported.

Finally, at one point we thought the Calman proposals might settle things, perhaps for the following decade. However, in May this year that all changed so this Bill is neither the end nor the beginning of the end. A very big constitutional debate lies ahead. We are at an early stage in all of that but it is a profoundly important, historic stage in Scotland's future. There is a great responsibility on all of us who share the view that we should work powerfully together to prevent Scotland's separation and block independence. I believe it is impossible to overstate the importance of this. If we pull together as Liberal Democrat, Labour and Conservative representatives to activate everyone in Scotland who opposes independence-and there are many, I believe-the campaign can and should be won. These are defining times for our nation's future, and this Bill must act not just as a foundation but as a launch pad for a strong and effective cross-party campaign to keep Scotland as part of the United Kingdom.

11:05 pm
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Lord O'Neill of Clackmannan (Labour)

My Lords, the case for devolution has been quite adequately presented by the last speaker, in so far as the case for devolution is twofold: first, to stop separatism; and, secondly, to try to bring to the United Kingdom a degree of decentralisation, which our metro-centric country requires. The first attempt that we made at devolution was accepted by the Scottish people and by the Welsh people-by a smaller majority but now, I think, embraced by them-and was subsequently embraced by the people of Northern Ireland as well, but after a time we have to pause and reflect. It is fair to say that, after the 2007 election, not only did we pause and reflect in Scotland but we tried to find a means of stopping the progress of the SNP. The Calman report, and indeed this Bill in its embryonic form as it was in the Commons, has singularly failed to do that. It has failed because, frankly, to use an old Scots expression, it is "cauld kale het up". There are bits of this and that, but at the end of the day the whole is probably less than the sum of its parts. Probably our task here will be to try and bring some degree of importance and significance to it.

One of the problems that decentralisation in the United Kingdom has had is that we failed to decentralise anything in England. It has been fashionable this evening to agree now and again with the noble Lord, Lord Forsyth, about his remarks on taxation, but I would like to pay tribute to the noble Lord because nobody did more to pave the way for devolution in Scotland than he did by reforming Scottish local government into single-tier-and, I think, daft-authorities. Between the two of them-I know it would be wrong to deny his colleague a little praise as well-by creating single-tier local government in Scotland, they removed the biggest obstacle that many of us confronted when we were supporting devolution in 1978 and 1979. That is that, having had what we considered to be a most rational form of local government reform just introduced, we were then confronted by these councillors being extremely reluctant to give up what they considered to be quite important powers at that time. Given the manner in which the over-centralised Forsyth regime and the Lang administration-he also must claim some credit and blame for this-sought to reform Scottish local government, between the two of them these arch-unionists paved the way for Scottish devolution. I only wish that we had had, in the shape of my noble friend Lord Prescott, the then Labour Minister, someone with a wee bit more savvy about what local government involves and the-in many respects understandable-reluctance of local authorities to give up power, or as someone said, for turkeys to vote for Christmas. We are talking about decentralisation of Scottish powers but in a UK context, in which there is still a very overcentralised system of government within England. That makes a difficulty for us.

In a Second Reading debate like this, one only picks out bits and pieces of the process, but it is clear that if we are going to have some form of plebiscite on Scottish separatism it has to have a legal basis that will give it some form of legitimacy. It is therefore important that at some stage in our consideration of the Bill we look at amendments that state clearly that it is a reserved power of this place and that you do not break up the United Kingdom with some ragbag referendum organised by the SNP in Scotland. I put the matter in these rather dismissive terms because I do not trust that party to get the wording right, I do not think it will conduct a referendum in such a way that it will meet all the requirements of decent electoral law and I am not convinced that it will not try to hold it on an unsuitable date-although it certainly will not coincide with any Scottish sporting triumph.

It is unfortunate that many of us today were denied the opportunity to see Scotland win 1-0 in a historic victory over Lithuania. If the managers of this place had any sense of what we were doing, they would not have had this debate on a major sporting occasion of this character. I phoned up last week and was told that I was the 30th person to make an application to speak. If that fact was known to the Whips Office on Thursday and Friday, even the Nobel laureates who normally people whips offices might have been able to understand that this might be a rather long debate. At 11.10 at night, this is stretching the good will of a lot of people-not that I am worried about being late in the debate, but debates in this place should finish at 10 pm and we should come back the next day or we should start earlier and have the debates at appropriate times. That is as may be, though-we can return to that at our leisure in Committee and look at these matters in greater detail.

The Calman commission was very good about the powers and, after a fashion, about the tax-raising powers, but it did not look at the composition of the Scottish Parliament and it was indifferent to the constitutional changes that have quite correctly followed as a consequence of devolution. Scotland was overrepresented in the Westminster Parliament post 1707 because we gave up a Parliament to join the United Kingdom. The fact is that we have not seen any change in the number of Members of the Scottish Parliament-129 of them-regardless of the fact that there are now probably going to be only around 50 Scottish seats in the other place as a result of the dreadful piece of legislation that has been imposed on us in the form of the AV and constituency reorganisation Bill. There is no reason why we should not have coterminous seats for both Parliaments, with an appropriate reduction in the list system to accommodate the consequences of that. That is something that we could look at.

I had disagreements on this with my dear friend who is sitting next to me when she was Secretary of State. I have to say to my noble friend Lady Liddell that she was wrong then and now we have an opportunity to correct it. Frankly, the Scottish Parliament does not meet many days a week nor as often as we do. As far as I understand what the Members of that Parliament actually have to do, they do not deal with social security, taxation or the anxieties of people who have kids abroad in the Army. There are so many things that the Scottish Parliament is not responsible for that you wonder how its Members can fill in the days in the week that they are there-with some considerable difficulty, it would appear at times, because they do not do the job. Having been a longstanding chair of a committee in this place, which was served remarkably well by incredibly competent staff and produced extremely effective reports, I have looked at some of the reports coming out of the Scottish Parliament and they are akin to an elephant giving birth to a mouse; they seem to have the same gestation period and much the same output.

This Scottish Parliament that people say has been a great success has not increased the efficiency of the health service to any great extent, nor are we convinced that the quality of Scottish education is what we like to think it once was and what it should be in the future. There has been no Parliament that has had the resources of the Scottish Parliament, because of the Barnett formula, without any of the pain of raising taxes. Even with the powers of tax raising envisaged by the Calman report, it is frankly not very impressive. As a democratic socialist, I believe that the purpose of the tax system is not only to raise money to facilitate expenditure but also to improve social justice. Perhaps when we get to that point in Committee, we will see whether or not it is possible to vary the level of taxation within each band. We could, for example, have 50p plus 3p on the top grade, 2p on the second and perhaps leave the standard rate as it is so as to have a little bit of redistribution through the tax system. That is one of the purposes that some of us regard the tax system to have. I think that Calman was grossly deficient here. I realise, however, that when trying to get a committee to produce a consensual report, this is a consequence.

The noble Lord, Lord Forsyth, and I were never political friends but we were neighbours of a polite kind-we never looked into each other's gardens, but he had the constituency next to mine. However, the people who drive through Clackmannan and the bits of Stirlingshire that he did not represent certainly seem to have much the same attitude towards the taxation of motorists that I have encountered. Frankly, I do not think anybody is going to get greatly excited about speed limits and fining people. People are very irritated by these things: if it is more complicated when you go south of Berwick or north of Carlisle, then life becomes more complicated. I do not think that will give us any greater sense of national feeling or diminish our resentment or support for Westminster. When they were casting around for other bits and pieces to throw into the pot, they thought of this. That is one of the criticisms I have of Calman. I understand the task that he and the members had: they had to produce something but, ironically, it was too late and at the end of the day I do not think it is going to make a great deal of difference.

If we want to make a difference and if we want to do things better, we have to address the challenge of decentralisation. We have to look at the issue of social injustice, which, in view of all the resources that the Scottish Parliament has had, it has done precious little about, either under Labour or under alleged social democratic nationalist parties. There are things that we could still try to do in this respect, but I do not think they will necessarily come from an all-party consensual group such as Calman. I realise that there are advantages in having such a group every so often. This, however, is not a major constitutional change but a tinkering at the edges-a tweaking here and there. We will probably spend a disproportionate amount of time looking at it. I know the lawyers have already made a bid for the Supreme Court, which will take up a couple of days and one or two important votes. There will be all the other bits-the guns mob will be in, and Charlton Heston mark 2 will come across to tell us what to do.

At the end of the day, we have to take on the challenge of nationalism and separatism with a far more clear and consistent programme, whether it is one of right-wing conservatism or what I regard as the kind of sensible social democratic views to which many of us on these Benches subscribe. There are choices available to the Scottish people, but one thing that is quite clear is that changing the boundaries of our country will not solve any economic or social problems. The record of nationalism and separatism is very patchy when it comes to smooth transitions. We have seen what happened in the Czech Republic and Slovakia but, sadly, that is one of the rare exceptions.

In the present economic climate, with the difficulties that we have, I am not sure that we could necessarily achieve a major constitutional transition of the character that is envisaged by the separatists in the United Kingdom, particularly the Scottish separatists. Therefore, we have to find more effective ways of taking them on than this Bill. The Bill will, perhaps, make the Scottish Parliament a little more efficient, but it will not address the other challenge that devolution has to face-the challenge of separatism. We need far more good government, effective policy-making and proper advocacy of social and economic objectives. Those may well be different across this House but they would provide the Scottish people with choices, which, at the moment, the nationalists do not offer. The incompetence, in large measure, of the other parties has allowed the nationalists to have free run in these past months and has given them a majority that many of us resent bitterly, while recognising that it seems to be the will of an awful lot of Scottish people and that we must persuade them to the contrary.

11:22 pm
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The Earl of Caithness (Conservative)

My Lords, this Bill was introduced in the other place on 30 November last year, St Andrew's Day; 21 June is not quite such an auspicious day in Scotland but I guess that until today my noble and learned friend Lord Wallace will have remembered 21 June as the anniversary of the scuttling of the German fleet in Scapa Flow in 1919. From now on, I guess he will remember 21 June for the Scotland Bill.

Ironically, we might all be wasting our time in this debate if there is a referendum. Most of the provisions will not come into force until after the referendum might take place. Therefore, I support the cause that we ought to assert the constitutional duty of this Parliament to determine the timing and composition of the referendum.

