Report (2nd Day) (Continued)
Relevant document: 17th Report from the Constitution Committee.
I beg to move that this Bill be now further considered on Report. In moving this Motion, I am conscious that at earlier stages in the passage of the Bill, Members of your Lordships’ House have been anxious about the progress towards a legislative consent Motion. On Monday, I indicated that the Scotland Bill Committee would meet this week—I thought that it would be today but I understand that it was yesterday—to discuss the legislative consent Motion and the agreement reached between the Governments on the Scotland Bill.
I can advise the House that the committee met yesterday. It debated and agreed a short report, which was published earlier today, on the draft legislative consent Motion, which had been put forward by the Scottish Government. That report concludes with the following words:
“All of the Committee notes the contents of the Legislative Consent Memorandum and a majority recommends that the Parliament gives its consent to the legislative consent motion”.
Only the Green Party member of the committee has chosen not to make a recommendation.
It is now clear that we have agreement between the Governments on this Bill and a clear recommendation to the Scottish Parliament to vote in support of the Bill from both the Scottish Government and the committee established by the Scottish Parliament to review the Bill. That report having been published earlier today, I thought it was important to bring it to the attention of the House.
I hope that the House will forgive me if I take 90 seconds to say something about my personal attendance, or non-attendance, for Part 4 of the Bill today. Each time I have come to the House, the proceedings of the Scotland Bill have been delayed—today, by more than three hours; on Monday by longer than that; and, at Second Reading, by even more. Unfortunately, that means that I, for personal and domestic reasons, am unable to remain until Part 4 is reached. It will be at a time when I have to go for personal reasons.
However, perhaps I may say that I am deeply indebted to the Advocate-General for the way in which he has responded to the amendments proposed in relation to the Supreme Court. The end result is something with which even I could agree to the extent of about 98 per cent. In due course, I shall write to him with a couple of technical points that are perhaps worthy of consideration. I hope that we can proceed on the basis that the Advocate-General is now advocating in Part 4. I am indebted to him and his staff for all the courtesy shown to me in the course of these proceedings. I thank your Lordships for allowing me this indulgence.
Clause 27 : Taxation: introductory
15: Clause 27, page 19, line 34, leave out from beginning to end of line 24 on page 20
My Lords, the noble Lord, Lord Browne, can probably rest easy as far as Amendment 16 is concerned. We have been around this course a number of times. I find it very difficult to understand, especially given the announcement just made by my noble and learned friend. He has just told us that there is a recommendation for legislative consent. We have heard repeatedly during the course of the deliberations on this Bill that it implements the recommendations of the Calman commission. Nowhere does the Calman report suggest that there should be an open-ended power to create new taxes of any kind, to be introduced by order in both Houses.
I have two objections to that. First, the taxes which are intended to be given to the Scottish Parliament, like the aggregates tax—we have a later amendment on that, which I do not propose to move because I know that the Government will say, “We are not ready to do that”—are not in the Bill. We have this open-ended power. My objection to this open-ended power is constitutional. It cannot be right that we have an order-making power for the imposition of taxes through the House of Commons and the House of Lords. I know that the Minister will say, “Oh, but this will be discussed in the Scottish Parliament”. This is the sovereign Parliament and the House of Commons is the sovereign body. Its history is one of voting means of supply. To create a procedure that enables taxes to be imposed without going through the requisite finance Bill and Committee stages in the House of Commons is a huge step which is in no way justified by the manifesto commitment or by anything that the Calman commission said.
I urge my noble friend to think again about this. It is an enormous change to our constitutional processes. I cannot think of any example where it has been possible to impose a tax by Order in Council. The very early history, with the arguments over ship money and everything else—I do want to repeat arguments that I used in Committee—was about this very principle. It is a dangerous precedent to create. One of the things that worries me about this Government and the previous Government is that there does not seem to be an understanding that we have no written constitution in our country. Our constitution, in so far as it exists, exists in the procedures and conventions of the House of Commons and of this place. To ride roughshod over them in this way for the sake of convenience is a very retrograde step, which has certainly not sprung from any commitments or recommendations that have been made externally. I can see how it is for the convenience of Ministers and the Executive, but it is utterly wrong in principle. Even at this stage, I ask my noble friend to think again and find some other method of achieving his objectives which does not ride across the very nature and existence of our parliamentary procedures. I beg to move.
My Lords, I support the amendment of my noble friend Lord Forsyth. Like him, I am concerned about the constitutional aspect of it. Here is part of a structure to set out a tax-levying power within the Scotland Bill which represents an abrogation by the United Kingdom Government of their obligation to promote financial stability, efficiency and good government across the whole of the United Kingdom.
Of course, it is one thing to devolve a tax-raising power to a specific area, as is contained in the Bill; I have my own views about that, which I will say a little about in this context. However, it is also the duty of the United Kingdom Government to ensure that the policies which they espouse and the priorities that they hold for the good financial and economic government of the kingdom should be as capable of implementation in Scotland as in the rest of the United Kingdom. The capacity of any Government of any complexion to fulfil other, broader financial and economic obligations against the background of the impact of the tax provisions specifically contained in the Bill is seriously jeopardised.
I see the whole Bill as a Trojan horse. I think that the commission and those who prepared the Bill and brought it forward were, perhaps, not fully aware of the potential damaging impact on the Scottish economy. It will create major challenges. I raised a couple earlier in the passage of the Bill, at Second Reading and again in Committee. The first is the situation affecting the tax base. The Scottish tax base will be smaller and weaker than the tax base on which provision for Scottish expenditure is currently based. Scotland’s economy has a higher proportion of company failures and a lower proportion of company formation. It has a smaller and weaker entrepreneurial class. It has a higher proportion of public sector employment. All these points have been made already, but they have to be made again because they feed into this problem of lower growth and expansion and a weakening private sector. However, it is on that weakening and small private sector, relative to the rest of the United Kingdom, that the impost of the 10 per cent tax rises will fall.
The study to which I referred earlier showed that the United Kingdom public expenditure base had expanded by 94 per cent in the previous 10 years, while the Scottish tax base, which will form the basis of this 10 per cent tax, had expanded by only 48 per cent. That may not be continued at the present time when the Government’s public expenditure programme is much more disciplined, but what will happen in a future Parliament, in future circumstances, when the economy nationally—by which I mean across the United Kingdom and, indeed, in the world at large—is expanding and once more on an efficient growth track? That is when the divergence will reappear. At that stage, of course, if Scotland were separate from the United Kingdom, the added burdens of dependency on a volatile oil price and reducing oil production, which are now generally agreed to be likely for the next few years, would come to bear.
The 10 per cent tax rate would have to take a massive degree of strain. This is where the gearing feature comes into it, just as we have seen with local government taxation where the bulk of funding comes from the United Kingdom Exchequer and only a small proportion is raised locally by local councils. So, if a local council wants to make a 2 per cent increase in spending, it would have to increase taxation by a multiple of that, perhaps a large multiple.
I remember the referendum that took place in Quebec about 10 years ago. When I was in Toronto last year, it was pointed out to me that, although the referendum to separate Quebec from the rest of Canada failed, the economy of Quebec went into a grey, dismal period from which it has not yet emerged. I was even told that the Bank of Montreal had moved its headquarters to Toronto in Ontario. That is an example of the kind of problem that we may face.
We talk about the importance of inward investment but, against this kind of background, in the future we will have to talk about the loss of existing companies from Scotland—outward investment. Where will the major Scottish companies choose to locate against the background of the economic troubles that will develop within Scotland? Where will the Royal Bank of Scotland choose to locate? Where will Standard Life go? These companies have 95 per cent or 98 per cent of their business outside Scotland, and they will be thinking very carefully about their future taxation residence.
Corporation tax, which the Scottish Administration at present claim they want to reduce, is already coming down very sharply. It is 24 per cent now and there is a plan to reduce it further. If the Scottish economy in a separate Scotland were to try not only to keep up with but to exceed that, it would find that the Laffer curve does not work as efficiently as might be hoped in an economy that is otherwise deeply strained, and that it faced a race to the bottom. It would be extremely difficult and very serious.
The danger there is that, against the background of this Bill and these tax provisions within it, people in Scotland would demand further taxation concessions, and so one more step down what we used to call the slippery slope but is now called the continuing process of devolution would take place. It is not devolution that is a continuing process—it is separation. The salami slicing of Scotland’s place as an equal partner in the United Kingdom is taking place.
The Government should give an answer as to why, against that background, they have put these tax provisions in the Bill without contemplating the effect they will have in reality. I have not had an answer to the questions I raised earlier; my noble friend Lord Forsyth also raised them. I see that we are privileged to have my noble friend Lord Sassoon from the Treasury in his place. I hope that he may be able to enlighten us or, if nothing else, admit that there is a problem and say, “We accept it and we regret it but we have abrogated our position as Her Majesty’s Treasury for the United Kingdom”. I support the amendment.
My Lords, I do not want to repeat what I said in Committee on this. Although I am sure there is much force in some of the points made by the noble Lord, Lord Lang, they are no doubt points that the Scottish Parliament would have in mind, were it minded to exercise the power that this clause would confer upon it. I do not agree with the noble Lord, Lord Forsyth of Drumlean, that there is some constitutional impropriety. I do not understand his constitutional argument.
The constitutional principle in regard to taxation is that those paying the tax—those on whom it will be levied—should have voted for it. I see no constitutional objection to the Scottish Parliament having the power to levy another tax, given that only Scots or people resident in Scotland will be paying it. As I said before, I see no difficulty about them having the power to vary an existing tax, for example the rate of VAT. I do not see a constitutional principle there. I referred in Committee to the example of differential sales taxes across the United States of America. There are many taxes that are different between states.
I conclude my remarks by saying that I see a lot of sense in the amendment we will come to in a moment, which suggests a procedure and safeguards that could be built into the system, which I could support. I also understand the economic arguments that the noble Lord, Lord Lang, advanced and it is very important that they should be in the minds of the Scottish Parliament when it chooses whether to exercise the power conferred on it here, but I cannot see the constitutional principle. I do not follow the ship money argument.
It is very straightforward. We are talking about devolution here, not about establishing a federal system. As someone said, although I cannot remember who, power devolved is power retained. The ability to create a completely new tax—a window tax, or whatever—has to reside with the other place down the Corridor. Within our constitution, in order to create a new tax, you have to have a finance Bill. It used to have to be on the Floor of the House of Commons when it came to Committee, and there is a set of procedures that needs to be followed. It is completely different from devolving the power to set a rate of tax, which this Bill purports to do and is the commitment made in the manifesto.
My constitutional problem is that that ability of the House of Commons to discuss, through a long-standing procedure, the imposition of taxation is being undermined because all that it requires now is an Order in Council, which by convention cannot be voted on in this House and cannot be amended. That is no basis upon which to create new taxes on the people. It is the nature of the procedure that is the constitutional outrage as far as I am concerned, not the nature of giving the Scottish Parliament the ability to raise a particular tax.
My Lords, I will just try to clarify the position here, which might be helpful to this ongoing debate. This is a very important point. We should be clear that we are talking about a power to devolve taxes, which is a constitutional provision that it is perfectly proper for Parliament, including this House, to have a role in. That is quite separate from the creation of the new tax, which will be the responsibility—if it is given it under the provisions of this Bill—of the Scottish Parliament. I suggest to my noble friend that it is misleading to say that somehow we are driving through the creation of new taxes via some improper provision of this Bill. The clauses we are talking about seek to devolve a tax, a power that is retained by this Parliament and around which there will be all sorts of safeguards, as we will come on to. There will be a joint assessment by the Government here and in Scotland before such proposals come forward. But the creation of the new tax will be for the Scottish Parliament and will go through a proper, full parliamentary process of that Parliament.
Forgive me, but that does not appear to be exactly what the Bill says. It may be helpful for those who follow our proceedings, but do not go into the detail of the Bill and the Explanatory Notes and all the rest of it, if I read out briefly what the Bill says and then put some questions to the Minister.
The part of the Bill that the noble Lord, Lord Forsyth, is attempting to remove is new Section 80B of the 1998 Act on the power to add new devolved taxes. It states:
who of course acts under the advice of Ministers, so it is not her fault,
“may by Order in Council amend this Part so as to … specify, as an additional devolved tax, a tax of any description … or … make any other modifications of the provisions relating to devolved taxes which She considers necessary or expedient”.
I repeat a question put to the Minister by the noble Lord, Lord Forsyth. Can he think of anywhere else where a new tax or taxes can be imposed on our people by Order in Council without their informed consent? Have they given that consent and, if not, how will they do so? Are the Government really suggesting that this process will take place without going through your Lordships’ House or the House of Commons? Are we not even to have the affirmative or negative procedure? We need to clarify this matter because, from what I know of it so far, this is going too far for our democracy.
With all due respect to the Minister, he should not keep popping up and down. We are at the Report stage of the Bill and people should speak only once. I understand the pressure on him to intervene after what the noble Lord has just said, but this feels more like a Committee stage than a Report stage to me.
My clear understanding is that as the Minister I have the privilege of being able to speak multiple times at the Report stage, unlike other noble Lords. I simply thought that it might be useful to intervene again now to answer this question before it is raised yet again and to help to shorten the debate.
A tax cannot be applied simply by Order in Council, as the noble Lord seeks to suggest and as I think my noble friend suggested. First, in answer to the specific point made by the noble Lord, Lord Pearson of Rannoch, it is an Order in Council subject to an affirmative procedure. That Order in Council simply devolves the responsibility and gives space to the Scottish Government and Parliament to decide how to fill that space with a new tax of their construction. It will be up to the Scottish Parliament. The Bill allows the Scottish Parliament to pass legislation in a Bill for a new tax in Scotland. Of course, the Scottish Government will have to give full consideration to the impact of the new tax, as they propose it, just as there will need to be an assessment—we will discuss it later—before the power under the clause is devolved.
My Lords, I have immense respect for the noble Lord, Lord Forsyth of Drumlean. I listen carefully to what he says, and I have heard this argument from him on a number of occasions and respect it entirely. I have listened carefully, too, to the arguments put forward by the noble Lord, Lord Lang of Monkton. I thought that his contribution ranged much wider than the actual provision that we are considering, but he made some very important points, which are worthy of being recorded. The noble Lord, Lord Kerr of Kinlochard, rose to debate some of them and made a helpful contribution. The noble Lord, Lord Pearson of Rannoch, read in short—and with respect to him, slightly misleadingly—a part of the Bill to make another point. I hope noble Lords will forgive me, but we have debated these provisions in some detail in different ways. I had my say both at Second Reading and in Committee, and that is all recorded. If people want to know what my views are for supporting this provision and its maintenance in the Bill, they can read them at length.
However, in response to the point made by the noble Lord, Lord Pearson of Rannoch, it can sometimes be deeply misleading to read in short a piece of legislation. I am not intending to read it at length, but the operational way of this Bill is to amend other legislation. I think that the answer to his point—the Minister will be able to correct me when he comes again to the Dispatch Box if I am wrong—lies in the fact that the active verb in the piece that he read to us is to “specify” a tax, not to impose a tax. The answer lies in the words that the noble Lord, Lord Pearson, chose. That, put another way, is the point that the Minister was making to him.
