Scotland Bill - Report (2nd Day)

Part of the debate – in the House of Lords at 6:45 pm on 29th February 2016.

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Photo of Lord Lang of Monkton Lord Lang of Monkton Chair, Constitution Committee 6:45 pm, 29th February 2016

My Lords, we all slightly feeling our way in the dark in this debate, and that is very unfortunate because the fiscal framework is crucial to the future not just of the Government of Scotland but of the Government of the United Kingdom, and indeed to the stability of the UK and holding it together in the face of the assault coming from the Scottish nationalist Government in Scotland.

One would not have thought that we were feeling our way in the dark, though, from the absolutely masterly exposition by my noble friend Lord Forsyth of Drumlean, who laid out the issues with great clarity and considerable force and raised a number of very important points to which we have not yet had an answer. I share his view on almost everything that he said, and he has helped me to share it more clearly than I did before.

I shall focus on one fairly simple issue—as I understand it, although here, too, we are in the dark—namely, the way in which the implementation of the financial assistance that is to be given to the Scottish Government over the next five years on the population issue will be put into force. I should start by saying that, yes, I welcome the fact that a deal has been done because it is a political situation that we also have to consider, as well as the proprieties, the economics and the constitutionality. Having a deal done means that the Bill can come into force and the Scottish Government can be put in the position of becoming accountable to a greater degree for their actions, possibly exposing themselves to the shortcomings of their policies and attitudes.

As I look at it, in the context of the Scottish block and the Barnett formula, there seems to have been a finesse of a somewhat insidious nature and we need to try to get to the bottom of it. I am perhaps thought pedantic because I do not like to hear the whole financial settlement in Scotland referred to as “Barnett”. Barnett is a very small part of it which simply deals with the annual increases that are added to the very substantial Scottish block, and the effect it has on those increases is, by an infinitesimal and unreliable amount, to reduce what comes to Scotland from what it otherwise would have been under the old Goschen formula, when the Barnett formula did not exist. I will not bore the House with the reasons why; I could do so but it has never had much impact on people before so I will ask your Lordships to take my word for it.

However, I am concerned about the Scottish block, which is not a very creditable basis for funding any country either. It is the sedimentary accumulation of more than a century of separate financial settlements, year after year, plus a lot of in-year adjustments, where Secretaries of State or other pressure groups have secured extra funding for Scotland because of its special circumstances—and there were indeed very special circumstances at certain times in the past. However, once everything has accumulated on to that Scottish block it stays there for ever, and the new baseline embodies all those increases that have accumulated over the years. That is how the 20% overspend has come about, so that Scotland now gets about 20% more per head than England.

The one redeeming feature of the Scottish block is that from the very outset it was population-based. We got a per capita percentage that was the same as the percentage granted in England. Barnett changed that, converting the percentage to a cash figure when it came to Scotland because a percentage on a higher baseline—here I am explaining how it works after all—would deliver a higher cash figure in Scotland than the same percentage would deliver in England. Clearly that was unfair, and Lord Barnett, as the chief secretary under pressure, managed to secure a deal that gave Scotland slightly less than it would have had otherwise although he still gave it a credible figure because it was directly comparable in cash terms with what was being given to England.

However, that simple and straightforward population formula has been destroyed or very severely damaged by the deal that has taken place. The one buttress of the integrity of the block is abandoned in favour of a deal to compensate Scotland for imaginary, non-existent people, which is very curious. We recently passed an Act of Parliament concerning individual electoral registration, the purpose of which was to find phantom people and delete them from the registers. Now we seem to be doing that in reverse. Can my noble friend explain to me how that is justified?

I understand that if the UK Government take a decision that affects the revenue stream in Scotland, the doctrine of no detriment will kick in, but populations are not political decisions—they are facts. The population is known, the decline or increases are roughly predictable, and there is no case for a subsidy for demographic risks, which do not flow from government actions. However, since it will bring extra billions of pounds to Scotland over the next five years, that must be a detrimental event for the rest of the United Kingdom. It may be described as “per capita indexation” but in reality it can be justified only as a political bung.

My noble friend the Secretary of State said in another place last week that,

“the sum being delivered to the Scottish Government is exactly the same as would have been delivered under the Barnett formula”.—[Official Report, Commons, 24/2/16; col. 306.]

Setting aside where I differ on the definition of what the Barnett formula does, I simply do not understand how that can happen. If money is being brought to Scotland that would not otherwise have been justified because the population is not what it is pretended to be, how can the rest of the United Kingdom not be disadvantaged by the equivalent of that sum? Anyway, if nothing else, it is at least interesting to note the sudden conversion that this represents of the Scottish National Party to the principle of pooling and sharing. It is a little unfortunate that it did not realise the value of it earlier and in other fields. However, kicking the can down the road, as this deal does, is not a solution to the problem of weaning the Scottish Government off separation.

The Bill was intended to introduce accountability for spending, and this measure undermines that. It was intended to remove the grievance culture but this measure will revive it when the Scottish Government try to enshrine it permanently five years hence—I agree with the noble and learned Lord, Lord Wallace of Tankerness, that there is a lot of vagueness about how that will be handled, and it cannot possibly be to the advantage of good government or democratic accountability. The Bill also perpetuates the dependency culture that constant protection from the consequences of their own actions has enshrined over the years in the devolved Parliament. It may secure the implementation of the Bill, which is desirable, but it does not secure very much else.