This is a groundbreaking Bill, particularly on finance matters. As such, I welcome it. In the early and mid-18th century, the well used phrase in Ireland and the future USA was, "No taxation without representation". Three hundred years later, the call is for no representation without taxation. The UK has the most centralised tax system of any major economy, with just over 4 per cent of tax revenues being set and collected locally. That is basically council tax. Despite this, the current law gives the Scottish Executive and Parliament decision-making powers on 60 per cent of the spending that is identifiably Scottish. That is unjust and bad for democracy. The Scottish Executive has always been able to spend and ask for more money, without having to justify that to its electorate. That is an incentive to spend more, rather than spend effectively. The Scottish Executive has been rather good at that.

Things will be different for the future Scottish Government. Rather than the paltry 4 per cent of local revenue, they will be responsible for raising approximately 35 per cent of their revenue, with the remaining 65 per cent still coming from the UK block grant. That takes the ability to raise local taxes to a percentage level comparable to that of the USA, but still less than that of Canada. I should like to see that expected 35 per cent be even higher but I appreciate that there are many difficulties. Any transfer of taxation powers must not increase costs of administration to the point where the transfer is uneconomic and detrimental to business. I therefore ask my noble and learned friend Lord Wallace whether he can tell the House what further taxes are now being considered for transfer. What is the justification for the deduction of 10 percentage points of income tax? Why should it not be 15 per cent, which would give more accountability to the electorate in Scotland? Can there be a different basket of taxes that the Government can transfer to Scotland to give the accountability, but without causing some of the concerns that I will come to later?

Moreover, does my noble and learned friend agree that there is still a fundamental flaw to this Bill? The flaw is that it is based on the outdated existing financial settlement. Through the block grant, over the past 24 years Scotland has received approximately its share of North Sea oil revenues. Thus it has been financed as if it was independent but-this is the crucial point-it has not had to cope with the huge fluctuations in the price of oil. The Executive's spending programme has been cushioned from the marketplace and in times of low oil prices has been subsidised by the rest of the United Kingdom. Is it not time for the whole basis of the block grant to be changed to one of need and linked to the price of oil? That would encourage a future Scottish Government to be much more prudent than the ones that we have had to date and to spend more effectively. It would expose the country and the electorate to the realities of the real world and to the benefits that the union has brought to Scotland.

I listened carefully to the concerns raised by my noble friends Lord Forsyth, Lord Lang and Lord Sanderson. One of the concerns was population. How can one say that Scotland cannot raise 35 per cent of its revenue from its population? If one talked about that to people in Denmark, Finland or even outside the EU in New Zealand, they would be amazed, and the response would be a surprise to my noble friends.

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The Earl of Caithness (Conservative)

No. I did not interrupt my noble friend. The time is late and I want to get on. I have almost come to an end.

The present system of funding Scotland is broken. It is doing Scotland no good. The principle that a Government who spend money must be accountable for raising some or all of it is right. We must not flinch from that, but this Bill is surely one that should make it work.

11:27 pm
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Lord Maxton (Labour)

My Lords, when I saw what my position I was on the list of speakers, and recognising the lateness of the hour, I was tempted to start by saying that everything I want to say has already been said and that I will therefore not make a speech at all. However, I decided against it.

I have been a supporter of devolution for a long time. Throughout the whole of my parliamentary career I have campaigned for it. In fact, if noble Lords look back through history, they will find that my uncle, Jimmy Maxton, was one of the signatories to the 1924 Private Member's Home Rule Bill for Scotland, introduced by one Geordie Buchanan; so even the family history, let alone my own, is good on it. I have always supported devolution because it is part of the process of moving to a more democratic state, where decisions are taken by people at the appropriate level for them to be taken. Therefore devolution for Scotland was right. When my noble friend Lord O'Neill started attacking the noble Lords, Lord Forsyth and Lord Lang, I thought he was going to attack them because they did push the whole question of devolution forward.

During the 1980s, there was an increasing democratic deficit in Scotland whereby legislation could be introduced down here without having a majority of Members in Scotland. In fact, over the years, there was a decreasing number of Members in Scotland. Of course, the introduction of the poll tax, for which both noble Lords can take some responsibility, was probably the thing above all that pushed people in Scotland to accept that there had to be a better way of running their affairs in Scotland. Devolution did not start in the 1970s. Arguably, it was started in 1885 with the introduction of the office of Secretary of State. Bit by bit, over the years, there has been a gradual increase in the number of things that Scotland has been allowed to do-separate Scottish legislation, the Grand Committee, and the Grand Committee meeting throughout Scotland, which the noble Lord, Lord Forsyth, introduced. All that has been part and parcel of the process of increasing democracy.

When my late good friend Donald Dewar said that it was a process, not the end, I am sure he meant that it was part of a democratic process that had to go on. In Scotland, we have not shifted democracy further down to the levels where people ought to be taking more decisions-in their own societies and communities. Nationalism has stopped that. Nationalism has been the enemy of the democratic process, not its friend. That is not because the SNP is an undemocratic party-I believe that it believes in democracy. The problem has been that every time anyone suggests that there should be some form of change to the democratic process-more devolution, more powers to Scotland-the SNP says that this is yet one more step towards independence. That is wrong; we must not allow that. That is why, in my view, the SNP and nationalism have been the enemy of democracy. That has also stopped us saying that some things might be better done taken away from the Scottish Parliament and given back to the British Parliament or to the European Parliament. There is a whole broad band of things that we might look at, but we do not look at them properly or logically in a democratic way; we look at them in terms of how they relate to nationalism and the SNP's agenda. That is wrong.

Therefore, we ought to be doing three things. First, we ought to be arguing the case for the union as strongly as we can. My noble friend Lord McConnell of Glenscorrodale-I am the only person who knows where Glenscorrodale is and has been there-who is not in his place at present, was quite right when he listed the organisations that had to make the case. He missed one out, which is the most obvious. We must persuade the Scottish media to be prepared to listen to our arguments and not just those of the Scottish National Party. I wrote at least three letters to the Herald during the election campaign; the Herald refused to take them because it said that they were too political.

Noble Lords:

Oh!

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Lord Maxton (Labour)

Yes, quite. We have to get that case across. My first point is that we must make the case for the union, because there is a very good case to be made. Secondly, we must ask the SNP why it wants us to separate. What is the case for independence? If we look at history we see that various things divide people from people and make them say, "That is why we want to be separate". Language is one. We have the same language. Religion is another. Scotland may be divided by religion, but Scotland and England are not divided by religion. Another is difference over boundaries. There is no natural boundary between Scotland and England. I remember that when I used to go north as a child with my father and we crossed the Solway he used to say, "We are now in Scotland". If you drive that road now, you will see that the sign that says, "You are now in Scotland", is at least a mile and a half further up the road from the Solway, so even that is a movable feast. You could not set up a frontier or boundary between the two countries. There is no natural divide.

What divides us? History, which the SNP distorts the whole time. The SNP refers to Bannockburn as if somehow it was a great victory for the Scottish people and somehow makes Bonnie Prince Charlie into a great nationalist hero. If Bonnie Prince Charlie wanted to be the King of Scotland or to put his father on the throne in Scotland, he could have done it. Why did he march south into England and get defeated? He did not want the throne of Scotland but that of the United Kingdom. History is the one thing that possibly divides us-but only just. The other is sport.

My noble friend mentioned that he was at Hampden singing "Flower of Scotland". I have to beat him at that. I was at Murrayfield in 1990 when David Sole marched out and Scotland won the Grand Slam. We all sang "Flower of Scotland" and I was among them singing heartily. I accept that I was singing the words printed in the programme and did not know them off by heart, but I was singing them heartily. I support Scotland when it plays. I will also support the British team when it takes part in the Olympics next year. I even support Europe in the Ryder Cup. It depends on what the sporting occasion is as to where my support will lie.

There is no divide, so the SNP has to tell us why it wants us to split away from the rest of the United Kingdom. I am in some ways typical in this.

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Lord Wigley (Plaid Cymru)

The one area that the noble Lord has not touched on is the possible difference in social aspiration. England and London are overwhelmingly Conservative and Scotland is not. Is he happy that Scotland should be governed perennially by right-of-centre parties when his own country does not espouse those values?

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Lord Maxton (Labour)

Those may be the social aspirations in London but I am not at all convinced. Certainly in several elections recently, the Labour Party has had a clear majority of Members of Parliament from London. Equally, the social aspirations of the people of Manchester are very similar to those of the people of Glasgow, as are those of the people of Newcastle to those of the people of Edinburgh, Glasgow and elsewhere. Those are the aspirations of the urban working class as opposed to the rural working class. The aspirations of people from the highlands are different from those elsewhere.

The third thing that the SNP has to do is say what it means by "independence". If you look at its own Scottish National Party website, it still does not tell you what it means. I have always assumed that it wanted to establish-I will not use the word "separate" because I gather it objects to that-an independent nation state on its own, with its own social security system, army, ambassadorial services around the world, a taxation system that is totally separate from ours and a currency, unless it wishes to be in Europe when Europe will tell it that it has to adopt the euro. I always thought that that was what it meant. It now seems to want to fudge that. It is constantly fudging what independence means. To me, it is clear cut; that is what it means.

I do not know whether I, as someone who comes here and has a flat in London, will have an English passport or a Scottish one. Presumably, when you come from Scotland to England and it is a separate state, you will have to carry a passport. Some people say that that is how it is in Europe. I have to carry a passport if I go to France, Germany, Spain or Portugal-all parts of Europe. What is so different in that? Does it want that or does it just want devolution-max? No, it does not want that. Its own supporters hate the English so much that they want an independent, separate state. It is time that we demanded that the SNP tells us exactly what it wants an independent Scotland to be and what it means by that term. That is why, although I give the Bill a cautious welcome, I will consider some details at considerable length in Committee in the coming weeks.

11:40 pm
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Lord Lyell (Conservative)

My Lords, I start by thanking my noble and learned friend for his very clear exposition of this Bill at the outset. He and I, and maybe one or two others, are the only two who have attended virtually every second of this debate. Perhaps there is something in it, that the first Lord Lyell, my great-grandfather, was in fact the Member of Parliament for Orkney and Shetland for 15 years. So there is doubtless something in the breeding that makes hard men, and indeed my noble and learned friend might perhaps be one of those. I think he has done a super job, but he has not started yet: he has to wait until Committee stage comes, and then we shall have enormous fun.