In any event, whether or not this provision generates deep and interesting constitutional issues, we know that where this constitutional imperative resides—in the other place—they have already approved this devolution. The Bill has come to us with their approval. It may be that we can say, with some merit, that they did not pay a lot of regard to this clause. It was a differently numbered clause at the time. However, they will certainly pay a lot of regard to it when it goes back to them, and it will not become law if they do not approve it. The responsibilities that they hold in terms of our constitution, they hold. If they choose to devolve them and encourage us within this Parliament to support that, I do not think it is our privilege to prevent them doing so.
For clarification, we also need to look at the genesis of this provision. It is not entirely true to say that Calman was silent on this point. The Calman commission recommended:
“The Scottish Parliament should be given a power to legislate with the agreement of the UK Parliament to introduce specified new taxes that apply across Scotland”.
The noble Lord, Lord Forsyth of Drumlean, who is comprehensively knowledgeable about Calman and this Bill, and has proven that time and again, will see that this provision goes significantly further than the Calman recommendation. However, it is not true that there is no reference in Calman to the devolution of taxation or the creation of a power of this nature to assist future devolution. There is consideration of it in some detail in the report. The arguments for and against are there, and there was a clear recommendation, but I accept that it has been taken further.
As I said in Committee when this issue was debated at great length, the deletion of this provision would leave the Bill significantly reduced, not only in its constitutional significance but in its significance for the people of Scotland. I am not interested in achieving that objective. Our position is that we support the inclusion of this provision, provided that certain checks are in place. That is why rather than seeking to support the deletion of this provision we have tabled Amendment 16, to which I will speak at greater length in the next group, and which we believe would allay much of the concern over the breadth of this provision, were it to be accepted in some form. This of course all depends on the House’s position in relation to this amendment. I accept that the debate on my amendments is dependent on the decision that the House makes in relation to this amendment. However, I was given a certain assurance by the noble Lord, Lord Forsyth, in his introductory remarks that I need not worry about that, so I will now sit down and prepare to argue the next amendment.
Before the noble Lord sits down, and with the leave of the House, neither he nor the Minister has answered my main question on this matter: have the people of Scotland given their informed consent to this provision? If they have not done so, will they be invited to do so, perhaps with the provision being specifically flagged up in any eventual referendum?
I might just respond on this point and leave the Minister to deal with the matter if he thinks I have not dealt with it adequately. My response to the noble Lord, Lord Pearson, is that I think I answered his question by pointing out where he was misreading the provision that he himself chose. He now asks another question and I am happy to answer it.
Scotland is a representative democracy, just as the rest of the United Kingdom is. It has two levels of parliamentary democracy: the Scottish Parliament and the UK Parliament. The Scottish Parliament, which speaks for the people of Scotland, and all parties overwhelmingly approve of the provision. I have no doubt that we will see that in the second legislative consent Motion, which I am confident will be passed unanimously by the Scottish Parliament.
Perhaps the noble Lord will allow me to finish answering one question before he poses another one. I am asked where the democratic support for this comes from. It comes in the unanimously expressed will of the Scottish Parliament. The noble Lord, Lord Pearson, may not think that sufficient, but I can tell that the people of Scotland think it is.
I do not mean this in a cheeky way, but my recollection is that when we discussed this at an earlier stage the noble Lord indicated that he had not appreciated that these powers were quite so wide-ranging. If he, with all his brilliance and his close study of the Bill, did not realise that, surely the noble Lord, Lord Pearson, is right in suspecting that the people of Scotland might not know that these powers were being provided, or indeed the people of England, Wales or Northern Ireland who could be affected by them?
The combination of cheek and flattery is so appealing that I can barely resist it. The noble Lord’s recollection of what I said when we discussed these provisions before is not my recollection, but the Official Report will have recorded it. I think that I said it was not fully appreciated how significant these provisions were—not by me; I thought that I had helped those who had not fully appreciated that, but maybe this was a process of education in which I was a pupil, not the educator.
In any event, I am not suggesting that the significance of this important provision of the Bill is widely known and appreciated by the people of Scotland, whatever that phrase means, but I was asked a different question by the noble Lord, Lord Pearson—where the constitutional democratic support lay for this from the people of Scotland. The noble Lord, Lord Forsyth, will recall that I referred to a representative democracy; I did not suggest that all the people of Scotland understood this.
My Lords, I shall try to address some of the further points that have come up, although I have addressed one of the key points so I will not repeat myself. Although my noble friend Lord Lang of Monkton went rather wider—I thought we were going back to Second Reading—he provided some important context for the clause. We do not want to leave ourselves with the impression of a weak Scottish economy that my noble friend paints. It is right to remember that with 8.4 per cent of the UK’s population, the gross added value contributed by Scotland was 8.3 per cent, which is almost in line with the percentage of the population. I could cite many figures, including some which show that Scotland’s economy outperforms that of the UK as a whole. We should not think that we are making Scotland too reliant on the 10 per cent of tax base. I think my noble friend suggested that we were relying excessively on that 10 per cent. To be clear, under the Bill about 60 per cent of Scotland’s budget will still come from the block grant, so that context is important.
I wish to address one or two of the issues specific to this clause and the amendment. It is important to realise that the power we are talking about allows for the Scottish Parliament to be given full control over a specified tax. It does not allow for the Scottish Parliament to be given control over particular aspects of taxes such as the rate. It is a power to devolve complete control of a specific area. As I have explained, it will then be for the Scottish Parliament to go through a process to create a new tax to fill the space.
First, this Parliament needs to devolve the power to create the space and then the Scottish Parliament can move into it.
There are two reasons why we need this power. One is to enable those taxes and duties which are already in contemplation to be devolved. Then there is the question of future specified taxes, which relates to Calman. We may or may not come back to the question of an air passenger duty and an aggregates levy, which we discussed at length in Committee. However, this power is needed under the construct which the Government propose whereby we have APD and an aggregates levy to be devolved in due course. We are not in a position to do so at the moment and the power is required to enable that to happen. However, I completely accept that that is a separate matter from the identification of future taxes and how that relates to the Calman recommendation. It is clear that there are different interpretations of what Calman recommended, as we have heard this afternoon. I could read out large chunks but I suspect that would not lead to our agreeing on the precise construction of the words. I repeat that I believe that Calman envisages the devolution of future specified taxes rather than just taxes that have been specified up to this point. I agree that the words are not easy but I will quote a chunk from Calman:
“We see no reason why the Scottish Parliament should not be able to legislate to create new taxes that affect the whole of Scotland uniformly and not just via local taxation, if it does so with the agreement of the whole UK Parliament”.
I believe that that is the context in which this central power should be seen.
I will not repeat our previous discussion but I remind noble Lords that, whether they have noticed it or not, a very similar power is embedded in Section 30 of the Scotland Act. Therefore, like it or not, it is simply a fact that that power has existed for a number of years and there is a record. That relates to one of the points made by my noble friend Lord Lang of Monkton about abrogation or abnegation—whichever or both—of responsibility by HM Treasury. It is already clear from the operation of Section 30 and requests made under it to devolve tax and non-tax powers that the Government have a record of looking carefully at the evidence and rejecting any proposals that do not meet the tests that, in the context of the Bill, we will come on to talk about a little later.
I say to my noble friend that there will be no shirking of responsibility by the Treasury or any other part of government. The tax, and evidence base for any proposal to devolve responsibility for a particular tax, will be agreed between the UK and Scottish Governments before the Government bring any order before the House under the affirmative order procedure. We will come on to this, but the impacts will have to be assessed in line with the guidelines set out in the Command Paper. We will discuss what the standing of those guidelines should be, but that is how any proposal will be assessed.
The power is necessary and appropriate as regards the two taxes that have been identified but which we are not in a position to devolve at this time. The power is consistent with the construction of Calman, which I believe is appropriate, and consistent with the spirit of Section 30 of the Scotland Act. The evidential base will be properly assessed against the criteria set out in the Command Paper that we will discuss in more detail shortly. After this useful discussion, I ask my noble friend Lord Forsyth of Drumlean to withdraw the amendment.
My Lords, I am most grateful to my noble friend for that very unsatisfactory response. He has not answered any of the points that have been made, particularly as to whether he could give an example of where taxes have been imposed by secondary legislation, subject to a vote in this House. His comparison with the Section 30 procedure in the Scotland Act to justify this is ridiculous. On that basis, Ministers could impose taxes on England using the secondary legislative procedure because there is a precedent of secondary provision in other legislation.
My noble friend did not read out the bits of the Calman report to which he referred because I suspect that they are crystal clear. It talks about specified taxes, and when I have repeatedly asked the Minister to specify the taxes that could be imposed using this power, we have been told that the aggregates levy and other taxes could be written into the Bill, with a commencement provision by order. I would not have a problem with that.
My noble friend says that he does not understand what the constitutional difficulty is, because the Scottish Parliament will follow its procedure in deciding on the tax. However, the ability to raise taxes on the people of this country should reside with the House of Commons. The House of Commons, having gone through the proper procedures may delegate decisions to the devolved institutions, but what my noble friend is doing is turning that principle on its head. I do not wish to embark on the debate on the next set of amendments and the sensible amendment of the noble Lord, Lord Browne, but one has only to look at the first subsection of his amendment, which states that the use of the section,
“shall be assessed against the following criteria … the potential for the new tax to create or incentivise economic distortions and arbitrage within the UK … the potential the new tax might create for tax avoidance across the UK”.
These are matters of interest to people not just in Scotland but in the rest of the United Kingdom, and should be debated properly in the normal way that applies to tax policy—on the Floor of the House of Commons, not in this place by order. We have no business in relation to the imposition of tax, and have not had any since 1911.
This is a constitutional outrage. The justification for it is unclear. It appears that the Minister is not prepared to include aggregate tax in the Bill because there is a legal dispute over entitlement to raise aggregate tax and it is therefore necessary to have this completely open-ended provision. When my noble friend relies on criteria which he says that the Treasury will apply before using the power, he should wake up and go to Scotland to see how the First Minister and the Administration there behave. The First Minister will eat the Treasury for breakfast if the Scottish Nationalists have won a landslide victory and want to impose a new tax—perhaps a local income tax, perhaps a tax on London gin, or whatever. If the Treasury says, “This does not meet our criteria”, he will say, “I have a mandate. It is in the Bill. It was agreed. We gave legislative consent”, and we will be faced with a stand-off with the Executive down here. That is exactly the kind of confrontation that he will provide.
Why can we not have clearly defined in the Bill the tax powers that are to be devolved, rather than creating this open-ended commitment that will be used in every way possible to argue for new taxes, which will put the Treasury in the role of the unco-operative man in Whitehall who knows better than the people of Scotland?
I understand that my noble friend feels very strongly about these matters, but does he agree that the Scottish Government, in the process leading up to the Bill, asked, among other things, for the assignment of excise duty revenues and the devolution of corporation tax, but have not got them? With all due respect to him, the idea that the Government will somehow roll over to every request from the Scottish Government is simply wrong, as evidenced by the perfectly proper negotiations leading up to the Bill, where the Scottish Government have not remotely had all their asks granted.
I am most grateful to my noble friend for the stand that he has taken on corporation tax. That is an example of an existing tax. We are not talking about existing taxes. My noble friend has confused the issue—I am sure not deliberately. We are talking about the creation of completely new taxes that would apply only in Scotland but which might have an impact on the rest of the United Kingdom.
I am simply saying that the procedure included in the Bill, which requires that to be dealt with by order, is inadequate. It should be dealt with by primary legislation. My noble friend is, in effect, enabling Ministers, by Order in Council—without having to go through the whole difficulty of introducing primary legislation—to give consent to new taxes that might be proposed by the Scottish Parliament. In doing so, he is driving a coach and horses through the way in which we levy taxation in this country. That is a huge step and that is why I feel strongly about it.
What is particularly irritating is that it is unnecessary to do that to achieve my noble friend’s objectives. In his reply, he said, “Of course, we have these agreed criteria”. Everything he said has been about how the Executive will ensure that there is protection. The whole point of our parliamentary democracy is that Parliament should provide protection for the people, because it is accountable to people in a way that the Executive are not. The Executive are accountable to Parliament. This procedure suggests that we should have an order. In this House, not only is it unamendable but, by convention, we do not vote against it.
That is a big step for no apparent reason other than administrative convenience—unless, of course, it is in the Government’s mind that they want to give more powers to raise taxes or create new taxes without the bother of having to go through the procedure of having another Scotland Bill. I can well understand, given the time that I have devoted to my noble friend, why he might wish not to have another Scotland Bill and prefer the convenience of this procedure, but that is not right. Therefore, I am not satisfied with his response. I can see that I am not going to change his mind, and I am certainly not going to win a vote on this, so I beg leave to withdraw the amendment.
Amendment 15 withdrawn.
16: Clause 27, page 20, line 24, at end insert—
“(7) The use of an Order in Council under subsection (1) of this section shall be assessed against the following criteria—
(a) the potential for the new tax to create or incentivise economic distortions and arbitrage within the UK;(b) the potential the new tax might create for tax avoidance across the UK;(c) the impact of the proposed tax on compliance burdens across the UK; and(d) the compatibility of the new tax with EU Legislation and Rules, such as those covering State Aid and the Single Market, and the Human Rights Act.(8) In proposing an additional devolved tax under subsection (1) of this section, the Scottish Parliament shall provide evidence in support of the criteria specified under subsection (7), including in particular—
(a) the rationale for the devolution of such a tax;(b) the intended tax base, taxable activity and expected revenue;(c) an assessment of the expected distributional impact, including the impact on business and individuals and the wider economic impact;(d) an assessment of compatibility with the Human Rights Act, EU State Aid rules and other directives;(e) plans for the collection and administration of the tax, including means of ensuring compliance; and(f) an assessment of any interaction of the proposed new Scottish tax with UK-wide taxes, including plans to protect policy and geographical borders.”
My Lords, I beg to move Amendment 16 standing in my name and that of my noble and learned friends. It provides an opportunity for the Minister to make his own contribution to the new-found relationship between the House and the ministerial Front Bench and show that the Government are not only listening but responding positively to positive and helpful amendments that are being tabled to this legislation. We have had two very positive responses on Report today. I think that this is the time for a third positive response, and the Minister has the opportunity to make his own distinct contribution to that.
As I said in a previous debate and as has been apparent in the discussion about Clause 27 thus far, the provisions of the clause are of great significance, constitutionally or otherwise. However, the tenor of the debate in this House, both in Committee and today on Report, demonstrates that it is precisely because of the significance of this provision that there are legitimate concerns over democratic accountability in the exercise of the provision as presently drafted.
In creating the mechanism for the devolution of future taxes to the Scottish Parliament, the Government are providing a stable framework for the continued development of the devolution settlement and, in many ways, for the natural progression of the Calman commission project. It is significant that the commission did not at any point suggest that any new taxation powers should be devolved using the Section 30 order mechanism, which I agree with the Minister could be used for the devolution of taxation. Any of the taxes provided for in the Bill, or indeed any future taxes, could be devolved through a Section 30 order. However, I am not proposing to open a debate about that because, from the way they have chosen to proceed, the Government have clearly come to the view that that is not desirable and that in fact another mechanism should be framed in primary legislation for the devolution of any new or specified taxes. I imagine that the Minister will be able to confirm that that was a deliberate decision as they thought that it would be inappropriate constitutionally to make these significant changes or to allow them using the existing mechanism, and that there needed to be a separate and well understood distinct mechanism for doing so.