I had a look at this Bill, and the first clause that crossed my mind, a clause which has been beautifully and eruditely covered in great detail by my noble friend Lord Shrewsbury, deals with airguns. I consulted the Tayside constabulary in Kirriemuir, and was told that in broad terms it was very pleased and quite happy with what was set out in the Bill. It seems that many of the airguns used in our neck of the woods are used legitimately in a very rural area. If indeed airguns are spreading and multiplying in urban areas in Scotland, no doubt my noble and learned friend will be able to take care of that, and we shall be able to make some arrangement.

I would turn fairly quickly towards the financial aspects of the Bill. I think that is is Clause 28 and further on. At the outset there have been notable contributions from the Liberal Democrat Benches. My noble friend Lord Forsyth was a marvellous opening bat, and we will come to him later. The Liberal Democrat Benches dealt very well and very effectively with a federal system. I think the noble Lord, Lord Steel, referred to what might be a federal tax system in the United Kingdom. I certainly call it a lopsided federal system. There might be a very good reason for this. It seems to me that what is set out in the tax-raising powers in the Bill, and indeed has been set out from the outset in all the aspects of devolution, in giving more powers to the Scottish Parliament. It is lopsided devolution, in that the tax measures that might be proposed for the Scottish Parliament will be in the nature of-if I take the Federal Republic of Germany-a state tax, whereas every other citizen of the United Kingdom, be they English, Welsh or from Northern Ireland, will be paying tax under a unitary system. Marvellous figures have been quoted: my noble friend Lord Caithness-was he Chancellor of the Duchy of Lancaster?-was a great financial expert in his previous expert incarnation, and he mentioned some percentages. The noble Baroness, Lady Liddell, will be able to explain the Australian system.

About 25 years ago I took a German course. It was very carefully explained to me that in Germany you pay tax to your Gemeinde, your local district. For every 100 euros of tax you pay, you know that 15 per cent-15 euros-are going to your Gemeinde. The 85 per cent is-or used to be-split, fifty-fifty, so that 42.5 per cent went to the federal government, 42.5 per cent went to your Land, your land government. That would be an exact replica of what we are discussing tonight, and what might come about in a federal system. It was another notable Member of your Lordships' House from the Liberal Benches, a former member of the Institute of Chartered Accountants in England and Wales, the noble Lord, Lord Sharman, who said to me, "If you want to look at systems of federal taxation that might be relevant to the Scotland Bill and what we are discussing now, first of all look at Germany, then look at Switzerland". I have been visiting Switzerland for 35 or 40 years, perhaps not entirely for purposes of tax, mainly for skiing. Indeed the noble Lord, Lord Forsyth, is a noted denizen of Lenzeheide, and he represented your Lordships at skiing, so he will have some idea of the breakdown of how you pay your federal tax, your local tax, and the other taxes. The main crux of the discussions we have had is on tax-we have looked at landfill tax and all the other taxes-but mainly it is income tax.

I am so pleased that the noble Lord, Lord Forsyth, is here. I am sorry that the noble and learned Lord, Lord Fraser, is not with us because the noble Lord, Lord Forsyth, and I are both Angus lads. I think that in the words of the Bill the closest connection he might have is with the lovely town of Arbroath. There is another Scot-also an Angus lad, from Arbroath-who 50 years ago put together a melody that is to be found in Rossini's opera "William Tell". It was originally called "William Wallace" but it was translated. The melody went via the Crimea to a pipe major in the Gordon Highlanders who prepared the wonderful melody that we marched to called "The Green Hills of Tyrol". About 50 years ago, this marvellous denizen of Arbroath and Angus put the melody on a disc. It went platinum and trillions of copies were sold. He was called the "Scottish Soldier" and I look at many of his words as a Scottish taxpayer. In the words of Mr Andy Stewart, he wandered far away. Indeed, he did, and we have heard a great deal about that tonight from the noble Lord, Lord Watson of Invergowrie.

However, there is something that worries me very much, as it does several of the expert groups. I declare a tiny and humble interest as a member of the Institute of Chartered Accountants of Scotland. The institute briefed me in 1998 on aspects of who would pay the Scottish tax and who would be classified as a Scottish taxpayer. It seems that not much has changed since then. I purloined volume 593 of your Lordships' Hansard report, which covers 6 October 1998. I made pretty well the same speech as I may be making in Committee about who would be a Scottish taxpayer. I received a wonderful, courteous briefing from the government spokesperson-the wonderful and very courteous noble Baroness, Lady Ramsay, who explained the matter quite vividly. If your Lordships glance at paragraph (4) at the top of page 24 of the Bill, they will find an exact description of what was in Section 75 of the 1998 Act concerning one's residence in Scotland as being on a boat or vessel. Earlier, we heard a dissertation about houseboats, rafts and other things, but what the noble Baroness was pointing out then-I think that it is a major flaw in the Bill-was a ferry. I recall the late Lord Dunleath asking what would be the tax status of people from Northern Ireland arriving on a ferry at Stranraer or Cairnryan. Certainly I was given to understand that even if a UK taxpayer from Northern Ireland never set foot on Scottish soil, because that ferry was tied up on Scottish land he would be deemed to be, and would be classified as, a Scottish taxpayer. That was set out by the noble Baroness in a very erudite fashion at col. 296 of volume 593, but even with her great humility and wonderful courtesy I do not think that she was entirely convinced. Indeed, the late Lord Mackay of Ardbrecknish was in no way convinced. However, I hope that we can move on from that and that my noble and learned friend will be able to take care of it.

I think that it was the noble Lord, Lord Sewel, who during that debate referred to lorry drivers. He had been the Minister taking care of it. In 1998, I referred to a firm in my own neck of the woods in Kirriemuir which employed 360 lorry drivers, 27 of whom had residences in Scotland, Therefore, straight off they were Scottish taxpayers. When you start looking at midnight at where you are with new Sections 80D, 80E and 80F under Clause 30 relating to Scottish taxpayers, you become just as confused as you were in 1998. You have to start totting up how many days you spend in Scotland or elsewhere. We have not moved on from there. Could my noble and learned friend take this on board, so that we can come back to it at greater length in Committee? I worry about how many other non-Scots are going to be classified as Scottish taxpayers. I am delighted to hear-I think that I heard that it has been confirmed-that the decision as to who will be a Scottish taxpayer, let alone a rate payer, will be taken not by the Scottish Parliament, though that may cause consternation and anger, but by Parliament here.

The transport firm found that up to 70 out of their 360 employees would easily be deemed Scottish taxpayers. They have homes in England and all other aspects of their lives, including paying tax, are in England too. But if they are to be classified as Scottish taxpayers, the din down in the other place will be something like the zoo at feeding time. I do not think that even with a three-line whip these tax measures will be pushed on to so-called Scottish taxpayers who do not live in and have nothing to do with Scotland, apart from the fact that for a certain hour at a certain time of the year they will be north of the border. I am grateful to my noble and learned friend for the details that he has provided, and I look forward with great relish to Committee, whenever it may come. I hope that it may be this year, not in 2012.

11:51 pm
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Baroness Liddell of Coatdyke (Labour)

Your Lordships can be reassured that I am not going to give a lengthy seminar on the Australian taxation system. At this late hour, I would not wish your Lordships to become overly excited. I thank the noble Lord, Lord Forsyth, and my noble friend Lord McAvoy for taking into account my plight. Scotland had to wait 115 years to have a woman Secretary of State, so having to wait seven hours to speak is not all that challenging.

As the only woman who has ever been Secretary of State for Scotland, perhaps I may give this House one piece of advice that previous male Secretaries of State could not give. You cannot be a little bit pregnant, just as you cannot be a little bit independent. Some of the recent debate that we have heard in Scotland, from the First Minister in particular, leads us to believe that he thinks that you can be a little bit independent, with the same monarchy, the same embassies, the same army, the same regiments. No. One of the valid points made by the noble Lord, Lord Steel, was that the Bill was intended as a fine-tuning of the devolution settlement.

There is a certain symmetry in our sitting here late at night. Prior to devolution a lot of Scottish legislation was done very late at night in the other place. Devolution is a modern word for what happened at the Act of Union and was re-emphasised with modern legislation and the establishment of the office of the Secretary of State. The noble Lords, Lord Forsyth and Lord Lang, presided over a department that covered the equivalent of 13 different UK government departments. That was the argument for devolution. The aim of this Bill is to fine-tune that. But as the noble Lord, Lord Forsyth, said, this Bill has missed its time. It was introduced when it was legitimate to look at ways by which we could improve devolution, make it more effective, and in particular deal with this issue of fiscal and financial accountability. Last May's election changed that. I was active in that election. I am sure that many Members of this House were very attentive in watching the Scottish media. All of us in this House have things to have answer for in not winning that election. But there is one thing of which I am certain. Separation was not part of the debate. I agree with the noble and learned Lord, Lord Boyd, who says that it is not enough to portray the negatives of separation. You must portray the positives of the United Kingdom.

I am a Scot who is proud to be British, and I am a Brit who is proud to be European. I am quite comfortable with having multiple identities. I believe that one of the key issues that we have to address in a mature manner is that the debate in Scotland is not about soft and cuddly words like independence but is about secession. As we look to the future and to the ramifications of what is in this Bill, we should look in detail at the elements of this Bill in relation to secession. There are certain things, particularly in relation to tax, on which we need some adequate costings. If we were to find ourselves negotiating a secession treaty-I do not believe that we will find ourselves in that situation, but it is a foolish person who does not plan ahead-would we want to have conceded so much in advance? Frankly, I want answers on some elements of this Bill.

In general, I support the Bill. In principle, I support the Bill. I had nothing to do with the Calman commission-I was in the colonies at that time, fortunately as a free person, not as a prisoner-but I can see the reasoning behind what Calman has come up with and is embodied in this Bill. However, there are many aspects of this Bill that require further thought, I have issues that I want to raise in Committee, and I have questions that I do not expect the Minister to reply to tonight. He is always most gracious in trying to answer people's questions. I want to flag up these questions because I want to refer to them in some detail in Committee.

The points on taxation made by the noble Lord, Lord Forsyth, are extremely valid. One of the key arguments around the 3 per cent variation on taxation in the second question in the first referendum was around how much would be raised. There are three elements in the development of any tax. The first is the amount of money that it will raise, the second is the cost of collecting it, and the third is the ability to avoid it. I am sorry that the noble Lord, Lord Sassoon, is not in his place, although I saw him in the Chamber earlier, as some of these issues are for the Treasury. I would like to know how HMRC proposes to manage the introduction of a separate variable rate of income tax in Scotland, the cost of transferring that, how the burden of collection will be shared and the level of avoidance anticipated. Many of us in this House are forced into having two dwellings-the point that the noble Lord, Lord Forsyth, made-so where are we liable to be taxed?

The other area I would like to cover is borrowing. Anyone who has been watching the bond markets in recent weeks knows that the issue of government borrowing is extremely fraught at the moment. We have seen the debate about the US AAA rating, and we have had huge debates about Greece and Italy and their credit ratings, and France and its credit ratings. What would Scotland's credit rating be, particularly when we take into account that RBS is headquartered in Scotland? What element of that comes into the computation of the interest rate in relation to Scottish bonds floated in the open market? These questions may seem esoteric, but they are not esoteric if we are considering a secession treaty. I ask the Minister to ask the Treasury to look at some of these issues.

The mechanics of bond issuing also have to be looked at. Are we going to have to replicate the Debt Management Office in Scotland? You get the impression that Scotland would just suddenly come along and say, "Oops, we want to have another hospital. Let's go and raise some money. Let's get it on hire purchase". It does not work like that. Government debt has to be managed, and we also have to know what would be the impact of putting the Scottish borrowing requirement alongside the United Kingdom borrowing requirement and what would be the projected or extrapolated rate of interest on UK bonds as a consequence of Scottish borrowing. I ask the Minister to give us some answers in due course.

The debate around the future of the Crown Estate is extremely complex, not least because there is a pressing need for considerable investment in wind and tidal energy. The Crown Estate will end up having to shoulder a fair amount of that. Where will it come from? Who is liable for it? The growth of wind and tidal energy requires the upgrading of the national grid, which is creaking at the moment, particularly in remote parts of Scotland. Where will the money come from to allow the national grid to be upgraded? To pay for that, is it likely that Scottish-generated electricity will have to be sold to England to raise revenues and that the Scottish consumer will therefore face a higher cost for electricity? I do not know the answer to that, but I would like somebody who is clever to go away and work out what it is.

We have had a fairly vituperative debate about the Supreme Court. Many of us in this Chamber have been around the houses a few times in Scotland. The level of debate there has always been quite robust, but we have seen it in recent months become increasingly personalised. I think that the appalling attacks on the noble and learned Lord, Lord Hope, in particular cause many of us distress and do Scotland's reputation no good. I dread the detail that we will have to go into because we will hear that kind of vilification again, but we must not desist from asking the questions. We have to ask the questions, and get the answers, as to what this model of secession will look like. This Bill is an opportunity to do that. I know that it will be some time before it comes back to the House in Committee. That is a positive thing, because it will give time for the work that needs to be done. No one dreamt at the beginning of this process that the Bill would be so pivotal to Scotland's constitutional future. It is understandable that some of the work has not been done but we cannot delay any longer. It is vital that we get a move-on in looking at some of these issues, particularly in relation to costing, accountability and who carries the burden.

My noble and learned friend Lord Boyd talked about the benefits of being part of the United Kingdom. I believe that the people of Scotland, whenever they confront the realities of being part of the United Kingdom, will recognise the strength that we get from it. We are told that the Scottish Government would seek to become a member of the European Union. One has to comply with certain rules before one can do that, and new accession countries have to become members of the eurozone. I wonder how many people in Scotland right now would like to have euros in their pockets rather than pounds sterling. These are issues that people are going to have to address.

My father was in the RAF. Most people in this House will have fathers, uncles or brothers who served in the forces. They did so because of the concept of a country that brought us all together. I entered politics not because I was concerned about the vulnerable in Scotland; I was concerned about the vulnerable throughout the United Kingdom. I see the challenges that we face in building a better Britain as a route to building a better Scotland. We should be self-confident enough now to know that we play a dominant role in the United Kingdom and long may that continue. The Minister always seems to get the thin end of the wedge and these long, rather complicated Bills. I think that the Bill will be a long time in Committee, but it will be one of the most vital things that we do in this term of this House.

12:04 am
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Viscount Younger of Leckie (Conservative)

My Lords, my lowly position in the batting order is mitigated by the pleasure I have in following the first lady Secretary of State for Scotland and indeed the questions she has raised.

I give my broad support to this Bill, with some key reservations, as I believe it presents a firm platform from which devolution for the Scottish people can be extended and enhanced but with some practical limitations. Its strength derives from two main sources. First, the detailed and well researched Calman report, with recommendations that underpin this Bill, has been approved and broadly acknowledged across the professional and academic diaspora in Scotland, in addition to the three main UK political parties. Secondly, the report and the Bill are clear cut as much for their recommendations for exclusion and for further devolution as for inclusion, following the debate in another place.

Further devolvement is both an expression of faith in, and hope for, the Scottish people in extending self-determination. However it remains an experiment because, as my noble and learned friend has said, the new powers represent the largest transfer of financial responsibility to Scotland since the union, but as yet there is no clear financial plan. With a reduction of part of the block grant as a quid pro quo for increased tax-raising powers to cover 35 per cent of the spending budget, there will have to be either a reduction in public services in Scotland, the major sector, or increased taxes, bearing in mind there are already free prescriptions, free elderly care and no tuition fees north of the border. However the experiment has some monitoring in place. The introduction of regular OBR forecasting for the first time in Scotland means there will be some transparency in observing progress on how receipts from revenues from all taxes match expenditure, or indeed not, and the reasons for this.

Transitional arrangements have considerable merit. The new borrowing powers proposed from 2015 for the Scottish Government at £2.7 billion are in excess of Calman's recommendations of £400 million more than the Scottish Government's total capital budget for the current spending review period. The decision to delay until 2015 the point at which the new tax powers can be exercised is pragmatic as the UK continues to tackle its enormous deficit-a protection required to manage tax volatility, but a hedge against a potential Scottish reduction in income tax, without the credible quid pro quo of corresponding public spending cuts or other tax rises. Other measures of interim support are welcomed and exceed the Calman proposals, such as the provision for payments into the Scottish cash reserve, the offer of cash pre-payments from this year to progress work on the new Forth crossing and the facility to borrow money by issuing bonds without the need for primary legislation.

The items that were included in the Calman report but rejected as unworkable have caused considerable debate in the other place. As the noble Baroness, Lady Ramsay of Cartvale, has mentioned, it has to be recognised that the devolvement of corporation tax-raising powers would likely create instability for Scotland. Assuming the Scottish Government lowered taxes, there is no convincing evidence to support the case that there would be a corresponding financial growth in businesses, particularly as those benefiting would be the banks and other major corporations and not the myriad small businesses, many of which pay no corporation tax. A reduction would cause a draw of businesses to north of the border, but over time this would likely be counteracted by market forces and a reduction of the English rate with a spiral downwards of the UK corporation tax rate as a whole. Sharp practices, including arbitrage and tax avoidance, would be encouraged to the detriment of the Exchequer. A further knock-on effect could be a rise in income tax in Scotland to counteract a decrease in corporation tax to balance the books, which would harm small businesses-surely from where one might expect economic growth to emerge.

On the question of excise duty, which has hardly been covered this evening, I agree with those who state that the issues surrounding the purchase and consumption of alcohol are complex and cannot be simplified to the basic principle whereby a rise in duty leads to reduced consumption.

On the assumption that a Scottish Government, given powers, would raise excise duty post-2015, as has proved the case with the land border between the Irish Republic and Northern Ireland, Scottish citizens would surely flock south of their border to purchase alcohol and other goods at the same time for convenience, thereby hurting Scottish outlets. It is widely recognised that complex social problems lie at the core of excessive drinking, not the unit price.

The Calman commission and the Bill have excluded from their deliberations the matter of the UK block grant, not revisited since the Callaghan years. However, we are at risk of creating in England a sourness-a word coined by the honourable Member for Birkenhead in the other place in relation to the Barnett formula-if we do not tackle now the unfairness of the Scots receiving 19 per cent more public money per head than the English. First, the block grant is inextricably linked to the Scottish fiscal and financial budget in aggregate and by department, and therefore a plan for reform should be included in this Bill. We should commence the lengthy process of analysis, research and renegotiation now and not delay to 2015 simply because of deficit distractions. I am convinced that Barnett 2 must be needs-based and take account of complex regional differences in addition to national variations. Although a costly process, the benefits will be seen in the longer term, not least to restore fairness and trust in the grant allocation process.

The Calman commission report was balanced, professional and non-political. However, there are important underlying political ramifications resulting from the contents of this Bill. This Bill is not a step towards full independence. The Scottish nationalists are unwise to push for further demands as reflected in their six main amendments moved in another place, not least because these demonstrate a degree of financial recklessness over prudence.

The Bill is a giant leap of faith, but the experiment does, crucially, still preserve the union. It is now critical that we advance and consolidate the arguments in favour of a continued union and, as my noble friend Lord Forsyth and the noble Lord, Lord McConnell, have highlighted this evening, be fully prepared legally and logistically should a referendum be called.

Those who through blind emotion seek full independence for Scotland should not forget the experience of Czechoslovakia, which has been raised this evening, which fought long and hard to gain independence from its Austrian rulers in 1918, only to find that there were too many differing nationalistic and ethnic factions, post-independence, for it to have a chance of working. It was rapidly an abject failure.

As the noble Lord, Lord Maxton, has pointed out already this evening, ultimately perhaps James VI of Scotland, later James I of England, a well-educated king, is to blame for raising Scottish hopes so high for self-determination and then abruptly abandoning the Scottish cause, with his court, when he succeeded to the English throne in 1603. This enduring Scottish national insecurity remains potentially financially dangerous for a country whose sum populace totals barely 8 per cent of the UK total, and indeed for Great Britain.