For that reason, we on these Benches believe it is important that the conditions which we have debated at some length—I shall not go into the detail of them—and which will be applied to any proposed devolved tax should be clearly understood and set out. Not only do they need to be transparent but the Executive—in the exercise, through Order in Council, of the specification of taxation in the future—needs to be accountable to Parliament. At the very least, there needs to be some mechanism to make the Executive accountable in their future dealings with the Scottish Government against the criteria that the Government themselves set out in the Command Paper, informing how they will exercise this power. Therefore, we support the mechanism but we believe that Parliament should have the right to debate and, if necessary, to amend the criteria to be applied in assessing the convincingness of the case to be made for the devolution of taxation in the future.
In their Command Paper on the Scotland Bill, the Government provided a helpful sketch of the criteria to be applied when considering any future new devolved taxes. However, unless these criteria are placed in the Bill, Members of this House and the other place will have no ability to comment on or amend that list; they will just have to accept it. It is on that consideration that I tabled Amendment 16, which would place in the Bill the list of criteria to be considered for the use of an order to add a new devolved tax, so that Parliament can vote for Clause 27 in the full knowledge of how it will be applied in practice. I imagine that the Minister will not wish to argue with any of the specific criteria listed in the amendment as it transposes verbatim the list in his own Command Paper, so we cannot have a dispute about the criteria. I must assume that if he does disagree, which I hope he does not, his disagreement will lie in an attempt to increase the democratic accountability of the clause.
I am coming to the end of this argument because it is comparatively simple, without going into the detail of it. The Government have given us the makings of a full and properly accountable Clause 27 but they have not brought them together. I recognise that there may be a deficiency in the drafting and that there is an opportunity to take it away and correct it, but all I seek is to bring the two parts of the Government’s thinking together and to put them into a legal framework in such a way that in future—well, actually we can debate now whether these are appropriate criteria or whether they should be augmented or further explained, and if not, we can settle them—we will know transparently that the test has been properly applied.
I am doing this for one other reason, which is very important, too. The Bill will not become active unless there is a legislative consent Motion in the Scottish Parliament. If these criteria are in the Bill, the Scottish Parliament will have to approve them. When the Scottish Parliament has approved them by a legislative consent Motion, which I am confident it will, we will have agreement. We will then have a framework against which to test any future decision we make on whether it complies with the agreement and the Scottish Parliament will know whether the criteria are met. It cannot say in future, “This is a set of criteria that those people in London thought up and imposed on us. They didn’t even have the good grace to put the criteria in the Bill, so they don’t apply to us. We don’t feel ourselves bound by them because they are in your Command Paper and not in ours; whereas, if the criteria are in our agreed legislative framework, we may have a dispute on whether they are met but at least we will know what they are and we will be able to make the argument that you have failed to meet the criteria that you voted for yourselves”.
My Lords, I support the amendment. It is not even half a loaf. I hate the procedure but I agree that it is a great improvement for the reasons that the noble Lord put forward—the last one, in particular: that it would make it clear where the boundaries were in the use of this extraordinary open-ended power.
I have not seen my noble friend’s brief, but I am prepared to stick my neck out and make a prediction, which is that he will not accept the amendment. Writing it in the Bill will create the opportunity for judicial challenge, and the Treasury loves being able to decide the rules and not be subject to challenge. I do not think that my noble friend will like the amendment because it will constrain what he seeks, which is for the Treasury to decide what will and will not happen. He underestimates the extent to which there will be a political challenge from north of the border. I accept that this is an advance so I support the noble Lord’s amendment.
I support the amendment in the name of the noble Lord, Lord Browne of Ladyton, for the first and last reasons he gave. Like the noble Lord, Lord Forsyth, I very much agree with the last reason, but also the first. I hope that the prediction of the noble Lord, Lord Forsyth, is not true. It is unsatisfactory to have these criteria only in a Command Paper. They should be in the Bill, so I very much hope that the prediction is wrong.
My Lords, perhaps my noble friend can assist me. I wonder whether the proposals in the amendment owe something to Monty Python. Proposed new subsection (7)(b) refers to,
“the potential the new tax might create for tax avoidance across the UK”.
My jaw dropped when I read that. I will be fascinated to hear what my noble friend says when he directs his attention to it.
My Lords, I, too, take the amendment as a small step in the right direction. I merely ask the noble Lord, Lord Browne of Ladyton, whether he agrees that if the Government do not accept the amendment, it will give great force to the previous amendment of the noble Lord, Lord Forsyth. Of course, if the Government do accept the amendment, it will be a small step in the right direction. However, it does not abrogate the point that I and—much more huffily—the noble Lord, Lord Forsyth, attempted to make when we debated the previous amendment, which remains the best one. I do not know whether the noble Lord, Lord Browne, is in a position to answer that before the Minister replies.
Then it was a no for a very good reason.
My Lords, I thank the noble Lord, Lord Browne of Ladyton, and the noble and learned Lords, Lord Davidson of Glen Clova and Lord Boyd of Duncansby, for the amendment, which exposes an important issue that it is quite right that we should debate. As was well anticipated, I say at the outset that it does not find favour. However, in the spirit in which the noble Lord, Lord Browne of Ladyton, led me on, I will be positive in my response, because there is further reassurance to be given here about what I hope your Lordships will think is a pragmatic and proportionate way forward.
I am not sure whether we are talking about Amendment 17 at this point. My noble friend did not speak to Amendment 17, which is a fundamental one about removing the ability of the Scottish Government to legislate on any taxes that are devolved. Perhaps I will not need to say very much about that; it links to our previous discussion.
I thank the noble Lord for that clarification.
Amendment 16 inserts the conditions and procedures required prior to the devolution of further taxes. It would put the considerations required for the devolution of a new tax outlined in the Command Paper on a statutory basis. Of course I confirm at the outset that the Government still fully agree that the criteria in our Command Paper are the right ones. In that sense, the words were picked up correctly and I am afraid that I have to hold up my hand to my noble friend Lord Lyell and remind him that the criteria came from the Government, so there is no way for me to avoid the accusation of Monty Python-speak—I cannot pass on the responsibility to the noble and noble and learned Lords who tabled the amendment.
I hope that my noble friend recognises the serious point that in devolving responsibility for taxes, we do not want knowingly to set up a massive opportunity for tax avoidance because of a mismatch in the tax systems between two parts of the United Kingdom. That is rightly what the criteria are intended to prevent. There is no question about the criteria; we endorse their aims. I think that even my noble friend, Lord Forsyth of Drumlean, would accept that if there are to be criteria, he has not suggested any better ones. So that is a good starting point. The question then becomes about the statutory basis or otherwise. First, I suggest that because we all agree about the nature of these criteria without debate, perhaps they are self-evidently the criteria which any Government would use. They are common-sense criteria which any Administration or Parliament would address in looking at these matters. They are self-evidently reasonable and have not been challenged. That questions why we need to state the obvious in statute. However, I appreciate the concerns and let me come to the positive of how we can reassure noble Lords on this point.
This links to Amendment 29, which we will come to later: the proposal to place a statutory requirement in the Bill for both Governments to provide updates to their respective Parliaments on the implementation of the Bill. That is the mechanism under which the Government propose these criteria should be properly considered. The criteria themselves can be debated and discussed before any proposals come forward to this House and another place, and to the Scottish Parliament.
This provision recognises that the implementation of these measures will be very important. Under the proposal that we will come to in Amendment 29, there is a requirement that both Parliament and the Scottish Parliament be well informed after the Bill completes its passage through your Lordships’ House but before further and future proposals come forward for taxes that might be devolved. I can specifically commit that the first report under this new power, which we will propose later, will be published within 12 months of Royal Assent and will include the criteria set out in the Command Paper. So the criteria will come in the first report that will be presented. They will be included in the detail of the report, which will allow consideration and possibly debate in this House if your Lordships consider it appropriate. In that way, I believe we will go as far as reasonable or necessary to have a specific debate, to make it absolutely sure for the avoidance of doubt in a paper which comes forward to both Parliaments that the criteria are indeed the criteria following passage of the Bill.
Before the Minister draws this red herring across our path, it will be interesting to discuss these proposals when we come to that point in the Bill. As we all agree that this is a model set of criteria that in some way circumvent the use of this power, what is his objection to putting them in the Bill? Nothing he has said explains why he should not accept the noble Lord’s amendment and put it in the Bill. It is written by his Treasury staff, they are his own words, everyone agrees that they are sensible criteria and it will offer reassurance to us, so why is he not prepared to accept this amendment? Is it because he is worried about judicial challenge?
No, I am not specifically worried about judicial challenge. I just think that it is reminiscent of debates I am becoming increasingly used to in your Lordships’ House. I am sure many noble Lords are much more familiar than I am with these arguments that regularly come up: if it is so obvious, we do not need to put it in because everybody understands it; or, if it is so clear and everybody accepts it, let us put it in. I have suggested to your Lordships that the criteria, based on the limited discussion that we have had here, are widely accepted. They should be debated if your Lordships want to debate them properly.
We do not have the opportunity here, and have not had it in Committee, to debate the criteria in detail because we have a “take it or leave it” provision to put them in. I believe that the proportionate, appropriate and sensible way forward is to set them out in the first report that we will require, if the House agrees, under Amendment 29. At that point, if your Lordships want it, there could be a specific debate on the criteria.
The trouble with that is that it is retrospective. It is about things that have happened and the use that has been made of powers. That is what reports are about. The safeguards in the amendment tabled by the noble Lord, Lord Browne, and in the Command Paper are about affecting the procedure prospectively when the Parliament in Scotland wishes to introduce a new tax and the Government in London are considering an Order in Council. I see a huge difference there, and it would be very good to have these in the Bill. I have not heard a convincing argument against that from the Minister.
I believe that the noble Lord, Lord Kerr of Kinlochard, has not quite got the construction right. The report proposed under Amendment 29 will be on the implementation of the Bill. The first report will come forward 12 months after the Bill is passed and will be about implementation matters. One of those implementation matters, which I am making a commitment to include in that report, is around the Command Paper criteria. It will be a report on implementation and will include things that have been done in the period since Royal Assent, which will include confirmation of the criteria. They will then be debated. It will have prospective effect in the sense that it is most unlikely that in that time any new proposals will have come forward for the devolution of further tax powers. Therefore, the debate on the criteria will happen before they take effect when any further proposals for devolved taxes come forward. The noble Lord shakes his head, but in that sense it is looking forward and is entirely consistent with the nature of the report that we envisage. I hope that reassures him on that point.
The second commitment around this issue, which it is important to get on the record, is that the Government are happy to commit to publishing an assessment on any occasion that the power is used. That report will confirm how any order brought forward under the new tax provision meets the criteria. Again, this information will not just be used by the Government in their assessment of the criteria coming forward, but will be wholly transparent to your Lordships’ House and be part of what your Lordships will have available to them to satisfy themselves that the Government are properly considering the criteria when they come to exercise this power and put an order forward.
The information will clearly need to cover all the relevant criteria included in the Command Paper. It will do so in a proportionate level of detail. I repeat for the avoidance of any doubt, by my noble friend in particular, that the Government have already been clear—I have said it this afternoon—that a number of tax proposals from the Scottish Government have already been made without the provision of sufficient evidence and requests have been declined a result.
On Amendment 16, I hope that I have responded to the specific request of the noble Lord, Lord Browne of Ladyton, to come forward with a new and positive proposal, which I hope addresses the substance of his amendment. I respectfully ask him to withdraw it.
My noble friend said that what the noble Lord, Lord Browne of Ladyton, had proposed in his amendment was self-evident. For many of us who live north of the border, what we consider to be self-evident is not what the Scottish Executive would consider to be self-evident. This causes huge concern, of which I am not certain that my noble friend is aware. We are very sceptical of what is happening north of the border. What to us might be self-evident, and what might be in a report produced by a UK Government under Amendment 29, still does not bind the Scottish Executive.
I ask my noble friend to reconsider the last point made by the noble Lord, Lord Browne of Ladyton. This will be subject to a legislative consent Motion, and if we can tie the Scottish Executive in under that, we will be happier.
My Lords, I hope I can reassure my noble friend that that is exactly what will happen under Amendment 29, because that will require both Governments to provide updates to their respective Parliaments on the implementation of the Bill. If we are not able to give a report that confirms that the criteria envisaged under the Command Paper are accepted by both Governments, that will become clear when we see the first report after the passing of this Bill.
Before the Minister sits down, perhaps he could help me. In his answer, he made reference to a tax being an “empty space”. In the Bill, new Section 80B includes,
“a tax of any description”.
Let us assume that this tax is not presently a United Kingdom tax or one that the Scottish Parliament has adopted, but a new tax that could have implications for the United Kingdom. On the point about space, I would have expected that the proposer of the new “tax of any description” would have a clear idea of what he wanted Parliament to provide for it—the shape and mechanics of it, and the rest—all of which would have to meet the Command Paper requirements.
Nowhere in legislation are these criteria set out, yet proposed new subsection (8) of Amendment 16 —which logically should come before proposed new subsection (7)—requires the “additional devolved tax”, this empty space, to comply with the criteria. You can argue that the criteria should be stated first and thereafter the proposal should be shown to be thought through in the context of statutory criteria, rather than leaving it on the basis that the proposals will come forward in the Order in Council and Parliament will not have any indication of why the Scottish Parliament considers it a space that is conclusive of the criteria. I see nothing in Amendment 29 which requires that kind of material to be reported to Parliament in advance of Parliament considering the Order in Council. Perhaps the Minister will explain. His metaphor of the empty space was very apt as the Bill stands.
Perhaps I may come back to what the noble Lord, Lord Browne, said at the end of his speech. Having his amendment in the Bill would bind the Scottish Parliament to its vote for the whole of this exercise. That is the most important part of this whole business. I cannot for the life of me see why the Government cannot accept it.
Before the Minister replies, to qualify what the noble and learned Lord, Lord Cameron of Lochbroom, asked, will the Minister be specific and say whether the empty space could include a tax on Sassenachs who own cottages, a window tax or a land tax?
My Lords, perhaps I may remind the House that:
“Only the mover of an amendment or the Lord in charge of the bill speaks after the minister on report except for short questions of elucidation”—
as I mentioned before—
“to the minister or where the minister speaks early to assist the House in debate”.
My Lords, let me give a brief response to the noble and learned Lord’s question. If we take the example, say, of stamp duty land tax, we have not set out the new tax framework for land tax in Scotland, which will be for the Scottish Parliament to do. We have devolved the policy space. It will be for the Scottish Government to design a new system that suits the requirements of Scotland, which will go through the tax-making procedures of the Scottish Government and the Scottish Parliament. That is exactly the approach which will apply to any new tax devolution proposal. It is as simple as that.
We are going back to another question. I am answering the question about the empty space that is created. It is easiest to do that by reference to a specific example of where we are creating the space within which the Scottish Parliament will have the ability to create a new tax framework to fill that space. That example is specifically envisaged. By analogy, that is how I anticipate it will work for possible other taxes in the future if they meet a number of thresholds and requirements, legislative and otherwise, including meeting the requirements that we have been discussing in the Command Paper.
My Lords, I am extremely grateful to all noble Lords who have spoken in this debate. I am particularly grateful to the noble Lords, Lord Forsyth of Drumlean and Lord Kerr of Kinlochard, for their comprehensive support, stated commendably briefly, for my amendment. I very much thank the noble Lord, Lord Sanderson of Bowden, and the noble Earl, Lord Caithness, for their specific support for the last argument I made, which is the key perhaps to the future of this amendment.
I am also extremely grateful to the noble and learned Lord, Lord Cameron of Lochbroom, who has made a suggestion that will improve the amendment. I agree with him that the order of the amendment would be more fortuitous the other way around but we may have an opportunity to come back to that. I have to say that I will come back to the noble Lord, Lord Lyell, but I thank him for his intervention about “Monty Python”. He has given me an idea for a peroration, which I think he will appreciate—but he will need to wait for it.
In the way in which the Minister has responded to the debate he has entered into the spirit of the day, but that is where it ends. He has only entered into the spirit of the day; we now need to get the content. The Government are listening and responding to the House’s position on this provision. I think that the Minister gets it and understands the point. Although I was a Treasury Minister for a period, I am not entirely sure where the blockage lies but I am sure that it can be moved.
The Minister says that he has made the arguments and hopes that they are convincing. I have to say that I do not think that he made any arguments on either my first or second points, the first being that it would be better if this extensive provision was ring-fenced by the Government’s own criteria in the Bill for the purposes of accountability, at least for the future. With respect to the Minister, a report—I will have to look carefully at the words he used about how it will work—which is an augmentation of one that is part of the agreement with the Scottish Government for the legislative consent Motion will not do. It will not do for all the reasons that the noble Lord, Lord Kerr, and others identified. Although it may have a degree of prospectiveness about it, the problem is that it would be more likely to be retrospective. However, even if it is prospective, it does not have the element of accountability about it that your Lordships’ House is looking for and the Opposition are looking for.
I could have been convinced by some offer that was more solid than the one that was put to me, but I am not persuaded by that offer. I am wary of the devolved taxation equivalent of an impact assessment report, which I think is what he also offered me. A statement by a Minister saying that these criteria are met will not be enough for this purpose. I am afraid that it will probably come to some Minister, whose bona fides I am not questioning in advance, saying, “The criteria that we set are met by this”, or “I assure the House”, or whatever. That will not quite be enough for this.
Even if I have not, and we cannot, find in this Bill a mechanism that gives the accountability that I—and, I sense, your Lordships’ House—would like to see, the Minister did not address at all the point about how we get the Scottish Parliament and Scottish Government to buy into and own these criteria. Experience tells us that that is essential. Even when they do buy into and own criteria or legislation by legislative consent Motions, they deny it later on, or they say that it was not enough, or they ask for more. That I can live with. We can debate that. That is politics. But we surely need to get the Scottish Government and Scottish Parliament to own the whole of this process. We cannot allow them the deniability of saying, “That was your Command Paper. It’s not got our imprimatur on it. We did not agree to it. What we agreed to is in the Act, so we are not having these London-based criteria imposed on us”. We all know this script. They need to own them. If they want these powers—and they do—then they need to own the whole package. I do not know whether the Minister or any of his colleagues have applied their minds to how to get the Scottish Parliament and Scottish Government to own this package, but there is a very simple way: get them to pass a legislative consent Motion for an Act of Parliament that includes them.
How, therefore, given that I am not convinced by the Minister’s arguments, do I propose that we deal this issue? Members of the House will be relieved to know that I do not intend to divide the House in the afternoon of the day before Recess. I do not intend to do so for this reason: that the Bill has another stage to go and I wish to continue talking to Ministers about this issue. I sense a growing coalition across the House for a revision and amendment of the Bill which could attract wide support and I have not had the opportunity to build that coalition. I am being open. I want an opportunity to try to build a coalition for an amendment that will find favour with your Lordships’ House and have some possibility of being passed.
I make one more offer to the Minister—I do not expect him to respond now—to engage to see whether we can find a way of amending the Bill or of obtaining from the Government a bankable undertaking that is owned by the Government and the Scottish Government. I cannot see what that can possibly be other than this amendment. I shall not be leaving the country during the Recess and I will make myself available for any discussions—if I can, I will bring members of our own Treasury team with me—to see whether we can find a way around this issue and, if we can, I shall be happy to commend it to the House.
If the noble Lord does not get the response that he is seeking and he is right in divining that others are seeking, then he should not rely on his intuition about coalition around his point. I think he can have the assurance that a number of noble Lords on these Benches are of the same mind as he is.
I am extremely grateful to the noble Lord for his contribution. I know where the key to success in a vote in this House lies: it is on those Benches. I am fortified in my resolve to try to improve this legislation.
The noble and learned Lord, Lord Wallace of Tankerness, will confirm that at all stages of this process I have endeavoured to be constructive and helpful. This provision has to be improved, although not necessarily directly in the way I have proposed. I am happy to be flexible but my suggestion passes my only test: it improves the ability of the Bill to contribute to the betterment of the Scottish people while, at the same time, strengthening the union. It gives us an argument that is owned across the union which we can deploy in the future.
I say to the noble Lord, Lord Lyell, that, as far as the amendment is concerned, this parrot is very much alive; this parrot is not no more and it is not deceased. It may not fly today, but it is very much alive.
I gave the Minister advice about Scottish football on a previous occasion. He scorned it, and he got himself into an argument in the House about Scottish football which he could have avoided. I give him this advice now: do not tempt the noble Lord, Lord Forsyth, to go away and come up with better criteria. I am almost certain that we will return to this issue at Third Reading. I beg leave to withdraw the amendment.
Amendment 16 withdrawn.
Amendment 17 not moved.
18: After Clause 27, insert the following new Clause—
“Changes to United Kingdom income tax which are detrimental to the income of the Scottish Government
(1) In this section, a “change to the United Kingdom income tax system” refers to any change to the operation of personal income taxation in the United Kingdom, including but not limited to personal allowances and tax rates, introduced by an Act passed by Parliament.
(2) The Office for Budget Responsibility shall assess the impact of each change to the United Kingdom income tax system and publish its assessment of whether the change decreases the total income tax take.
(3) In preparing a report under subsection (2), the Office for Budget Responsibility shall choose the number of years in which it wishes to assess the impact of each change to the United Kingdom income tax system.
(4) If any assessment conducted under subsection (2) indicates that the United Kingdom Government’s income tax take in any tax year will decrease, then—
(a) there shall be no related increase in grant funding provided to the Scottish Government;(b) a Scottish rate resolution under section 80C of the Scotland Act 1998 may not be passed or replaced solely to reflect any consequent decrease in income accruing to the Scottish Government;(c) the Scottish Parliament may by resolution (a “Scottish allowance resolution”) adjust the personal allowances set out in sections 35 to 37 of the Income Tax Act 2007 to increase the income of the Scottish Government up to the level it would have been prior to the change assessed in the report made under subsection (2).(5) A Scottish allowance resolution made under subsection (4)(c)—
(a) applies for only one tax year, and for the whole of that year,(b) must specify the tax year for which it applies,(c) must be made before the start of that tax year,(d) should set personal allowances for each of sections 35, 36 and 37 of the Income Tax Act 2007, and set no other allowances, and(e) may only apply to a tax year which has been the subject of a published assessment by the Office for Budget Responsibility in a report prepared under subsection (2).(6) If a Scottish allowance resolution is cancelled before the start of the tax year for which it is to apply—
(a) the Income Tax Acts have effect for that year as if the resolution had never been passed, and(b) the resolution may be replaced by another Scottish allowance resolution.(7) Standing orders must provide that only a member of the Scottish Government may move a motion for a Scottish allowance resolution.
(8) The provisions of subsection (4)(a) and (b) shall apply to any tax year that has been the subject of an assessment conducted under subsection (2).
(9) The Income Tax Act 2007 is adjusted as follows.
(10) In section 35 (personal allowance for those aged under 65), at the end insert—
“(5) If the individual is a Scottish taxpayer under Chapter 2 of Part 4A of the Scotland Act 1998 then the personal allowance in subsection (1) may be adjusted to any amount set out by the Scottish Parliament in a Scottish allowance resolution.
(6) Section (Changes to United Kingdom income tax which are detrimental to the income of the Scottish Government) of the Scotland Act 2012 makes provision about the setting of the personal allowance for Scottish taxpayers.”
(11) In section 36 (personal allowance for those aged 65 to 74), at the end insert—
“(4) If the individual is a Scottish taxpayer under Chapter 2 of Part 4A of the Scotland Act 1998 then the personal allowance in subsection (1) may be adjusted to any amount set out by the Scottish Parliament in a Scottish allowance resolution.
(5) Section (Changes to United Kingdom income tax which are detrimental to the income of the Scottish Government) of the Scotland Act 2012 makes provision about the setting of the personal allowance for Scottish taxpayers.”
(12) In section 37 (personal allowance for those aged 75 and over), at the end insert—
“(4) If the individual is a Scottish taxpayer under Chapter 2 of Part 4A of the Scotland Act 1998 then the personal allowance in subsection (1) may be adjusted to any amount set out by the Scottish Parliament in a Scottish allowance resolution.
(5) Section (Changes to United Kingdom income tax which are detrimental to the income of the Scottish Government) of the Scotland Act 2012 makes provision about the setting of the personal allowance for Scottish taxpayers.””
My Lords, the amendment seeks to outlaw the practice, which my noble friend laid bare before us at an earlier stage of the Bill, whereby the Scottish Parliament is able to raise 10p in income tax but, if the tax base is narrowed, the Treasury sends it a cheque.
The current Budget, quite rightly, raised the threshold at which people pay income tax, which will be very beneficial to people in Scotland. If this system were in operation today, not only would everyone enjoy a lower tax on their income in Scotland but the Treasury would send a cheque for the equivalent amount in the reduction in the tax base to add to the block grant—which drives a coach and horses through the whole idea behind this Bill, of bringing accountability to the spending practices of the Scottish Parliament. It should not be compensated for a reduction in the tax base that arises from a reduction in income tax in the rest of the United Kingdom. It is an absurd proposal.
I am very nervous that my noble friend may accept this amendment, because it extends the powers of the Scottish Parliament very considerably, in a constructive way. I know my noble friend, at an earlier stage in the Bill, said that the Scottish Parliament cannot change the allowances, and therefore the reduction in revenue would be as a result of something that was done in the United Kingdom. The amendment provides for the Scottish Parliament to be able to change the allowances and gives it more power. I listened to the noble Lord, Lord Kerr, and can see the logic of that.
My noble friend may not like that at all, because it adds to the complexity of the devolution of income tax. I noticed he said earlier that the block grant would be about 60 per cent of the expenditure. We keep hearing that the Parliament will be raising 35 per cent of its own expenditure through tax—but that is a dishonest figure. The amount that will be raised by the 10p on income tax is about £4.5 billion. We are looking forward to discussing this later today, but it just so happens that when the Barnett committee, which was established as a result of the efforts of the noble Lord, Lord Barnett, looked at this, the estimates of the additional grant that Scotland had over and above what would be based on needs was about £4.5 billion. That is what 10p on income tax, broadly speaking, will raise. It is about 15 per cent of the block grant and it has all the problems that we have with local government finance, where a small increase in expenditure needs a large increase in income, because of the gearing effect. Therefore, it may be sensible to broaden the tax base, which is another reason for having additional sources of revenue other than income tax, such as the aggregates tax and so on and so forth. I can see myself being sucked into this process of additional tax-raising powers. It is the slippery slope that my noble friend Lord Lang referred to.
The purpose of this amendment is to deliver what all those advocates of this Bill, whom I have spent most of my life opposing, say that the Bill is about and to remove this extraordinary idea that Scotland should benefit both ways—and no self-respecting Scot would want this—by getting both the reduction in the tax and the additional grant. It is very straightforward and because the hour is late, I will not elaborate on it any further. I beg to move.
My Lords, in the enforced absence of my noble and learned friend Lord Davidson, I rise with considerable trepidation to speak on these clauses. Having spent some time reading myself into the debates that your Lordships have had on this Bill, I cannot feel that they have been entirely enlightening.
With respect to the amendment proposed by the noble Lord, Lord Forsyth, I am afraid that he shot his own fox in his remarks, when he pointed out that by varying the tax base as well as tax rates he will increase enormously the complexity of any tax changes that might affect Scotland. On top of that, when you increase complexity you reduce transparency and accountability. To have proper accountability we need to have clarity. By changing both the tax base and tax rates or putting both into play, within a very short period of time we could have enormous complexity in the Scottish tax system relative to that in the reset of the United Kingdom. The notion of accountability would be lost.
I am grateful to the noble Lord and I sympathise with him if he has had to read all our proceedings, but this is not my fox. I am opposed to having these tax powers for the very reason that, to make it work, it would be excessively complicated. It is the fox of his noble friend Lord Browne, not mine.
By introducing tax allowances, the noble Lord seems to be adding to the creature to be chased.
I pose a couple of questions about this issue, which comes under the general heading of “no detriment”. As I understand it, the whole concept of no detriment is to require all government departments—and, in this case, the UK Government with respect to the devolved powers in Scotland—to take account in their decisions of any detriment that they might impose on the Scottish Parliament and its revenues.
As I understand it, any proposal of this sort would be intra-budget in the sense that it is within a budgetary year. In a letter from the noble Lord, Lord Sassoon, to the noble Lord, Lord Forsyth, dated 19 March, he stated that,
“it is highly unlikely that a UK Budget would announce a change in income tax policy to be implemented within the same fiscal year”.
I understand that he is referring to something within a budgetary period—in other words, not from one budget to the next, when the negotiated taxes, allowances and block grant are made clear—but to some amendment that takes place within a budgetary period. Perhaps he could clarify exactly what he meant by that part of his letter.
On another element of clarification, I turn to the Written Statement made by the noble and learned Lord, Lord Wallace, on the Scotland Bill, on 21 March, when he referred to the application of the model recommended to the Welsh Assembly in the Holtham report on the tax and budgetary arrangements between the UK and the Scottish Government. I would be grateful if he could clarify exactly what is meant by the Statement that it,
“will help protect the Scottish Government’s budget from wider macroeconomic shocks”.—[Official Report, 21/3/12; col. 62WS.]
Given that in the face of a macroeconomic shock any change is unlikely to be reflected in the tax base, because that takes so long to implement, what does this actually mean? Could he give us an example of how a macroeconomic shock would in some way lead to a change in the tax base affecting Scotland within a fiscal year? I am completely puzzled by that; it does not seem to make any sense at all.
There is one other area of puzzlement that I have with respect to this question, in the reference to the OBR, which appears in the amendment from the noble Lord, Lord Forsyth, and in government statements about the assessment of the impact of a change in taxation. In the report published on 21 March, the OBR said:
“We are therefore not able to produce a Scottish macroeconomic forecast to drive the Scottish tax forecast. Instead the methodologies we intend to use … are generally based on Scotland’s historic share of the relevant UK tax stream. We then generally assume that this share will be maintained at the recent average level in the future”.
However, if there is a change in allowances that assumption is invalidated, and therefore the OBR is not competent because it does not have the information it needs to perform the task which both the noble Lord, Lord Forsyth, and the Government wish it to perform.
In those circumstances the OBR says that, in due course and with a long lag, it can assess this. If the block grant is changed in the way that the Government have suggested, in response to a change in tax base—I agree with the Minister that that is how it should be done and not with the noble Lord, Lord Forsyth—and if the OBR finds that its preliminary assessment was misguided, will that be adjusted in future years or will we proceed with a methodology which the OBR admits is imperfect?
My Lords, let me first thank the noble Lord, Lord Eatwell, for confirming what I and the Government strongly believe but clearly have not communicated to my noble friend Lord Forsyth—that the no-detriment principle simply does not have the sort of double-benefit effect to Scotland that he seeks to portray that it has.