12:13 am
Photo of Lord Gordon of Strathblane

Lord Gordon of Strathblane (Labour)

My Lords, I thank the noble and learned Lord, Lord Wallace, for introducing the Bill and sitting so patiently through a very long debate. I am happy to report, as you will all notice, that we are in fact into the second day of the debate-it is just that we have not had a night's sleep in between.

Administrative devolution in Scotland is over 125 years old. The Scottish Office was set up in 1885. The change that we had in 1999 was to give democratic control over the administrative devolution, and this measure does very little in the way of increased powers, because so much was already devolved. It simply tries to ensure that the elected representatives of the Scottish people in the Scottish Parliament are more responsible for raising some of the money. All my instincts tell me that you will get better government if you make the politician who makes the promises also raise the money for it, be responsible for it and get the opprobrium from the electorate. My instincts would be to let them raise 100 per cent of the money and see whether they want to promise so much. We do not quite go that far-we have the figure of 35 per cent. In fact, I would be happy to go further.

I make one general observation about the Bill as it stands at the moment. If it is only going to be 35 per cent, I would much rather that it was 35 per cent that covered 100 per cent of expenditure in certain clear areas, so that there was clear responsibility and we knew who was responsible, rather than 35 per cent of all areas. Any decent politician, even if he has totally mismanaged his expenditure of his 35 per cent, will blame whatever has gone wrong on the lack of the 65 per cent, or its not being 70 per cent, and so the blaming of Westminster will still continue. It is an end to this blame culture that we have to try to get through in Scotland. As I said in a previous debate, the Scots enjoy blaming other people for their problems: if you can blame the English, you score double; if you can blame English Conservatives, you hit the jackpot.

I take the view that Scotland is already independent. It is entitled to be, and already is, in the sense that nobody is stopping us doing exactly what we want. We are a totally free country. If we decided next year to be a full, autonomous, independent country, the tanks would not roll up from Carlisle to stop us. We are an independent country; we simply chose to live in an economic union with our neighbour to the south. That union has endured, as has already been mentioned, for several hundred years and has been hugely beneficial to both parties. There would not have been such industrial growth in 19th century Scotland had it not been part of the British Empire. As has already been alluded to, the Scots did rather well out of the British Empire, sometimes in a rather unsavoury way. When we are talking about increased tax-raising powers for the Scottish Parliament, any objection to that is based not on issues of entitlement, but rather, I think, on whether it is imprudent, impracticable or would have unfortunate side effects.

Perhaps we should look at practicability first of all. It is very important to recognise that we have a land border with England. I would refer the noble Baroness, Lady Kennedy of the Shaws, to the experience of Northern Ireland and the Republic of Ireland: there was constant smuggling going one way or the other, depending on which economy was doing better at that moment. In my view, if there is a land border, there are three alternatives: either we leave the rate of excise duty, or whatever it might be, to be fixed at Westminster; or we devolve it, with the clear understanding that all the Scottish Parliament will do is mimic what Westminster does, but at least it is apparently deciding this for itself; or we create the possibility that the Scottish Parliament will choose a different route, in which case we have to be quite clear about how we are going to police that. Are we actually going to have a customs post at the border?

For example, the noble Viscount, Lord Younger, mentioned the possibility that Scotland might raise excise duty. That would be very acceptable to the medical profession, but the licensed trade would go out of business in Dumfries, as it has done in ferry ports on the south coast of England, and the M74 would have to be widened still further to cope with the traffic going down to pick up cheap booze south of the border. This is a very small island. People will vote with their feet and buy things where they are cheapest. You can impose whatever taxes you want; I will go elsewhere and buy those goods cheaper unless you physically stop me. A lot of taxation proposals will founder on this test, as it is simply not practicable to enforce them without a customs post at the border.

We must also consider the fact that, if we are not going to have a separate currency, passport controls or customs, there are severe limitations on what we can do differently from our near neighbour. That has led most people so far to think that we are much better off being part of that larger neighbour as a unit, so that we can at least influence the rates of taxation and the policies reached, rather than being outside it, and so simply having to copy our neighbour and imitate what it is doing.

There is another consideration which I think on grounds of prudence would give us pause before we introduced a different form, which is the question of Scotland's size and relatively sparse population. We are, after all, about 30 per cent of the UK land mass but only 10 per cent of the population or slightly less. That would make me, frankly, very worried about going it alone on anything involving transport, broadcasting, rolling out broadband or anything else. It stands to reason with those costs-the cost of broadband rollout, for example, would be a lot higher proportionately in Scotland than in London, which has two and a half times the population but could do it at a fraction of the cost.

There are other issues of unintended consequences. Reading the Scottish media during recent months, you get the impression that we are looking for a variation in the rates of corporation tax and income tax so that we can be lower than the rest of the UK and attract all the high-flyers. Who are we kidding? Scotland has a higher dependency on public services than any other part of the UK. If you raise less in taxation, you have less to spend on public services so that is another area where we have to be cautious.

All I really look for from this Bill is that, while nobody can say that anything is a final settlement, let us at least hope that it can be a stable one, because uncertainty is bad. My noble friend Lord Foulkes has already referred to things such as the green bank. Would any UK Government prudently site any UK activity in Scotland over the next few years? You might as well site it in Dublin. If it is going to be an independent country, you cannot take the chance and we are in danger of losing out on some things unless we get some certainty.

The final point I would make is that in many ways this debate is a bit unreal-and not just because it is well past my bedtime. The fact is that the real action is taking place offstage. This Bill is out of date; the sea change took place last May. I am well aware that, in the past, support for the SNP has fluctuated quite wildly and it may well do so again. I do not think that it is downhill all the way or anything like that, but it is a pity that there is no representation of the SNP in the House of Lords. I think that is the fault of the SNP and I would genuinely like to have heard its voice answering in the debate and explaining why some things that some of us have been saying are, in its view, wrong. I would be genuinely interested in that debate.

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Lord McConnell of Glenscorrodale (Labour)

Would the noble Lord want to comment on the fact that this whole debate, which has taken some several hours this evening, has been filled with speeches from Members on all sides who are here at the nomination of, or at least have a connection with, the political parties in the Chamber? In fact there was only one Cross-Bench speech, right at the beginning, from the noble and learned Lord, Lord McCluskey. Perhaps there is an issue being highlighted here about the geographical spread represented in the House by the Cross-Bench Peers-an issue that might be for the commission to look at in terms of future debates about Scotland in this House.

Photo of Lord Gordon of Strathblane

Lord Gordon of Strathblane (Labour)

I genuinely disagree with that observation. It is not a question of the overall representation of Scotland but the nature of the political representation. The SNP has chosen to set its face against the idea of anyone taking a seat in the House of Lords. That has disadvantages for the nationalists, because the honest truth is that they would get a fairer hearing in this Chamber than in any other because we are not up for re-election and running the risk of losing seats to them. That is a mistake.

My final plea would perhaps come from recognising that I know some quite sensible people in the SNP. I disagree with them but they are not madmen; they are people who immediately realised, with the huge majority that they got last May, "Hold on-this independence thing-what are we going to do?", so they have now dreamt up independence-lite. I fully accept the strictures that have been made already. They have not spelt out what it is, because the honest truth is I do not think that they know but they perhaps recognise that what might be traditionally thought to be independence is neither possible not desirable. We have to help them reach a conclusion which the rest of us would find acceptable. Independence-lite and devo-max, to use chattering-class lingo, are probably not all that far apart. I am quite happy to have a sensible dialogue with the SNP and listen to a reasoned case for further devolution of tax-raising powers. I do not think it possible but I am very happy to listen.

12:24 am
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Lord Browne of Ladyton (Labour)

My Lords, I am delighted to stand at this Dispatch Box for the first time, with the sound of the words of my noble friend Lord Gordon ringing in my head. He has treated us to 10 minutes of quite profound common sense.

I think I can reassure my noble friend-I am sure that the noble and learned Lord the Advocate-General will support me in this-and, indeed, the noble Viscount, Lord Younger, that there is no possibility of the Bill leaving this House with excise duty powers transferred to the Scottish Parliament or indeed any taxation powers that would contravene or raise the sorts of problems and concerns that have been identified. We can, at least at the beginning of this summing up, reassure Members of the House that that is not a possibility, though it may be part of the debate that we have.

When I agreed to do this, I had not imagined that I would make my maiden speech at the Dispatch Box at this time in the morning. However, it has been a privilege to be here. It is traditional to say that we have had a varied and informed debate when one is in this position, but it has genuinely been a privilege to listen to this debate. I regret that we were denied the forensic flourishes of the noble and learned Lord, Lord McCluskey, which I was looking forward to hearing, and I regret that my noble friend Lady Liddell could not be tempted to give us a deep and serious explanation of the Australian tax system. Despite that, there have been a number of very valuable contributions from all sides of the House. The depth and range of experience contained within this place in relation to Scotland is impressive and it has been reflected in the quality of this debate. Indeed, we heard from voices beyond Scotland. The noble Lord, Lord Wigley, and my noble friends Lord Morgan and Lord Soley contributed to the debate. I share the regrets expressed by the noble Baroness, Lady Linklater of Butterstone, that there was a lack of English voices here. I hope that the absence of those English voices was to leave room for the Scots, because there were so many that wished to contribute and we were restricted in the time that we had. However, I suspect that that is not the whole of the explanation. The issues we have been debating affect not just Scotland but the United Kingdom quite profoundly and they will not be resolved with the certainty and stability that many noble Lords crave unless there is a significant and informed contribution from the rest of the United Kingdom to try to settle them. I will come back to that in a moment.

Before moving on, I would like personally to express my gratitude to the noble Baroness, Lady Linklater of Butterstone, for her words of approval and support, giving credit to Donald Dewar, whom I had the privilege to serve as Parliamentary Private Secretary at just about-though not all of-the time that the Scotland Bill was passing through the other place. His name has been mentioned occasionally in this debate, but I know that there is a sense and knowledge around this House of the contribution that he made to the modern Scotland. It is a matter of great regret that he died prematurely and was not able to make the contribution that we all know he would have continued to make for many years, in Scotland and beyond.

I thank the noble and learned Lord the Advocate-General for his introductory remarks. This is not an easy Bill to make a Second Reading speech about, in a way that captures and retains the audience, but he introduced the comprehensive nature and complexity of the Bill well, and set the scene for the debate. I want to take this opportunity to thank him personally for the gracious and helpful way in which he and his fellow Ministers in the Scotland Office have extended the help of their Bill team to me, and to other members of our Front Bench, in order that we can be assisted in understanding some of the complexity of this legislation. We have had but a small reflection of that complexity in the debate that we have had tonight and it will unfold over the days of the Committee stage. That sense of continuing co-operation is characteristic of the whole process that started, as we have heard from noble Lords, in 2007. The process has been co-operative and transparent, with the discussion and testing of these issues through the Calman process and thereafter through the White Paper and the other documents, discussions and consultations. I am grateful to the noble and learned Lord.

Today he has heard speeches of support from all sides of the House, with one or two minor exceptions. In a sense, the tone of the debate has been summed up by the contribution of the noble Viscount, Lord Younger of Leckie, in which he gave qualified support to this legislation. I sense that there is quite a lot of qualified support around the House. That is a perfectly healthy position for a piece of legislation of this nature; it requires to be tested, teased out, explained and understood, but I am certain that the House will be persuaded to support it and send it back to the other place in substantially the same form as we received it. There are reasons why it might be important to do that, although we can have other debates.

The Opposition's intention is to support the Bill, but we will of course scrutinise and review its contents in as much detail as necessary and, when appropriate, table amendments that we believe will enhance the Bill for the benefit of the people of Scotland. I gently chide the noble Earl, Lord Mar and Kellie. I understand his desperation to find something that he can claim as a Lib Dem contribution to the success of the Government, but he cannot have this Bill. As noble Lords have made clear from all sides of the House, this process, which started as an initiative of the Scottish Parliament on 6 December 2007, is owned by all of the devolution parties of this House-although not all the members of those parties. I see the noble Lord, Lord Forsyth of Drumlean, moving his head in a particular direction; it is not supportive of the remarks that I am making, and I understand that. The initiative was born in another time and we are now having to deal with it in changed circumstances, but that does not mean we should not make the best of this process to make a contribution to the ends that we see for the Scottish people.

With regard to the way in which Scotland is governed, it is important that we see this as a progressive step, or a series of progressive steps, to the opportunities that the Scottish Parliament has to govern for the benefit of the Scottish people. I hope that we will approach our debates in Committee by testing the legislation and asking all the difficult questions that we have heard rehearsed today and more, but always with a view to trying to make our contributions pass the test that my noble friend Lord McConnell posed for us-that is, "Is this for the benefit for the people of Scotland and, more broadly, will it be for the benefit of the United Kingdom?".

There was support for the Calman process. Indeed, there was support for an independent review of the powers of the Scottish Parliament from all but one of the parties in the Scottish Parliament. I was Secretary of State for Scotland at the time when the Calman commission was set up and this report was commissioned. The commission's terms of reference, to which a number of noble Lords referred, were the responsibility of the UK Government, particularly in consultation with the other devolution parties. It is no criticism of the Calman commission that it may or may not have done certain things. It did the job that it was asked to do and it did it in an exhaustive, painstaking, positive and engaging way. We have heard from the noble and learned Lord the Advocate-General, the noble Lords, Lord Selkirk, Lord Elder and Lord Stephen, my noble friend Lord Boyd of Duncansby and the noble Earl, Lord Lindsay, about the care and detail that have gone into the process. I commend the Calman commission report to all Members of the House. Indeed, I also commend the report of the expert group which informed the decisions relating to financial provisions. Many of the questions asked about why decisions were made, why certain percentages are favoured rather than others, or where the evidence was to support certain conclusions, are contained in a very accessible form, both in the report of the Calman commission and in the evidence of the expert group. There are additional documents that have been published in the processes that had led to this Bill, and they also inform the debate, but I commend those two reports. I recognise that the commission was instructed in a different set of circumstances and it would be unrealistic not to admit that the decision of the Scottish Parliament and the election of May last year have changed those circumstances significantly. However, it does not follow from that that these recommendations or this legislation are irrelevant to the future of the Scottish people.

As regards scrutiny of these provisions, I share the concerns expressed by my noble friends Lord McAvoy, Lord Foulkes and Lord Soley, and by the noble Lord, Lord Forsyth of Drumlean, that this debate appears to have been pushed to the end of the day. It will be presented and perceived by some as having pushed Scotland to the end of the day and to the back of the minds of the Members of this House and this Parliament. Of course, those people will not have taken the trouble to consider the terms of the debate, the knowledge that has been revealed, or the level of scrutiny that is being applied to this legislation even at this early stage. It is a pity that this was done, and as my noble friend Lord O'Neill points out, on a day that Scotland's football team played and won; this is perhaps the ultimate offence to the Scottish people. I trust that for a Bill of this importance we will not see a repeat of what happened in the other place when insufficient notice was given of quite significant changes to the Bill before Third Reading to allow them to be properly debated. I am sure I will be reassured by the noble and learned Lord, Lord Wallace, when he concludes the debate this evening, that this will not be the case.

I am pleased the Committee stage will take place when the maximum amount of information is available on how these provisions will be implemented, in particular the taxation provisions. I understand that at least two bodies in government are looking in more detail at the implementation and are resolving some of the issues that have been raised, such as the definition of a Scottish taxpayer. I think there is a joint Treasury or Exchequer group of some description and there is a high-level group of some description. I hope that in winding up the Minister will indicate exactly what stage these groups are so that we can judge whether there will be sufficient time to absorb their conclusions and to incorporate them into a debate. For a start, I would like to know if these two committees that have been set up have actually met, and if they have met, what their role is.

We devoted some time, though not an inordinate amount, to the issue of referendums. We have heard calls, variously, for a referendum on the implementation of these tax powers and for a debate on the provisions that are necessary for a referendum on the separation of Scotland from the United Kingdom. Indeed, at one stage we heard a contribution about the possible combination of these two referendums.

I look forward to the promised amendments from my noble friend Lord Foulkes of Cumnock and, perhaps, the noble Lord, Lord Forsyth of Drumlean, and others in relation to these issues so that we can tease out the necessary matters. When my noble and learned friend Lord Davidson of Glen Clova introduced the Opposition's position on the Bill at the beginning of this debate, he indicated an interest in the legal issues associated with such a challenge. There is an important debate to be had. It will be a debate worth having, provided it is focused on the arguments for a 21st century Scotland within the United Kingdom.

I am conscious of the time but I want to make this point: it is very important that Members of this House pay significant attention to the speech that was made at Second Reading by my noble friend Lord McConnell of Glenscorrodale. There are Members of this House who have held office in both the Government here and the Government of Scotland, as we shall come to call it properly and legally when the Bill is enacted. However, my noble friend Lord McConnell is the longest serving Scottish First Minister. He has served in government with Members of this House and has significant experience and knowledge of Scotland. He exhorted us to approach this from the point of view of what is best for the people of Scotland. He exhorted us, in the context of the challenges that we face and the ambitions that we have, to retain the union; to provide the best for the people of Scotland in that diverse union; and to do so in the context of an argument that shows Scotland's position in a diverse, modern United Kingdom, and that it is best for Scotland and the United Kingdom if it stays there.

I as much as anybody enjoy the cut and thrust of politics-taking on one's opponents directly and attacking them-both in Scotland and in the United Kingdom. However, the message of the Scottish Parliament election in 2007 was that the Scottish people are no longer responding as they once did to that type of politics in Scotland. There are those of us who believe in the union and devolution, in the social and economic union that is the United Kingdom, and in all the positive things that were described in a generic sense in contributions from across the House. Those of us who believe in all those things need to develop a narrative that sets them in a modern 21st century Scotland so that we engage with the Scottish people in a way that says, "We have a message for your future". It should not just be a message that stops with, "Certain people are doing something with the constitution of your country that we do not think is in its best interests".

We have the beginnings of such an argument. We have heard it set out in parts of this debate in contributions from all sides of the House. It is as incumbent on those of us who believe in devolution and that Scotland's future lies within the United Kingdom to spend time developing those arguments in the context of the Bill and its powers, no matter how challenging that might be, as it is incumbent on us to point out the errors and flaws in the approach of the party that wants to separate Scotland from the United Kingdom. It is only if we get that combination right that we will succeed in what we seek to do for the future of Scotland.

I intend now to wind up, and I apologise to all who have contributed to this debate in such an informed, witty, entertaining and engaging way. There has been insufficient time today, but we will have plenty of time in Committee to go back and pick up on some of these issues, and to attribute to those who have made a contribution to the debate the rightful acknowledgement that they deserve. Whatever one's view of devolution, the Scottish Parliament has become a permanent fixture in Scottish political and civic life. It is here to stay. Secondly, Calman has done us a great favour in spelling out why this is the case. Devolution has been good for Scotland and is settled with the Scottish people. The cross-party consensus in Scotland, with the depressing and repeated exception of the SNP for some alleged reason of principle that it abandons when it suits it and picks up again when it does not, has been sustained over last year's election and will continue throughout the passage of this Bill.

We on this side of the House will of course carefully scrutinise this Bill as the tenor of today's debate reveals that there are a number of very difficult questions that need to be asked and, more importantly, need to be answered. Your Lordships' House is rightly respected for its approach to the scrutiny and review of legislation, and that approach will continue for this legislation. In Committee we will look closely at the individual clauses. We will pick them apart and put them back together again, and we will explore what further measures can be added to this Bill for the benefit of the people of Scotland. On this side of the House, the test that we will apply to each and every clause, as set out by the Scottish Parliament when it initiated this process in 2007, is: does it enable the Scottish Parliament to serve the people of Scotland better, to improve the financial accountability of the Scottish Parliament, and to continue to secure the position of Scotland within the United Kingdom? It is on this basis that we support the Scotland Bill and we look forward to debating it further in the coming months

12:46 am
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Lord Wallace of Tankerness (Liberal Democrat)

My Lords, first I welcome and congratulate the noble Lord, Lord Browne of Ladyton, on his maiden speech from the Dispatch Box. He has had a very distinguished ministerial career in the other place and I am sure that the House looks forward to hearing him further from the Dispatch Box, not least in the many hours in Committee that have been clearly flagged up during our deliberations-and quite properly. As I indicated in my opening remarks, a number of contributors to this debate have said that this Bill should be properly scrutinised, as was the original Scotland Bill back in 1998.