It is not a matter of “of course it does”. I regret that not all noble Lords seem to have been able to come to the briefing for all Peers that we had earlier this week to go through the Holtham-style block grant adjustment, because it is complex. Regrettably, under the conventions of the House, I cannot hold up charts and explain the money flows. However, that was precisely why we had an all-Peers meeting earlier this week, when we were able to go through the mathematics of this in detail.
I am grateful to my noble friend. However, he organised that meeting in the middle of lunchtime on Monday. We were given a few hours’ notice of the meeting, and some Peers did not even know that it was happening. Some Peers were travelling down from Scotland. This Bill has been around for 18 months, so if the suggestion is that we have not been considering the arguments or been open to briefing, it is not correct.
I am sorry—I have been very patient with my noble friend—but we had a very short window. We were asked to set up a meeting and we did so as quickly as we could. I appreciate that not all noble Lords could come but we did respond to the request for a meeting. If any other noble Lords had wanted a one-on-one explanation of the detail of how the adjustment works, my officials or I would have responded. I am not aware that any request was made because the meeting time was inconvenient. We have tried to be—
I am sorry. I was merely trying to suggest that we have been as accommodating as possible in the very short time that we had available. I am not aware that there were any further requests for a detailed explanation of the complicated series of adjustments that would need to be made to make sure that the no-detriment principle works in a symmetric way, and is not a double hit to either the Scottish or the UK taxpayer.
If my noble friend will allow me, the meeting was organised at 1.30 pm on a Monday when I was hosting a lunch. I replied to his officials saying that I might be able to do something at three o'clock. He will recall that the Scotland Bill came on later that day and that I had tabled a number of amendments to it. I was not able to attend, and other Peers were not able to attend because they were travelling. This is, by the way, not an argument about the technicalities. However, it is really quite unacceptable to suggest that we do not understand the arguments because we disagree with my noble friend, or to criticise us for not coming to meetings that were organised at short notice.
My Lords, I do not want to prolong this but I resent the suggestion that we have not tried to be accommodating on this issue. We have all been considerably inconvenienced by the difficulties of the parliamentary timetable. I merely want to make the point that that timetable has been difficult and we have all sat around waiting for things to happen. I am sorry that we have not had an opportunity to take some of that time to discuss the details of this very technical series of adjustments under these arrangements. I say at the start of my response to this discussion that it is simply not possible to go through the adjustment line by line, but I shall make some points on it.
For those who have looked through the adjustment carefully—the noble Lord, Lord Eatwell, clearly has, as he does at such things—I believe that the way that the adjustment works means that the block grant is protected in the way that it should be. Scotland is exposed to the effect of decisions that are taken by any variation in the 10p rate, and that is all it should be exposed to in this case. That is entirely as it should be.
I turn to some of the questions about how the adjustment will operate. The first point related to when announcements are made and in-year adjustments or adjustments within the fiscal period. It is consistent with the Government’s approach to tax policy-making that we would seek normally to make any relevant tax adjustments and announcements well in advance. For example, the adjustments to the personal allowances that were announced in the Budget this year come into effect in just over a year’s time, giving time for any adjustments of a sort that will be needed to be worked up in future. So there is nothing more behind this than simply confirming that we are conscious that an adjustment will need to be made and it will be better if it can be made in advance. That is consistent with the normal approach that we now have to tax-making.
On the question about the OBR’s description of where it is at, the important point is that the OBR will use the period between this year, 2012, and the time when the new tax powers are transferred to refine its approach, including moving from historic to actual data, so that the impact from UK policy decisions will be refined and the methodology will evolve in the periods between 2012 and 2016. I am sure that, as it has done to date, the OBR assessments will set out transparently in successive reports how its methodology is changing. In the spirit of that—although I think this anticipates a situation that we are not remotely in—notwithstanding that there are four years to refine the methodology, if we get to a position where the OBR data are used to make some block grant adjustment and it subsequently discovers that it was misguided, something has changed and it refines that adjustment, I am sure that that will be taken into account. The more important question for the moment is the time period that it has to refine its methodology over the next few years before any question of block grant adjustments comes in.
On the question of macroeconomic shocks—
I do not understand what that has to do with income tax and tax allowances. When you have a shock, you do not deal with it through the allowances or tax rates, because they take too long to have an effect; you deal with it through VAT or some other measure which has immediate effect in responding to a shock.
I certainly agree with the noble Lord’s analysis. However, if there were a significant reduction in the tax base as a result of a macroeconomic shock, the Holtham method of adjustment would take less out of Scotland’s budget. So there would be a dampening effect, entirely properly, to reflect the reduction in tax receipts from a shrunken tax base.
I have answered the questions about intra-Budget period adjustments. I come back to some of the overall numbers to see whether I can help my noble friend on the key consideration here. Under the proposals, from 2016 the income tax base in the UK will be shared between Scotland and the rest of the UK. As my noble friend says, the 10p taken out of all the rate bands in Scotland is expected to yield between the £4.3 billion and £4.5 billion that he mentions, up to £5.6 billion over the OBR forecast period, and the Scottish Government will receive around 3 per cent of total UK income tax receipts. The Scottish Government will then be responsible for setting their rate of income tax and the UK will be responsible for everything else. In such a system the UK must be accountable for the decisions that it takes on the structure of the tax. Conversely, the Scottish Government must be accountable for the decisions that they take in respect of the rate. At the moment, when the Government make decisions about personal allowances that will have a significant impact on many thousands of taxpayers in Scotland, taking them out of tax, it does not in any way affect the current settlement under the Barnett formula. In the same way, we want to make sure that in future, once the 10p rate is devolved, there is no adjustment to the block grant to the detriment of Scotland, just as there would not be now.
If we follow through my noble friend’s argument and apply it to the current situation, the logic would seem to suggest that if the people of Scotland benefit from a measure—as they will from the very considerable increase next year in the personal allowance and the starting rate of tax—the block grant should be reduced. If my noble friend is suggesting that then I would agree that the principles that we are applying under the proposed legislation are not appropriate. However, I do not think that my noble friend is suggesting that if the people of Scotland benefit from a reduction in their income tax, the block grant should be adjusted. We are simply saying that, going forward, there should be no such adjustment flowing out of decisions on changes to the personal allowance, and that the position should be neutral, just as it is now. On the other hand, if the Scottish Government want to make changes to the 10p rate or to the 3 per cent of total UK income tax revenue which will effectively be ceded to the Scottish Parliament or replaced by what it chooses to raise, they will be fully at risk. Perhaps the detailed discussion around the numbers that we were regrettably unable to have because of the pressure on everyone’s time—it was no one’s fault—may not have been necessary after all, if my noble friend is able to accept my attempt to bring the discussion back to the key simplicities.
Linked to that, my noble friend proposes to devolve to the Scottish Parliament the setting of personal allowances for Scottish taxpayers. It may be worth stating for clarity that it is not just personal allowances that would impact on the receipts of the Scottish Government, which is the example that we have regularly talked about in these debates. If, for example, the Government altered the higher additional-rate thresholds, there would be an impact on the yield from the Scottish rate of income tax. It is not simply a matter of making an amendment the principle of which I do not, of course, accept. An amendment that would pick up my noble friend’s underlying concern would have to be considerably more complex and pick up a lot of other situations.
However, my noble friend will be well aware of what Calman said about the problems of allowing the Scottish Parliament to alter tax allowances and reliefs. I quote:
“First the efficiency of the tax system would be seriously reduced, creating problems of compliance and administrative cost for employers and the tax collection authorities. Secondly, it would not in our view be consistent with the social Union as income tax is, as well as a revenue-raising device, also an instrument of redistribution”.
I could carry on, but my noble friend’s proposal raises all sorts of technical questions and goes directly against some key considerations in Calman. I am conscious that this is a complex area. I hope that my reassurances have helped my noble friend in some respect, and I ask him to consider withdrawing the amendment.
My Lords, perhaps I may begin by commenting on the shortage of time and the pressure that has been put not just on Ministers but on Members of this House. That is nothing whatever to do with people who are not members of the Government. It is the Government who introduced the Bill more than 18 months ago; it is the Government who chose to wait so long between its introduction in this House and its Second Reading and Committee stages; it is the Government who decided to produce a consultation paper in the middle of the Committee stage, which meant that we had to delay consideration of part of the Bill; and it is the Government who landed us in a position where we were in Committee on Wednesday last week and had only one day in which to table amendments for Report.
The noble Lord, Lord Browne, raised the question about the formula that none of us, apparently, understands, and we received from the Bill team an invitation to come to a briefing at 1.30 pm on Monday. I travelled down from Scotland on a plane that arrived at London City Airport at 10.30 am. I did an interview with the BBC. I had a lunch to host. I got here at 3 pm and responded to the invitation to come to the briefing, saying that I could not come because I was hosting a lunch. I received a response asking whether I would like an individual briefing. I pointed out that the Report stage was happening at 3.30 pm but that I could do something at 3 pm. I received no response because, I would guess, the Bill team were preparing for proceedings on the Bill just as I was. Frankly, for the Minister to criticise us for not attending those briefings is, perhaps I may say, unfair. As it happens, his briefing is completely irrelevant to the argument. He seems to be satisfied with the technicalities. My argument is one of principle. The principle is clear. He asks: do I really expect the Scottish block to be reduced as a result of changes in taxation here? Yes, I do. That happens at present.
My noble friend shakes his head. I have been doing this for the best part of 20 years. When I was Secretary of State, I negotiated with the Treasury. I understand how Barnett and the block works, along with my noble friend Lord Lang. I also know how you can get round that and how you can pull the wool over the eyes of the Treasury. We spent some six or seven years of our lives doing that. I understand how it works.
My noble friend shakes his head to say that reductions in taxation do not actually result in a change to the block. Of course they do. How does my right honourable friend the Chancellor achieve reductions in taxation? He has to do it by reducing expenditure. If expenditure is reduced, the formula consequences are translated to Scotland. For example, when it was decided to privatise water, which helped the then Government to continue with their tax reduction programme, the Scottish block lost the block consequences of the money made available for the provision of water by public services. Of course there is a relationship between the size of the block and the spending decisions taken down here.
My noble friend is muttering. I am happy to give way to him if I am saying something that is incorrect.
I completely agree with my noble friend about his last statement: there is a clear link through the Barnett formula to spending decisions here. There is not the same hardwired link between tax decisions on, for example, income tax and personal allowances and the block grant. I completely agree with him about the link between UK spending decisions and the block grant. That is clear, but it is very different from linkage between decisions about income tax matters and what is already agreed in the settlement for the block grant in a spending review period.
Indeed, but I described the present situation. My noble friend proposes in the Bill to change it and to take part of the block grant, which is the equivalent of 10p on income tax, which, we agree, is £4.5 billion out of £28 billion, set it aside and say that that is the product of 10p on income tax. He suggests that that bit of the block grant is completely insulated from the effects of tax changes made at a UK level from which people will benefit. He says that I should have come to the briefing so that I understood it. I understand it. He is creating the illusion that the tax-raising decisions of the Scottish Parliament—whether it decides on 10p, 9p, 11p or whatever—will be directly related to its spending decisions if, at the same time, as a consequence of reductions in taxation down here, the block is automatically topped up to compensate the Scottish Parliament as a result of changes in allowances.
For example, if the threshold at which people pay tax was raised to £25,000, so everyone in Scotland who earned the average wage would not pay any income tax, that would have an enormous cost. As I understand it, under my noble friend’s equalisation proposals, the Government would say, “Your 10p on the basic rate no longer raises any money at all. That is a result of a decision that we have made here in the UK. Therefore, you have to be compensated for that and we will send you a cheque”. Do I misunderstand this? I will give way to my noble friend if he tells me that I am talking nonsense, but am I not correct in that understanding of the situation?
I agree. Of course it is not going to happen because our public expenditure commitments are so immense. I posit that in order not to get bogged down in complexity, formulae and detail because the principle here is quite clear. The idea that this is about Scotland raising its own revenue and being accountable for it is an illusion. My noble friend is simply recreating the block and saying that Scotland will in any event get the equivalent of the Barnett formula consequences because it will be compensated as a result of any changes in the allowances. That is what he is saying. Therefore, it is not what we are being sold; we are being sold—
I think that my noble friend was going to give me some helpful information. This is an important point. I sense from his irritation that he is getting tired of my making this argument, but I do so because it is absolutely central to the issue. I do not believe in giving the Scottish Parliament tax-raising powers. I do not think that you can have two tax-raising bodies in a unitary state, as it will result in disaster, but that is the Government’s policy and it is being justified on the basis that it will increase accountability. However, this principle of equalisation does not provide that accountability.
I agree with my noble friend and with the noble Lord, Lord Eatwell, that it would not be sensible to adopt my amendment and give the Parliament the ability to fall to the thresholds because of the complexity, costs, uncertainty and difficulties that that would create. I simply seek to illustrate that the core basis or philosophy on which this whole thing is based does not stand up. The Government are creating an opportunity for a substitution for the block grant which has one very unfortunate side-effect—here, I declare an interest as someone who lives, and will always live, and pay tax in Scotland—and that is that we will end up being the highest tax-paying part of the United Kingdom in order to carry out a political con trick. I beg leave to withdraw the amendment.
Amendment 18 withdrawn.
Clause 29 : Scottish rate of income tax
Amendments 19 to 28 not moved.
29: After Clause 36, insert the following new Clause—
“Reports on the implementation and operation of this Part
(1) The Secretary of State must—
(a) make reports on the implementation and operation of this Part (see subsection (5)),(b) lay a copy of each report before both Houses of Parliament, and(c) send a copy of each report to the Scottish Ministers, who must lay a copy of it before the Scottish Parliament.(2) The Scottish Ministers must—
(a) make reports on the implementation and operation of this Part (see subsection (5)),(b) lay a copy of each report before the Scottish Parliament, and(c) send a copy of each report to the Secretary of State, who must lay a copy of it before both Houses of Parliament.(3) A report must be made under each of subsections (1) and (2)—
(a) before the end of the period of one year beginning with the day on which this Act is passed, and(b) thereafter, before the end of each subsequent period of one year until the final reports are made under subsection (4).(4) Final reports must be made on or as soon as practicable after—
(a) 1 April 2020, or(b) if later, the first anniversary of the day on which the last of the provisions of this Part comes into force.(5) A report on the implementation and operation of this Part must include—
(a) a statement of the steps which have been taken, whether by the maker of the report or by others, since the making of the previous report (or, in the case of the first report, since the passing of this Act) towards the commencement of the provisions of this Part,(b) a statement of the steps which the maker of the report proposes should be taken, whether by the maker of the report or by others, towards the commencement of the provisions of this Part, (c) an assessment of the operation of the provisions of this Part which have been commenced,(d) an assessment of the operation of any other powers to devolve taxes to the Scottish Parliament or to change the powers of the Scottish Ministers to borrow money, and of any other changes affecting the provisions inserted or amended by this Part,(e) the effect of this Part on the amount of any payments made by the Secretary of State under section 64(2) of the 1998 Act (payments into the Scottish Consolidated Fund), and(f) any other matters concerning the sources of revenue for the Scottish Administration (within the meaning of section 126(6) of the 1998 Act) which the maker of the report considers should be brought to the attention of the Parliament of the United Kingdom or the Scottish Parliament.”
My Lords, I was momentarily thrown by the unaccustomed speed at which we seemed to be going but I am grateful to my noble friend for enabling us to make a bit of progress. It is much appreciated.