I believe that we have had a very well informed, worthwhile debate. Noble Lords have contributed with great passion but with great knowledge, bringing to bear expertise in many different ways, having been informed by their experience of civic life in Scotland and, in the case of the noble Lords, Lord Wigley, Lord Morgan and Lord Soley, in Wales and England. They have all made a contribution as part of the United Kingdom and Members of this Parliament in the United Kingdom and have brought their experience to bear.

The general tenor has been one of welcome for the Bill, albeit with varying degrees of enthusiasm. My noble friend Lord Mar and Kellie described it as a mild measure. The noble Lord, Lord Elder, said that he fundamentally and enthusiastically embraced it. In between those views there has been qualified welcome, and, I think quite properly, people have put down markers as to where they wish to examine these provisions further. Like the noble Lord, Lord Browne, I find it impossible to pick up all the points that have been made. I think there will be time in Committee to develop some of them if I do not get the opportunity this evening.

However, I disagree with my noble friend Lord Lang, who saw this Bill as an admission of failure, following on from the failure of the 1998 Act, as he alleged. The findings of the Calman commission, as I think my noble friend Lord Selkirk of Douglas indicated, was that the Scottish Parliament was overwhelmingly judged a success. Clearly some people would not have wished us to go down that road. We do not have a parallel universe so we cannot work out what would have happened if the Labour Government, having come to power in 1997, had said, "We are not actually going to do any of the things that we have done, and we are not going to have a Scottish Parliament". For my view, I suspect that it would have hastened the day when we would have had an even greater upsurge of the SNP if the promises made prior to 1997 had been broken. We do not know; we have a Parliament in Scotland. As has been said, it is part of the scene. It has been generally supported by the people of Scotland. In the Bill, we have set out to build on the foundations laid and improve our Parliament.

I turn to some of the specific points raised. The noble Lord, Lord Sewel, and my noble friend the Duke of Montrose raised the question of the Sewel convention. The passage of the Bill through your Lordships' House may be interesting if we have the noble Lord, Lord Sewel, talking about whether the Sewel convention should apply and in Committee the noble Lord, Lord Barnett, discussing whether the Barnett formula should apply. That would be novel.

The devolution guidance note established by the previous Government and adhered to since 1999 has been supported and endorsed by the present Government. It states that legislative consent Motions apply in three cases: where we are legislating on devolved matters; to amend powers of the Scottish Parliament; or to amend the powers of Scottish Ministers. I would be more than happy to make available devolution guidance note 10, which sets all that out. No doubt the noble Lord, Lord Sewel, will be more than familiar with the various provisions in the Scotland Act that allow powers to be transferred. In a number of those circumstances, that would have to be approved by the Scottish Parliament as well as by both Houses of this Parliament. Where that is done by other primary legislation, it seems right, and it was thought right in 1999, in the spirit of the convention, that if there is no order-if it is being done by primary legislation-there should be a legislative consent Motion.

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Lord Sewel (Labour)

Do I take it from that that if, ultimately, the Scottish Parliament decides that it does not accept the proposals, the Government would not proceed with them?

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Lord Wallace of Tankerness (Liberal Democrat)

That is a highly hypothetical question. The Scottish Parliament has already approved the proposals by 121 votes to three. It remains to be seen what the committee of the new Parliament will do with any amendments, but the Scottish Parliament has already approved the proposals.

With regard to the specific powers on the boundary between devolved and reserved matters, I know that there has been comment that the Bill does not contain a substantial number of powers. As I said earlier, that is probably a reflection of the fact that the balance struck and judgments made in the initial Scotland Act were basically right, but we should not belittle or minimise the changes being made. They have been well thought through. In the case of Antarctica, there was clearly an oversight, but that is not an academic argument-well, in some respects it is an academic argument because if anyone wishes to undertake research in Antarctica, they require a permit or licence, and I am sure that Scottish academic institutions will wish to do so. It is only right that we ensure that the proper regime is in place for them to do so with certainty.

My noble friend Lord Shrewsbury asked about air weapons. The question here is not so much about the devolution of the power; some of his points reflected the fact that the Calman commission did not go beyond air weapons because the advantage of having a common system for other firearms throughout Great Britain was well understood. Many of the issues he raised are not so much about the devolution of the power but how the power might be used by the Scottish Parliament. Clearly, we will come back to that in Committee, and I look forward to looking at that in greater detail.

My noble friend Lord Forsyth suggested that we should not get too excited about a change to drink-driving. He might want to note the evidence provided by the Association of Chief Police Officers in Scotland to the Scotland Bill Committee of the Scottish Parliament. It stated that ACPOS welcomes the proposals contained in the Bill relating to drink-drive limits, which it would consider a step towards helping save lives and preventing serious injury on Scotland's roads. That is not a trivial matter at all. It is an important point. If, by exercising the power, the Scottish Parliament is able to pass legislation that would have that positive effect, then we welcome it.

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Lord Forsyth of Drumlean (Conservative)

Is that not rather anticipating that the Scottish Parliament would choose to reduce the level rather than to increase it? Is that not a gross assumption?

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Lord Wallace of Tankerness (Liberal Democrat)

The indications that have been given to us by those pressing the case for the change are that, to address the serious problems of alcohol misuse in Scotland, it was more likely that the level would be reduced rather than increased. I take the point that that could be a presumption but it is one that is fairly well based.

The noble and learned Lords, Lord McCluskey and Lord Boyd of Duncansby, and the noble Baroness, Lady Kennedy, all mentioned Clause 17 and the role of the Lord Advocate. Whatever differences there might be in terms of the detail of that particular clause, there was a general agreement that issues relating to convention rights and European Union law should ultimately be litigated in the Supreme Court. That is certainly the conclusion of the expert group, which was set up under Sir David Edward's chairmanship. Clearly, there will be an opportunity to go into the detail of how that will work in Committee.

The noble and learned Lord, Lord Davidson of Glen Clova, also raised the important point about whether the roles of the Lord Advocate should be split. As was said, this issue has been around for some time. I was rather surprised for it to be raised from the Front Bench at this stage of the proceedings. No doubt, we will again have an opportunity to debate that. As I indicated, the position of the Secretary of State-and the Government-is that, if novel proposals are to come forward at this stage, the tests are that they should be very detailed in their presentation, command a consensus and not only be for the benefit of Scotland but not prejudice other parts of the United Kingdom.

My noble friend Lord Caithness asked what other powers there might be. The noble Lord, Lord Wigley, raised the issues that the Scottish Government have raised. Again, those tests will apply. We hear a lot of rhetoric from the Scottish Government but we await with some interest more detailed proposals. We are still awaiting any submission from them on excise duty. I certainly found the points made by the noble Lord, Lord Gordon of Strathblane, and my noble friend Lord Younger of Leckie very persuasive in the context of the Calman commission, which did not recommend any devolution of excise duties. The tests that I have already outlined will apply to any of these proposals coming forward from the Scottish Parliament, including for example on corporation tax.

In the Government's mind, the only other taxes which could be devolved are the two which were recommended by Calman but are not in the Bill: aggregates tax, which we did not proceed with because of litigation that is currently in place, and air passenger duty-on the basis that the whole question of aviation taxation was being looked at. Did it make sense to devolve something which was under a much wider consideration?

The noble Lords, Lord Morgan and Lord Wigley, asked about the position in Wales. It was announced back in July that an independent commission will be established in the autumn to look at the financial accountability of the Welsh Government and the National Assembly for Wales. It will examine the issues of fiscal devolution and accountability, and take into consideration the work of the Holtham commission, mentioned by a number of contributors including my noble friend Lord Maclennan of Rogart. The Government are currently discussing the terms of reference and the commission members with the Welsh Government.

Important points were made by my noble friends Lady Linklater of Butterstone and Lord Lindsay about the recommendations within the Calman commission relating to non-legislative but important matters regarding links between parliaments and governments in Scotland and at Westminster. I can assure your Lordships that we take this matter seriously. Since the Government came to office in May 2010, we have committed ourselves to upholding an agenda of mutual respect and engagement with all the devolved Administrations.

We have successfully resolved some disputes under the new dispute resolution procedure that had been put in place by the previous Government: there have been two joint ministerial committees in plenary session since May 2010; the joint ministerial committee on Europe continues to meet regularly; the joint ministerial committee (domestic) has met twice; and, consistent with the Calman commission recommendations, we have issued communiqués after plenary meetings and made an annual report on the work of the JMC. I will be happy to give further information to my noble friends, but one other thing which I remember the Calman commission was keen on was attendance of Ministers at respective parliaments. We support the attendance of Ministers before committees of the Scottish Parliament. I think I am right in saying that the Chief Secretary to the Treasury has given evidence; I certainly gave evidence, along with the Secretary of State and Parliamentary Under-Secretary of State, to the previous Scotland Bill Committee in the Scottish Parliament, and I intend to do so again with regard to the new committee.

The electoral system was mentioned by the noble Lord, Lord Foulkes. When the Calman commission looked at this, it noted that the Arbuthnott committee said it should be looked at again after the 2011 elections. Therefore, we did not think it appropriate as Calman commissioners to make a recommendation on that. There is an acceptance, following the Arbuthnott committee report and the Calman commission report, that some form of review of the electoral system for the Scottish Parliament is required. The matter is under consideration, and the Government will confirm our intentions at a later stage.

It is clear that the key provisions in this Bill relate to finance. I rather thought when I heard my noble friend Lord Forsyth mounting his arguments against the tax-varying powers, as usual with great gusto, that they were very similar to the arguments we had in 1997 against tax-varying powers, so I will not rehearse all of these now. What the commission was faced with was trying to get a proper balance between the efficiency of the tax system and proper accountability. At the core, a number of noble Lords who have contributed to this debate have pointed out the importance of trying to ensure that there is a link between spending money and raising money. I think it was the noble Lord, Lord Morgan, who talked not only about "no taxation without representation" but also about "no representation without taxation". That link is very important.

What we did within the Calman commission, and which the Government accept, was to look at different international systems. I do not agree with my noble friend Lord Forsyth, who compared income tax to the poll tax. As the noble Lord, Lord McConnell, pointed out, the thing about the poll tax was that it had no link to income at all, which was one of its problems and its criticisms. Income tax, however, we were advised, was one of the taxes, perhaps more than any other, which actually impacted not only in reality but in perception upon individuals. We thought that in terms of identifying a tax which was most likely to accentuate accountability, income tax was the appropriate tax.

My noble friend Lord Caithness asked "Why the 10p?". Clearly we are trying to achieve a balance between the Scottish Parliament having responsibility, while recognising that Scottish taxpayers contribute to the United Kingdom as well to a whole range of services which are provided at a United Kingdom level.

The question of the Scottish taxpayer was put very graphically by my noble friend Lord Lyell, with tributes to Andy Stewart. There is a different test from that which applied to the Scottish variable rate, and indeed Clause 32 of this Bill, for such time as the Scottish variable rate will continue, is brought into line with what is proposed in future.

For most people, determining whether or not they are a Scottish taxpayer will be a straightforward matter: it will be whether their sole or main place of residence is in Scotland. If it is in Scotland, they will be Scottish taxpayers. It is not an unusual thing to use a sole or main place of residence for capital gains tax purposes. I think it is also used for when we have to register as members of this House as to where our transport links will be. So it is not a novel concept. One of those individuals who are UK resident but do not have a close connection with any part of the United Kingdom will need to establish the number of days they have spent in Scotland. Again, I suspect that this is a matter that we will look at in great detail in Committee.

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Lord Forsyth of Drumlean (Conservative)

I know that the hour is late but that is not what the Bill says, unless I have misread it. It says that if you have more than one residence you count the number of days that you have spent in those residences.

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Lord Wallace of Tankerness (Liberal Democrat)

I do not think that my noble friend has that right. The principal point will be whether it is your sole or main residence. As I have just indicated, it is only if you are an individual who does not have a close connection with any part of the United Kingdom that the number of days spent in Scotland will be relevant. We can clearly debate that, as we no doubt will, in greater detail when we come to Committee, but I seek to reassure my noble friend on that. He also said that the SNP would take the power to have new taxes and would implement them willy-nilly. However, the provisions in the Bill make it very clear that the power to have any new taxes will have to be passed not only by the Scottish Government but by both Houses of this Parliament. An order would not be brought forward to this Parliament unless it had the agreement of the UK Government. Therefore, there would have to be negotiation between the UK Government and the Scottish Government before such an order could be brought forward, and it would be subject to an affirmative resolution of both Houses of Parliament.

The noble and learned Lord, Lord Davidson, wished the borrowing powers to be accelerated. My noble friend Lord Younger put his finger on the matter: there is a pragmatic reason for delaying such powers in the context of the current spending review period. The borrowing of the Scottish Parliament would be aggregated with UK borrowing and, given that the borrowing limits have been clearly identified in the current spending review period, we do not think it right to move at this stage to extend the borrowing powers to the Scottish Parliament before 2015. The exception to that-it is perhaps not a proper exception although it is an important point-is that, in response to representations from the Scottish Parliament and the Scottish Government, we have made prepayments, or a sort of cash advance, in terms of the money required to do the preliminary work for the building of the new Forth road crossing. That has been widely welcomed and it is a pragmatic response to the situation.

The noble and learned Lord, Lord Davidson, asked about the administrative burden and cost of income tax powers. Employers and software providers have already made changes to payroll software so that they can operate the existing Scottish variable rate of income tax. Therefore, the existing payroll software provides for a different rate to operate. Additional compliance costs and burdens may arise if the Scottish Government seek to adapt the existing process-for example, to introduce a greater degree of transparency-by requiring the Scottish rate to be separately identified on payslips and P60s. Further costs and burdens could also arise in relation to the treatment of certain tax reliefs.

The noble Lord, Lord Browne, asked about the working group. There is a high-level implementation group, which involves a number of bodies and organisations with an interest in the detailed implementation of the tax reliefs. It has already met three times and is due to meet again in the autumn. There is also a joint Exchequer group involving Ministers in the Scottish Government, the Secretary of State and the Parliamentary Under-Secretary of State. The group will look at the negotiation of the detailed implementation of these plans. I think that it is due to meet again shortly in the autumn. In addition, separate groups have been looking at issues such as tax on charitable giving and other such detailed issues. These groups have already met, and I assure the House and the noble Lord, Lord Browne, that those meetings will continue.

Finally on finance, the noble Lord, Lord Hughes, asked about the workings of the Scottish rate. He asked, as with chicken or egg, which would come first-the reduction or the block grant. Unlike the Scottish variable rate, the Scottish rate of income tax will require an annual decision from the Scottish Parliament. The proportionate amount will be deducted from the block grant and, if the Scottish Parliament does not set a rate, it will not get the money. It will be obliged to set the rate and to do so in good time before the start of the tax year-again, giving proper notice in terms of collection and to businesses which will have to administer the system.

Related to that, the question of bond issuing was raised by the noble Baroness, Lady Liddell. Although the Bill makes provision for that to be implemented-not by having further recourse to primary legislation but by secondary legislation-it will be dependent on the outcome of a consultation, which is either under way or is about to get under way, regarding the merits of going down that road, taking into account some of the points which the noble Baroness raised.

Linked to this is the question of the Barnett formula, raised by number of noble Lords, including my noble friends Lord Maclennan, Lord Forsyth, Lord Caithness and Lord Younger, and the noble Baroness, Lady Ramsay. Under the proposals in the Bill, as I have indicated, the Scottish rate of income tax will be reduced by 10p. It will then be for the Scottish Government to decide to levy in Scotland. I am sure a number of noble Lords will wish to debate this further. The Government have made clear in the coalition agreement that we recognise the concerns about devolution funding, but the priority has to be to reduce the deficit and to stabilise the public finances.

The noble Lord, Lord Sewel, said that something should be in the Bill about the formula. The position is that the Scotland Act contains nothing about it and that the Bill, if implemented, is neutral about its future. There will be a block grant but the formula to determine it can be done externally to the provisions in the Bill. We have been duly warned by at least one if not two noble Lords that we will have amendments on this. I note that the noble Lord, Lord Foulkes, and others are liable to bring forward amendments on the question of a referendum. A number of noble Lords have pressed a case for the United Kingdom Government holding a referendum on independence. Their argument is that it is in Scotland's interests to end the constant constitutional uncertainty and that a clear-cut question will produce a clear-cut endorsement of Scotland's place in the United Kingdom.

I understand the motivation of those who have argued that case. Many, including the Government, would like nothing more than to see an end to the manoeuvring of separation, which for so long has distracted Scotland from the many other opportunities and challenges on which we might more fruitfully and productively focus. As this debate broadens out beyond this Chamber to the political classes, more questions will be put to the SNP Government, as we saw last week, with important speeches by representatives of the CBI. The dangers of continued uncertainty will become more obvious to people across Scotland if the SNP-"rather coy", was how the noble Lord, Lord Hughes, described it- carries on ducking questions. It will need to be clear about its plans and its timings.

Perhaps it is too ambitious to hope that tomorrow, when he announces his programme for government, the First Minister will start to say something about that. As noble Lords have indicated, there are crucial questions about the euro or the pound, and about whether it would be the European Central Bank or the Bank of England that would have responsibility. My right honourable friends the Secretary of State and the Chief Secretary to the Treasury raised these questions last week. We will continue to press the Scottish Government on these issues. I take the point made by the noble Lord, Lord McConnell of Glenscorrodale, about the importance of all us waking up to the challenges and positively making the case for the United Kingdom, and for Scotland being part of that.

Photo of Lord Soley

Lord Soley (Labour)

Will the Minister say what his thinking is about the electoral commission's involvement in any referendum?

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Lord Wallace of Tankerness (Liberal Democrat)

That is an important issue. Under present legislation, the Electoral Commission could be involved in a limited way only if the Scottish Government wished to proceed on their own. The commission is building up an expertise in referendums and has much to contribute, not least in helping to frame questions. In making the case for the union, as the noble Baroness, Lady Liddell of Coatdyke, said, we must challenge the independence case, because you cannot be a little bit pregnant and cannot be a little independent-the independence-lite or devo-max, which seems to be somewhat undefined. The noble Lord, Lord Soley, made an important point, saying that in the United Kingdom we have the most effective political and economic union that the world has ever seen. If we had not had it, today's debate would be about creating it. When you have peoples bound by a common language in one island or closely proximate islands, why would you not want to come together and be a union, certainly when you look around the world and see other islands or peninsulas that are divided? The thoughtful speech by the noble and learned Lord, Lord Boyd of Duncansby, set out the economic, social and cultural cases for union, which are, indeed, set out in the first volume of the first report by the Calman commission. It was a very good exposition of the positive reasons why Scotland should remain part of the United Kingdom, and I entirely endorse what he said: that we cannot frighten people into supporting the United Kingdom and have to give people an aspirational and inspirational reason for why we believe that this valuable union has served Scotland well over the past 300 years and will serve us well into the future.

I conclude by saying that the genesis of this was in co-operation among parties. I believe and hope that that will continue. I have every confidence that it can continue into the future. My noble friend Lord Sanderson said that the test of this Bill would be whether its passing would help or hinder the cause of the United Kingdom. He is absolutely right. That reflects the terms of reference of the Calman commission. They were referred to by the noble Lord, Lord Browne, and were:

"To review the provisions of the Scotland Act 1998 in the light of experience and to recommend any changes to the present constitutional arrangements that would enable the Scottish Parliament to serve the people of Scotland better, improve the financial accountability of the Scottish Parliament, and continue to secure the position of Scotland within the United Kingdom".

Those were not only the guiding lights of the Calman commission but are the guiding lights of this Government and, I believe, of this House as we approach this Bill. I believe the Bill delivers on that and that in our deliberations in Committee, we can ensure that it does. I commend the Bill to the House.

Bill read a second time and committed to a Committee of the Whole House.

House adjourned at 1.17 am.

Correction

In col. 7 of yesterday's Official Report, during the tributes to Baroness Hayman, the contribution made by Lord Haskel was mistakenly attributed to Lord Sheldon.