The purpose of Amendment 29 is to provide information to both Houses of Parliament on the implementation and operation of the financial powers in the Bill. The clause requires the Secretary of State for Scotland to publish an annual report to be laid before Parliament within one year of the Scotland Bill becoming an Act until a year after the tax and borrowing powers are fully transferred to the Scottish Parliament. The last report is therefore expected to be published in 2020. The Secretary of State will send a copy of his report to Scottish Ministers, who will lay a copy of it before the Scottish Parliament. The clause also requires Scottish Ministers to lay a report of the same title before the Scottish Parliament on an annual basis and to provide a copy to lay before both Houses of Parliament. Scottish Ministers have been fully involved in the drafting of this proposed new clause and support its intention.
This duty will ensure that there is a transparent mechanism of reporting to both Parliaments on implementation. Both Parliaments will have direct access to an assessment of progress on implementation from the Secretary of State for Scotland, as well as from the Scottish Government. The Government intend these reports to be comprehensive and accessible to all. They must cover all aspects of implementing the Scotland Bill package—legislative and non-legislative.
The proposed new clause sets out the areas that each report must include but I will not take up the time of the House by reading through them. As set out previously, the first report under this new power will be published within 12 months of Royal Assent. It will formally set out the criteria against which new tax proposals from the Scottish Government will be judged and Parliament will be able to consider and debate these criteria as necessary. I believe that the amendment will help to ensure that the most significant transfer of powers to the Scottish Parliament is achieved in a transparent and open manner. I beg to move.
My Lords, I return to the problem that we discussed earlier when we were on Amendment 16. I have read and reread Amendment 29 and wonder whether my noble friend can help me. Where does it tie in the Scottish Executive in the way in which the noble Lord, Lord Browne of Ladyton, mentioned in his amendment, which was supported by my noble friend Lord Sanderson of Bowden and the point that I raised? I listened to my noble friend with great care when he replied on Amendment 16 but I still cannot find the bit in Amendment 29 that will satisfy me.
My Lords, I welcome the amendment. It is entirely consistent with a request that I have made repeatedly for reports on current progress in relation to the transfer of these powers. I hope that in anticipation of Third Reading, Ministers will take some time over the Recess to prepare at least an outline of a report on progress for the transfer of these powers to the Scottish Parliament. I say that for the reasons that I have articulated. I have a belief, based on information that I have received, that the Scottish Government and their Civil Service are ill prepared for the transfer of these powers. I should like to be reassured that we are transferring powers to people who are building the competence to use them appropriately.
In response to the point made and repeated by the noble Earl, Lord Caithness, about the buy-in of Scottish Ministers, there is a reference in subsection (2) of the proposed new clause to an obligation on Scottish Ministers to report in a similar way to the Secretary of State. However, it is deficient in the sense that it does not satisfy the desire on these Benches, which is apparently shared across the House, that the Scottish Government and the Scottish Parliament should buy in more fully to the whole package of transferring taxation powers for the reason that I gave before. I repeat that some time in the future they may be tested against that package and they should own it. That can be done only if they agree. If they do not agree, it will be interesting to hear their explanation, but I suspect that if it is put to them they will find it so impossible to agree that they will agree.
The reports, which we understand from the Government will be used to answer some of the points that I made earlier, do not in their present form answer those points, although I accept entirely what the Minister said about the Government’s intention to augment the reports in the way he suggested. I do not doubt that for a moment, so he should be clear that I accept entirely that that undertaking can be guaranteed to be delivered. I sense that it will not be enough but I do not want to go back to Amendment 16. I welcome the proposed new clause as it stands and as far as it goes, but it does not go far enough.
Under the proposed new clause as far as it goes, I was taken with the Minister’s comment about taxation being an instrument of redistribution, as Calman noted. If that is the case, we need a deeper appreciation of the transfer of these powers. It is not just about money but how that money is spent. There is no association between tax levels and growth. As a Scottish citizen, I want to ensure that money from income tax in Scotland is spent properly and that I will benefit as a result.
As far as concerns subsection (5)(d) of the proposed new clause, it is important that the issue is looked at. As was suggested, Scottish public services are inefficient even by miserable UK standards. The Scottish health service, for example, spends 19 per cent more per person, and we have 30 per cent more doctors, yet in many cases—such as cancer survival levels for women—there are worse outcomes. This is a very important issue. If we are going to look at income tax levels, we should have reports from the Scottish and UK Parliaments to ensure that we spend our money in the proper way—as an instrument of redistribution, as Calman suggested.
My Lords, I will respond briefly to the points raised. The noble Lord, Lord McFall of Alcluith, articulated what goes to the heart of the Bill. It was a bit away from the limited but important role of the new reports that we are suggesting, which will deal with implementation and cover important things such as the criteria in the Command Paper that we discussed. I completely agree with him about the need for broader accountability. That will be precisely what the Bill takes to the Scottish people and to the Scottish Parliament.
In answer to my noble friend Lord Caithness, I say that the noble Lord, Lord Browne of Ladyton, has already drawn attention to the obligation, in subsection (2) of the proposed new clause, on Scottish Ministers to submit a report. My noble friend shakes his head. Perhaps he would like to see one report agreed between the two Parliaments. I am not sure what further step he would like to see, but it was felt appropriate, since there are two Governments representing separately the people and interests of Scotland and the UK, to have two reports with slightly different perspectives.
The Scottish Parliament will have access to both reports. In the working up to the reports, the Joint Exchequer Committee and the other fora for joint working will be engaged in all the work. Any difference in the reports on the progress that is being made on implementation will be wholly transparent, but I do not anticipate that there will be any such difference. There will be a report by Scottish Ministers, it will be clear to everybody how the reports link to each other, and I fully expect them to present a consistent picture of the progress that is being made.
I appreciate what the noble Lord, Lord Browne of Ladyton, said in welcoming the reports. I fully understand, in the context of our earlier discussion, that the proposal does not go as far as he would like, but it is appreciated that he understands that this is a step forward which will help with reassurance on implementation.
The final point that the noble Lord made, which we discussed in Committee, was on the question of how well prepared or otherwise the Scottish Government are to take on the challenge. There are three further years to go. I appreciate that it is a big challenge. The UK Government are sharing all relevant expertise. Ministers from both the UK and Scottish Governments are overseeing progress. Now that the substance of the Bill has been agreed, we hope that the emphasis and focus will move to implementation, which I accept is an important challenge.
Amendment 29 agreed.
30: After Clause 36, insert the following new Clause—
“Allocation of public funds to Scotland
(1) The allocation of public funds to Scotland shall be based on a needs assessment, rather than the population basis of the Barnett formula.
(2) The Chancellor of the Exchequer shall, by order, establish a commission—
(a) to agree a methodology for assessing Scotland’s needs; and(b) periodically to review the allocation of public funds to Scotland in the light of its needs.(3) The first review by the commission must be completed no later than 1 April 2015.
(4) The new Barnett formula should be implemented no later than 1 April 2016.”
My Lords, I should apologise as an English Member intervening to this extent in a Scottish debate. I must also apologise that I was unable to be present when my amendment was debated in Committee. I thank the noble Lord, Lord Forsyth, for so ably speaking to it on my behalf. It was much appreciated, as were the other speeches in the debate, although not all of them were ones with which I would agree, as I will point out in a few moments.
I want to make clear that this amendment is based entirely on the report by this House’s select committee on the Barnett Formula. That Select Committee is probably the best thing I ever did in this House. Not only was its membership cross-party and cross-non-party but it was chaired by my noble friend Lord Richard, a former Labour Leader of your Lordships’ House. It had distinguished members such as the noble Lord, Lord Lawson of Blaby, who was a Chancellor of the Exchequer; two former Secretaries of State, Lord Lang and Lord Forsyth; many noble friends and former Ministers; and senior Lib Dems and Cross-Benchers. After a year’s discussion and evidence-taking, they came up with a powerful report, which made strong recommendations which are entirely the basis for my amendment.
The issue is about the fairness of allocating expenditure between England, Northern Ireland, Wales and Scotland. I am moving the amendment on a Bill about Scotland but if it is accepted, as I hope, it would affect the money going to the other parts of the United Kingdom as well. It is bound to do. I am glad to see my noble friend Lord Richard come in. I have just referred to his chairmanship of the committee which formed the basis for this amendment, and am glad to see him in his place. The amendment is based on the Select Committee’s report and requires need to be taken care of. In other words, instead of the block grant changing each year based on population, it would be based on need. I hope that nobody could oppose need when talking about this matter, although I gather, sadly from some notes that I have received, that my own Front Bench is going to oppose the needs basis rather than the population basis. I hope that it is not the case and that it has been badly drafted, but if it is not it would be disgraceful.
I know that there have been reports that the Barnett formula was once referred to by Alex Salmond, the present leader in Scotland, as the Barnett squeeze. He reckons it is all perfectly reasonable and fair to Scotland. Following a report by some research body recently, I saw a headline that said, “Scots rejoice as subsidy junkie myth laid to rest”. That report was based on the annual changes but, as the Select Committee pointed out in its report, it is not just the annual changes that are wrong; it is the baseline. Those former Secretaries of State who have told me in the past that the formula would eventually make things right really meant that it would bring things back to the baseline. However, the baseline is wrong. The Select Committee pointed out clearly that it was the major cause of the difference between the two and the difference is enormous.
The most recent figures for identifiable expenditure show that in England the amount is £8,588 per head and in Scotland it is £10,212 per head. Those figures deal with expenditure, not need, but if you look at that difference you will surely judge that it will not be easy to find that there is need there rather than population, or whatever cause. The baseline has been wrong over the many years that this grant has been going.
This amendment would not be needed if by any chance, even knowing the facts of the economic and financial situation, the Scottish people were so foolish as to vote in a referendum for independence, which I do not believe for a moment they would be. I hope and believe that all parties in your Lordships’ House will strongly support the United Kingdom remaining united. The facts to be put before the Scottish people are very clear but, if by any chance there were to be independence, the only good thing about it would be that we would no longer need a formula. However, I hope and believe that it will not happen.
One comes to the other proposition which I gather the Government of Scotland propose to put to the Scottish people. It has become known as devo-max. If it were to be put to the Scottish people, it could not be put in detail. It would be a pig in a poke because they would not know the outcome of devo-max when voting. They could not, because whoever won the election in Scotland after 2015 would have to negotiate with the Treasury. The best of luck to them in negotiating those financial arrangements. Whatever they negotiated, they would almost certainly still need some kind of allocation of grant. That allocation should be made on the basis of need, which is the background of my amendment. The amendment would do what cannot be done by any Government: it would set up an independent commission to decide what need is. It would not be too difficult, as the Select Committee pointed out very clearly. I believe that is what should happen.
In 2010, I put a Question to the Minister—I nearly said my noble friend, as I have put so many Questions to him—asking,
“what is their case for maintaining the Barnett formula”.
It is worth repeating his reply:
“As set out in the coalition’s programme for government, the Government recognise the concerns expressed on the system of devolved funding. However at this present time the priority must be to reduce the budget deficit and therefore any decisions to change the current system must await the stabilisation of the public finances”.—[Official Report, 2/11/10; col. WA 380.]
This amendment would implement the changes in 2015-16, well after the coalition Government’s plans to stabilise the economy, so I assume that the Minister will say that the present Government now agree with this amendment because I do not see how they could object to it. He has told me so many times that the Government are on target to achieve stability in 2015. I do not believe that they are, but that is another matter. That is the Government’s policy. In those circumstances, I do not see how the Government or anybody else can really object to this amendment.
I have gone on too long, I know; I want to get this finished as much as anybody. The noble Lord and others said, in opposing this amendment, that it does not do everything, that it is not the right time, place or pace for this amendment, and in any case it is an administrative measure that does not need legislation. The noble Lord is quite right on that, of course.
I recently checked with my then Private Secretary, who went on to more famous things such as being Private Secretary to the Prime Minister because she had heard how good a man he was; he later became the head of the ONS, where he has done a first-class job. He confirmed that when I introduced it I never even asked the Cabinet, never mind Parliament; I just did it as a convenience, thinking that it would not last too long. It became known as a formula because the Thatcher and Major Governments kept it going for 18 years.
When I published my book Inside the Treasury in 1982, I never even referred to it, for the obvious reason that it was not a formula then; it became one later. Nobody needs to worry about opposing this amendment because it would upset the Scots and therefore could cost votes. The Thatcher and Major Governments turned it into a formula and at the next election in 1997 proceeded to lose every single seat in both Scotland and Wales. I take the credit for that, of course.
The plain fact is that there is little case for opposing this amendment. If it is not necessary, or it should not be in this Bill, it will not do any harm. We should do it now and bring pressure to bear on future Governments, which I hope will not be the same one as now after 2015. I beg to move.
My Lords, the noble Lord, Lord Barnett, is held in great affection and respect in this House and he has given us a very good history of his formula, for which he deserves great credit. The reason I am opposed to this amendment is not financial; it is simply the politics of the situation that we are in today. With great respect to the noble Lord, he is now out of date. Subsection (4) of his amendment says:
“The new Barnett formula should be implemented no later than 1 April 2016”—
so we have new Labour, new Barnett; it goes on.
My argument is that by 2016, if politics develops as I expect it will in Scotland, the Barnett formula will not need to be amended; it will be abolished. We decided in 1997-98 to devolve financial powers to the Scottish Parliament—powers over expenditure but no powers over raising the money to meet that expenditure. I have said right from the beginning that that process could not exist for ever. This Bill moves us slightly in the direction of allowing the Scottish Parliament more financial responsibility for raising the money that it spends.
The three political parties in Scotland have recently appointed groups to do more work on implementing what the Prime Minister himself has referred to as future steps of devolution. At their recent conferences, all the parties set up groups to do more work. It would be ideal if they were co-operating, but at least a lot of work is going on to put flesh on the words of the Prime Minister. By the time of the referendum—which should it be as late as 2014 I would regret, but at least it would be no later than 2014—we will have, I hope, a decision against independence. We will then have to turn our attention to how we put flesh on the words of the Prime Minister and transfer financial responsibility for raising the money in Scotland to the Scottish Parliament for the subjects on which it spends. If we succeed in doing that, in the years to come, the Barnett formula sadly will disappear but the noble Lord will always have his name attached to that useful instrument.
My Lords, I apologise to my noble friend Lord Barnett for not being here at the beginning of this debate. I am afraid that I missed it on the Annunciator and I realised only after my noble friend had started speaking. I listened to what the noble Lord, Lord Steel, said. As I understand it, the object of my noble friend’s amendment is to get this House to declare quite firmly that the Barnett formula’s days are done. We went into it in great detail in the Select Committee. I do not want to refer to that in detail except to say that it was a unanimous report and that the membership of that committee included a former Chancellor of the Exchequer, two former Secretaries of State for Scotland, and two other Ministers, I think, who had served in Scottish departments. We went into it in considerable detail and all came to the conclusion that the so-called formula had been instituted by my noble friend Lord Barnett casually—I hesitate to use that word—or at least without any thought that it would subsist for generation after generation or would become enshrined with the term “formula”.
My noble friend is right. What is wrong with the so-called Barnett formula is the baseline, which is now about 40 years out of date. In those circumstances, how can one justify its continuation? We asked ourselves very firmly the question: could you have a formula which is based on needs? We came to the conclusion that you could. Indeed, we set out in some detail in the report the way in which you could arrive at a needs-based formula and the result of applying it. In those circumstances, how can the Government project an amendment which says that something that has been in existence for 40 years—it is clearly out of date and way past its sell-by date—and is designed only to preserve a situation, which, as I say, is 40 years gone? It is being done on spurious grounds when in reality we know exactly what is going on; namely, that the Government do not want to stir the pot in Scotland because they think that it may prove to be politically disadvantageous. I am sorry to say it but the pot should be stirred. After 40 or 50 years, it is time for this to be resolved.
I totally support my noble friend in what he is trying to do, which is to get this House to put a marker down that the days of the Barnett formula have gone and that we should look at a needs-based formula rather than the existing one. If my noble friend chooses to divide the House on this matter, I, for once—very rarely for me—would support him.
My Lords, I support the noble Lord, Lord Barnett, in his attempt to abolish the formula in his own name. Most of us would give our eye teeth to have a formula named after us. The noble Lord carries a great burden and I sympathise with him because it is a burden based on a complete misunderstanding, to which the noble Lord, Lord Richard, has just alluded. Although, over the years, Secretaries of State have taken advantage of it in the territorial departments to varying degrees, it is not something that we have done with particular pleasure because we have become increasingly conscious of the anomalies inherent in it, as those anomalies have expanded.
It has distorted the debate with colleagues, created resentment in the country and spilled over into antipathy towards Scotland, which could colour the debate and the future referendum on Scottish independence. Because it is indefensible it really should be got rid of and we need a clear statement from this House that that should happen. I disagree with the noble Lord, Lord Steel of Aikwood, whose formula for keeping it and allowing it to wither on the vine was peppered with “ifs” and “assuming thats”. I think that we need a clear statement on it.
The reason why I think that the noble Lord, Lord Barnett, has been unfairly treated in having the formula named after him is that it—the twist to the arrangements, as he called it—was not a formula at all. It was a change in the way in which the additions were made to the baseline. They used to be expressed as percentages and be applied evenly across the whole United Kingdom. As the Scottish baseline rose, those percentages delivered larger cash sums. So the ingenious scheme which the noble Lord hatched with Mr Bruce Millan, the Secretary of State for Scotland at the time, was that instead of Scotland getting a percentage transfer, it would get a cash transfer. They would get the same cash increase to baselines per year, which would represent a smaller percentage when applied to their own baseline.
It is a mathematical certainty which I have never quite understood myself, but I have had it confirmed by experts, that eventually that would create convergence. However, of course, the Barnett formula does not just cover the whole of government expenditure in Scotland; it covers only around half of it. In addition to the allocation from Barnett were individual one-off deals struck by Secretaries of State each year. Those deals, plus the anomalous Barnett add-on, plus the existing baseline, every year, accumulated, aggregated and magnified the injustice that was developing, measured as it was against an irregularly compiled population census which was nearly always out of date. That is how we came to the situation that we have been in for the past few years. It is the baseline, or the block, that is the villain in the argument. It is nothing to do with the noble Lord, Lord Barnett, who made a very worthy attempt to sort it all out.
That aggregation and accumulation of payments and special one-offs created this notional, but always out-of-date, arrangement. In the Select Committee that looked at this formula, on which it was a pleasure and honour to serve under the noble Lord, Lord Richard, we came up with a relatively simple solution, transferring the burden from outdated and notional population levels to relative need. We all recognised that that was the far fairer and more important way of doing things. We had always been told—I dare say my noble friend Lord Forsyth was, as was I in the Scottish Office—that it would be terribly difficult to arrange and heavily biased by the Treasury against Scottish interests and so on. So we never pressed for it. If anybody had asked us to undertake an independently conducted review into relative need, I would certainly had said yes; I would think that one would feel morally obliged to have said yes. We were never asked by the Treasury to do that. It may have been that successive Prime Ministers and Chancellors decided that it was not worth the candle to create a problem.
The formula that we came up with proved that it was remarkably simple, as the noble Lord, Lord Richard, has just said. The components that our experts suggested were relatively simple to calculate and apply, such as births, under-fives, children and young people aged under 16, the number of over-65s, the number of over-75s, morbidity levels, the simple mortality rate, poverty of all kinds and child poverty. By applying a measurement of those for all four components of the United Kingdom, it showed a remarkable convergence. It was not an identical pattern, but patterns averaged out in terms of convergence and gave a degree of accuracy which one would never have expected. It is fairly easy to calculate from existing tables and information, and very easy to apply. Sadly, that was not followed up. It was rejected on the day of publication by both major parties, which indicated that they, too, wanted a relatively quiet life. We considered various other possible components of such a formula, including things such as sparsity or density and other matters. But they did not make any difference to the basic scheme on which our experts had advised us.
As the noble Lord, Lord Steel, pointed out, this formula will become outdated assuming a certain number of things happen in the course of the Scotland Bill provisions and other possible developments thereafter. But that is not a firm enough situation for us to be in now. It is unacceptable that we should continue and that Wales should be strongly disadvantaged, incidentally, by the existing formula arrangements. It demeans Scotland and distorts the distribution of public expenditure.
I support the amendment. I have no idea whether my noble friend the Minister intends to accept it. At any rate, the noble Lord, Lord Barnett, may look forward to the fact that he has a very good chance of outliving his own formula one way or another.
My Lords, I do not want to speak at length as I spoke about this in Committee, but I will make a couple of points. I agree with everything that my noble friend Lord Lang has said about this apart from one thing. I am not sure that I would have pressed for a needs-based system to replace Barnett. Indeed, the briefing I got from the Treasury officials was, “Whatever you do, do not agree to a needs-based assessment”. In those days, they said that it would cost us £2.5 billion off the block. Given the evidence we had in the Barnett committee—which, incidentally, was unanimous—we were lucky to have on the committee the noble Baroness, Lady Hollis, who understands the needs-basis system that is applied in local government in other parts of the public service.
If my noble friend Lord Steel is right, the Barnett formula will be replaced by a new one which will be called the cold Steel formula. That is because, if my noble friend has his way, there would have to be huge reductions in the Scottish budget. The idea that by 2016 Scotland can be responsible for raising all the income it spends would mean catastrophic reductions in expenditure or huge increases in tax. This is not alarmist: the figures are all there in the report; the work has been done by people such as Professor Bell at Stirling University.
For historical reasons, Scotland is probably funded to the extent of about £4.5 billion more than it would be on a needs basis. It is not sustainable to argue against the needs-based system for funding the Scottish Parliament when the Scottish Executive distribute the bulk of the money they receive to local government and the health boards using a needs-basis system of funding. The idea that this is somehow alien to Scotland is wrong.
We have a huge political problem in that the overfunding is probably of the order of £4.5 billion. My noble friend Lord Sassoon said earlier that the product of putting 10p on income tax in Scotland would raise about £4.5 billion. So we are talking about the equivalent of half the income from the basic rate and 10p of the income from the higher rates being the additional grant that Scotland enjoys over and above that which would be provided on a needs basis. This is why the amendment of the noble Lord, Lord Barnett, is so important and why, I regret to say, the report produced by this House under the excellent chairmanship of the noble Lord, Lord Richard, has not been implemented and why it needs to be implemented.
If we are going to make this change, it will need to be phased in over a long period. That was the key recommendation of the committee. We need consensus and agreement on this. It is no good this Government or another Government saying, “This is what needs to be done” because everyone will say that they have done it for political reasons. We need an independent and objective group of people to look at the issue and make recommendations, which we then need to implement over time.
It is particularly—I keep saying this—irresponsible to introduce a system of funding which relies on putting up tax while not dealing with the underlying problem. We are heading for a train crash. We will reach a position where the Scottish Parliament will say, “Well, you can raise income tax if you want to spend more”, while they find not only their baseline for income tax but the whole of the element of the block grant which relates to Barnett disappearing as the pressure for moving to a needs-based system of funding becomes impossible.
There is one element of the Calman commission which all the enthusiasts for its recommendations conveniently forget to notice; that is, the recommendation —my noble and learned friend Lord Wallace will remember it well—which acknowledges that this issue of funding will have to be addressed and that we will have to move, in time, to a formula based on needs. That is one of the points made in the Calman commission report. The noble Lord, Lord Barnett, is saying, “Look, accept this amendment and set up the commission. It will take two or three years to work out the methodology and to get agreement on it. Get consensus and then, if the noble Lord, Lord Steel, wants to get to a position where the Scottish Parliament raises all its own revenue, recognise that it will take 20 years if it is not to result in a huge gradient between Scotland and England and huge damage to our public services”.
Who is going to make capital out of that situation and who is going to get the blame? It will be meat and drink, even if Alex Salmond loses his referendum. If you have just won the referendum for the union but then whip away the money and introduce a tax-raising power that makes Scots pay more tax than others, do we really believe that will settle this constitutional question once and for all?
The noble Lord, Lord Barnett, took a large part of a year of my life when I sat on what was a very interesting and fascinating committee. In pressing this matter now, we should listen to this sage advice and not run away from it. The argument put forward by the Government that we cannot deal with Barnett because we are concentrating on budget deficit reduction is a non sequitur if ever there was one. What has dealing with the deficit got to do with putting in place arrangements for funding, not only for Scotland but Wales and Northern Ireland, that are fair to all?
That is the other aspect of this—Wales is suffering quite considerably as a result of the inequity of this formula. If we are to maintain the United Kingdom, which appears to be under great pressure and will be under even more severe pressure because of the economic circumstances in which we find ourselves, it is important that we have a baseline that is seen to be fair and cannot be challenged. There are arguments about marginal seats and all the rest but, broadly speaking, when we distribute money to local government, health and so on, we use a well trodden path of formulas based on need. The Barnett formula, if I may say so, was a fix that followed great anxiety about the SNP winning elections in Scotland. We have been going down this track of appeasing the nationalists in a haphazard and piecemeal way.
It is important, as the Government embark on the huge constitutional change that is contained in this Bill, that we understand the importance of the finance. When my noble friend Lord Steel says, “We will do this”, he is saying what many people in Scotland and endless editorials say—that we must have more powers for the Scottish Parliament. However, I do not think they have looked at the numbers. If you do an opinion poll and ask people whether they would like more powers for the Scottish Parliament, of course the overwhelming majority say yes. However, if you ask them whether they would like to see public services having less money, higher taxes in Scotland or a financial crisis in public services in Scotland, you get a very different answer. The noble Lord, Lord Barnett, in proposing this amendment, is giving us a pathway that, over the next 20 years, will avoid that kind of dysfunction and dislocation within the United Kingdom.
My Lords, I add my words in support of the general view expressed in this short debate that the time has come for the Government to make clear their attitude to Barnett. However, I do not agree with the proposed amendments, since they are insufficiently explicit about the process that would need to be established to implement the Richard report effectively and fairly. Amendments 30 and 31, which are grouped together, speak of assessing Scotland’s needs. However, if you are to implement the Richard report then you have to assess the needs of the whole of the United Kingdom. Setting up a commission to look solely at Scotland will not necessarily produce a proper outcome.
I would strongly recommend therefore that the Government come forward with their proposals and do not postpone until the Greek kalends grasping the important issue of fairness, which is exacerbating the bad feeling between the different nations of this country; and recognise that it will take some time to establish the fair basis for making these calculations. Consequently, I cannot support the amendments in the form in which they have been drafted, but none the less believe that, as a backdrop to the constitutional developments we are seeing, we need to know that the Government firmly intend to recognise the validity of the principles enunciated by the Richard report.
I have no doubt that my noble friend on the Front Bench will have a note that says “resist”. However, the whole principle of the Barnett formula has to be dealt with. There is no time like the present to make a start, so the Government have to set up a consultation. I hear what my noble friend Lord Steel says—that it will be difficult to implement quickly—but it is not going to be implemented quickly if I know the workings of commissions. It will take time.
As a former Minister in the Scottish Office who benefited undoubtedly from the terms of the Barnett formula, I know only too well that it is a very difficult thing to defend when you are talking to Welsh Ministers and others in England. The noble Lord, Lord Barnett, is quite right to bring forward this amendment at this time. I have no doubt that it is something that the Government may not wish to include in the terms of this Bill, but that is no excuse for not giving us a clear assurance that they will start work on this whole business, which has been so detrimental to the situation for so long.
My Lords, the noble Lord, Lord Barnett, said that he had to apologise for speaking in this debate as he was not a Scot. One sadness of this whole Bill has been that it has been a private discussion among Scots when it has a huge effect on the whole of the United Kingdom. I have intervened on occasion for that reason, as a self-appointed supporter of the rest of the United Kingdom, not just of England but of Wales, where I have close connections. This is why I want to intervene on this particular issue.
The Government have to be extremely careful about this issue, not just because of what is happening in Scotland but because of the deep abiding anger in England about how the formula operates. Noble Lords have before them a Member of Parliament who for 35 years had to explain to the people of Suffolk that we had a formula that operated in a way that meant that every year they did proportionately less fairly because of the use of this mechanism. In England and Scotland, the word fair is very important. This was not an anti-Scottish view; it was a view about fairness and about how the United Kingdom should operate.
It is particularly difficult for those defending the position in Wales. In the Principality, this formula acts so unfairly that it distorts the ability of any Government, coalition or Labour or whoever, to explain their policies. Their policies affect Wales differently not because they mean them to but because the provision is different. So we need to look at this from a United Kingdom point of view, which is why I have huge sympathy for my noble friend who proposed the view that the amendment is too limited in its demand that we should look at the situation as it affects Scotland. This is a united kingdom. The real trouble with the party-political structure in Britain is that those who call themselves unionists have never been unionists; they have always sought a kind of half-arrangement or side deal, which never faces up to the reality of the union, which should be to benefit every part of the union because people belonged to it. That is why we are increasingly divorced—because increasingly we do not know what happens in other parts of the union, as anyone knows if they listen to the “Today” programme in Scotland and compare it to what they might have heard in England. The fact is that we do not know what goes on in Scotland, because we do not have that information, nor do the people in Scotland have much of the information that would be extremely helpful to make a proper balance.
I intervene today because this is a serious matter for this United Kingdom. Unless we learn to talk unionism as a whole, we might win a referendum and then lose the peace, if I may put it like that, because we will then continue the same old stuff: dividing off the countries of the United Kingdom and letting them get on with it, as far as we can manage it, because it is too troublesome to make unionism work.
For that reason, I believe that we need to have an absolutely clear promise from the Government that there will be a proper, independent investigation—not a half or quarter investigation, and not just a Scottish, Welsh, English or Northern Irish view—to come up with a mechanism, based on need, which will enable us to have a system. I agree with my noble friend Lord Forsyth that it may be over 20 years. However, I want a system which can be defended in Wickham Market and in Dorchester as well as in Llanelli and in the north of Scotland instead of the present formula, which cannot, could not and will never be able to be defended anywhere, except to those people who know that it delivers to them something out of all proportion to what it delivers to other people.
A formula which can only be defended in front of those who benefit from it is no formula at all. That is why this is a much more serious debate than the Government have so far been prepared to face up to, and I hope that the Minister will have no moderate, calming or comfortable words. I want a real promise that this will be done, and be done forthwith.
My Lords, I was never a Secretary of State for Scotland but I was the shadow Secretary of State for Scotland. I was to be relieved of the great burden of being Secretary of State by being moved to deal with wars, conflicts and troubles between states in the world. I found that an immense relief after nearly four years of looking after the Opposition in Scotland, against the noble Lords, Lord Lang and Lord Forsyth. This is the first time I have dipped my toe into the piranha-filled rivers of Scotland, but I do so because this is a particularly important issue. I hope that my noble friend Lord Barnett, with whom I have had some exchanges over the years on this subject, withdraws the amendment tonight. This is not the time and not the place for looking at this subject.
I was one of those who did not think that we should be having these debates at all, and that the Calman commission should have stayed on a shelf until the great debate that is now taking place in Scotland was completed. This is an ingredient of that debate which, sadly, has not really been debated widely in Scotland at all. My noble friend Lord Elder, who was a member of the Calman commission, perhaps disagrees with me but I do not remember anybody mentioning the Calman report during the last election in Scotland. Ludicrously, when we were all fighting the SNP, nobody mentioned the fact that there was this report which was to give the Scottish Parliament extra powers. Devo-plus was on offer but, strangely enough, nobody mentioned it.
Given that the SNP won the election, against the odds—and against the expectations of the noble and learned Lord, Lord Wallace, and myself, who drew up the electoral scheme in the first place—and got the majority in the Parliament, we needed to reassess at that point what the alternative was to be to the separatism of the SNP. However, we are here. We are where we are, but this is not the right way to go about it. If we are to have a needs-based assessment—and I have been through the same briefings that were involved in this—it has to be one for the whole of the United Kingdom.
I am interested that the noble Lord, Lord Deben—or whatever he is calling himself at the moment; I can see why he wanted to disguise himself in this new iteration, but I just do not remember the name itself—goes on about this great redistribution within the union. It is strange to hear this pure form of redistribution coming from a Conservative ex-Minister.
The issue needs wider debate and that should take place, but not at the moment in the context purely and simply of the Barnett formula and only in relation to Scotland. That is unhelpful at present. In Scotland today we have a bigger debate going on that will determine what sort of country we and future generations are going to live in. We therefore need to be very careful with the language that we use, the facts that we use and how those facts are deployed. Sometimes we fall into the same trap as those on the other side of the argument, the separatists, who manipulate the figures and move them around.
In the last analysis, the discussion will not be about identifiable public expenditure on its own—because if it is then that, unfortunately, is an argument that the nationalists will take to us. Expenditure is only one part of the balance sheet; income is another, and they can make their argument about that. Number-crunching, as I know only too well from many other contexts, can produce the numbers that the statistician wants to produce at the time. Let us have the broader and wider debate within which we will have to consider how the UK’s finances will be managed, but I do not see why, this evening, on the eve of an Easter Recess in an ill attended House, we should start using arguments that may well be used against us.
My Lords, I disagree with the noble Lord, “Lord Barnett of Formula”. I have never disagreed with him before. I used to write briefs for him and he never paid the slightest attention to them. He was a brilliant Chief Secretary who did not bother about the arguments but simply explained that there was no money, which was a much better argument than any of the ones that I produced.
I disagree with putting this new clause in the Bill for the reasons that have just been given. I disagree with looking at it in a Scottish-only context. I confess that I had forgotten the report of the committee of the noble Lord, Lord Richard, but I disagree with the kind of criteria that the noble Lord, Lord Lang, was reminding us of. That on its own is not enough. Periphery and distance matter. I do not know of any state that I have lived in—France, America—where distance is not a factor. The purity of the position taken by the noble Lord, Lord Deben, does not really work. If you have an extremely sparse population on highlands and islands, the cost of communications and that sort of thing is much higher. That sort of need may well be built in to the formula that the noble Lord, Lord Richard, is talking about, but it is not just criteria such as poverty: it is the problem of dealing with poverty, which is more difficult if people are on a distant island. I do not know who to give way to first.
As my purity has been called into question, I would like to say that it is a purity that demands that we do something that recognises sparsity and the difficulty of reaching people. The trouble is that this new clause recognises it in Scotland but not in Wales; that is what is wrong with it.
I understand the noble Lord’s point. My principal argument would be about timing. I do not think that the politics of this in Scotland would play well. Personally, I go with the prediction made by the noble Lord, Lord Steel, about what is likely to happen—perhaps rather more slowly than he suggested, but that is the direction of travel. That direction is not objectionable, but my worry about it is that it does not make sense to wait until after 2014, as he was implicitly accepting, to define what this further devolution of tax-raising power is. I think that one ought to do this in advance. That was my twofold worry about the Prime Minister’s speech in Edinburgh. It is unwise to offer the measure; it is certainly unwise to offer it undefined and suggest that it can be defined only in the light of a referendum result. To me that is the greatest worry about this matter.
My Lords, having waited for seven hours, I am delighted that I am allowed to speak. I thank my noble and learned friend the Minister for the kind letter that he wrote to me about the Scottish taxpayer. I was very relieved to read what he wrote. I had intended to speak on an earlier amendment that was not moved. I thank him for what he wrote about the Scottish taxpayer. I hope that I may write to him about the military because he referred to their residence and what they might be doing. I thank him for that. I am delighted to see that my noble friend Lord Bates is present. He will remember what I had to say at an earlier stage about the mouse that roared; after the Titans who have been speaking, this is the one who spoke.
My Lords, when I spoke on an earlier amendment, I said that I was participating in this debate with considerable trepidation. Having listened to this discussion, my trepidation has turned into a state of serious anxiety. However, I will attempt to proceed. My anxiety is raised particularly by the respect in which I hold my noble friend Lord Barnett and the power of the arguments that he put forward. However, as I listened to the debate, any support which I might have had for these amendments slowly drained away for three major reasons. The first is that there is a debate which centres round the need to devise a scheme to abolish the existing Barnett formula. However, that is not an argument in favour of the amendment; it simply identifies a public policy problem which needs to be dealt with, but which I suggest is not necessarily dealt with by this amendment. As those arguments multiplied, my support for my noble friend’s position started to fade away, as I said.
I put down a warning marker for those who have talked about a needs basis for the funding allocations to different parts of the UK. The noble Lord, Lord Lang, is absolutely right that the calculation of need can be done on a clear and objective basis. It could indeed be done by a commission looking at matters such as the number of people under a certain age and the number of people living in poverty according to a certain definition. However, when you start to attach monetary valuations to those needs, you create a policy because you are then weighting them in monetary terms. By weighting them in monetary terms, you are defining a particular policy which you wish to apply uniformly throughout the UK. If you wish to follow the purely unionist line enunciated by the noble Lord, Lord Deben, that may be a reasonable position. However, if you wish to devolve some elements of social policy to the constituent nations of the United Kingdom, you impose policy on them through the needs-based weighting of the funding associated with the underlying formula—and not only that, this amendment would impose the policy through an independent commission. Therefore, an independent commission would vary the policy. Therefore, for example, if one decided that one did not very much care about, say, care for children between the ages of five and 10, but cared very much about children from birth to the age of five, and changed the financial weighting in those two areas, you would be changing the policy because you would be changing the funding available. Handing out this sort of important policy choice to an independent commission would deny what policy-making is all about.
That is just a warning and is not the basis of my slowly ebbing support for my noble friend Lord Barnett’s position. What really settled it for me was the argument of my noble friend Lord Robertson, who made clear that this was an entirely inappropriate way to deal with an incredibly important question. I should therefore like to invoke the great academic principle of unripe time and suggest that we are facing an amendment that is distinctly unripe. We need a much more ripened argument to deal with this very complex matter.
My Lords, this has been an interesting debate as we draw towards the end of consideration of the Bill. I am grateful to the noble Lord, Lord Eatwell, whose analysis I very much agree with. It has been a fascinating debate that has taken almost an hour. Sadly, as it has continued, more and more voices have been raised making all sorts of correct arguments that this is not the time and place for it. Many voices in this House accept the starting point of the noble Lord, Lord Barnett, which is that although his eponymous formula has stood the test of time, its time may nevertheless be coming. However, we are not at the point of having a ripe solution, and having a one-country answer within the vehicle of the Bill is not the way to address these proper concerns. I often find that noble Lords from all sides of the House are against me, but it is rare to find myself in substantial agreement with them.
Let me start by reminding noble Lords of one or two things that we should be clear about. First, one of the things that the Bill will do is devolve some of the financial management of income tax to the Scottish Government. However, it will not fix the Barnett formula in stone for the future, and we need to be clear about that, for the avoidance of doubt. It is also worth dwelling on Calman for a moment. My noble friend Lord Forsyth of Drumlean referred to the Calman report, but it is perhaps worth quoting at some length. Recommendation 3.4 states:
“The block grant, as the means of financing most associated with equity, should continue to make up the remainder of the Scottish Parliament’s Budget but it should be justified by need. Until such times 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”.
The Bill certainly does not therefore lock in the funding formula but, as a number of noble Lords, starting with my noble friend Lord Maclennan of Rogart, have pointed out, this is very much an issue for the whole United Kingdom and should be dealt with at the appropriate time.
Just before I come back to one or two more points on the broader issues, I should for completeness comment on the technical drafting of the amendments.
My noble friend says no. Well, I will do so anyway—very briefly. I want to do full justice to the amendments of my noble friend and the noble Lord, Lord Barnett, even if they are so modest as to not want to go through the pain of my analysis.
Very briefly, I suggest that April 2016 is not the ideal timing—coming, as one would expect it to do, part way through a spending review. Timing is an issue. The noble Lord, Lord Barnett, himself pointed out that the current formula is an administrative procedure. It does not appear in legislation. The formula is not specific to Scotland. That goes beyond the purely technical question of the drafting into a wider debate, as I have mentioned. I suggest that it is not right to legislate for a United Kingdom formula that is not at the moment in legislation in a specific Bill related to Scotland that is about tax-raising powers rather than spending.
I am most grateful to my noble friend for giving way as we reach the end of these proceedings. I entirely accept, as I am sure that the noble Lord, Lord Barnett, does, that this may not be the ideal vehicle. I think that the House would be very happy to hear a commitment from the Minister that he will address the issue at some near date in future.
This will not meet the stringent test that either my noble friend or the noble Lord, Lord Barnett, will set, but let me go as far as I can.
The Government understand the concerns expressed in this House and in another place about the devolved funding arrangements. The Government’s position is clear. As the noble Lord, Lord Barnett, recognised, there must be other priorities at this time. It is clear that the Bill does not rule out or in reform of the formula in future. The Government hear, loud and clear, concerns about the formula.
As is clear from our discussion, as well as to those who have followed the debate more broadly, most would concede that there is no consensus across the UK on how to measure the needs of the four countries. Therefore, it is not possible to say what the impact of replacing the Barnett formula might be. Within the devolved formula as it works now, the devolved Administrations determine their assessments of needs and priorities in the devolved areas. That is a strength of the Barnett formula—a point made by the previous Government in responding to the Select Committee’s recommendations then. It is a complex area. Successive Governments have acknowledged the difficulty both with the existing formula and of putting something else in place. The Government certainly do not dismiss that.
I will disappoint my noble friend and, I fear, the noble Lord, Lord Barnett, but I think that it is extremely useful—although not directly linked to the substance of the Bill—that we have had this discussion, because the linkages are clear. My noble friend Lord Steel of Aikwood points out one scenario in which it may all go away. Others have challenged that scenario but have nevertheless agreed that now is not the time to do it.
The issue will not go away. I am sure we will come back to it, if only because the noble Lord, Lord Barnett, will regularly ask me questions on it, and there may be other opportunities for more substantive debate. However, for the reasons that noble Lords from all sides of the House have given, important topic although it is, this is not the time nor the vehicle to address it. I therefore ask the noble Lord to withdraw his amendment.
My Lords, I thank all noble Lords who have spoken in the debate. I am sorry that I cannot reply to them but, given the time, I am sure that they would not expect an overly long speech from me.
To say that I am disappointed with my own Front Bench is to put it mildly. My noble friends could not even go as far as the Government in saying that they recognise the concerns about needs. I imagine that my English noble friend who replied on behalf of the Opposition had been got at by the Scots, who did not want him to support the amendment. I do not know whether that is the case but, whatever they did, I find it incredible that he, as an academic, should have come up with the idea that this is an “unripe time”. He obviously had not read the excellent Richard report.
If he had, he would not have come up with the kind of speech that he made today. As I said, to say that I am disappointed is to put it mildly. I think that it has been appalling.
The noble Lord, Lord Sassoon, did at least repeat his concern, and it is one that the Government recognise. As many noble Lords said—even those who disagreed with the amendments—the technical drafting is not an argument. If the noble Lord wants them redrafted, I will redraft them, or I will let him redraft them—I do not mind. However, the case for doing something, whether in this Bill or elsewhere, is clearly made, as basically every speaker has said. I understand that the noble Lord, Lord Sassoon, cannot go further, because he also has a brief and he is not able to go further than he has done.
We will inevitably return to this matter because this huge disparity in the allocation of money between the different parts of the country cannot go on. As has been said in this debate, this issue concerns the whole of the UK, not just Scotland, and it cannot be set aside by talking about technical amendments or by saying that they should not appear in this Bill, or that they are being brought forward in the wrong place or at the wrong time. Of course all those things can be said but they do not alter the fact that something needs to be done here about the whole of the UK. I have listened very carefully to what has been said and, for the moment, I beg leave to withdraw the amendment.
Amendment 30 withdrawn.
Amendments 31 and 32 not moved.
Clause 37 : Convention rights and EU law: role of Advocate General in relation to criminal proceedings
33: Clause 37, page 29, line 26, after “question” insert “, arising in criminal proceedings, as to—
My Lords, as we come to the final group of amendments, we move from finance to law.
In the debate that we had in Committee on the roles of the Lord Advocate and the Supreme Court in criminal proceedings, I recognised that we had come a long way from some of the exchanges that took place last summer. Today, we are not considering whether the Supreme Court should have a role in relation to certain constitutional issues arising in Scottish criminal appeals, as it is agreed that this is, and ought to remain, within the current constitutional framework. The issues that remain to be discussed concern the nature and extent of the appeal rights to the Supreme Court in Scottish criminal proceedings and how those rights can operate effectively.
The amendments that I tabled in Committee took account of the views expressed by a number of bodies and people on these issues, including the expert group that I set up under the chairmanship of Sir David Edward, the review group led by the noble and learned Lord, Lord McCluskey, and indeed the representations made by the Lord Justice General and Lord President of the Court of Session, Lord Hamilton.
In Committee I agreed to consider a number of issues and said that, if persuaded, I would be willing to table amendments on Report. The amendments that I have tabled reflect some of the points made in this House in Committee and the agreement reached between the Government and the Scottish Government to ensure that a legislative consent Motion in support of the Bill is tabled in the Scottish Parliament.
There has been much discussion about the questions that should constitute a compatibility issue and those that should remain devolution issues. We have been seeking to ensure that the new appeal right is workable and that it does not result in argument about when the appeal right should and should not apply. Account also has to be taken of the important constitutional issues that can arise when considering the legislative competence of the Scottish Parliament and the acts of Scottish Ministers.
Amendment 35 amends the definition of a compatibility issue to include questions raised in criminal proceedings as the compatibility of Acts of the Scottish Parliament with the Convention on Human Rights or European Union law. Other questions as to whether an Act of the Scottish Parliament is outwith the competence of the Scottish Parliament—for example, whether it is a reserved as opposed to a devolved matter—will remain devolution issues, even if they are raised in criminal proceedings. The effect of that will be that there will be a single route of appeal for all convention and EU law issues raised in criminal proceedings, regardless of whether the issue relates to an act of a public authority or the compatibility of an Act of the Scottish Parliament.
Amendment 39 would remove from the definition of a devolution issue any question raised in criminal proceedings relating to compatibility with the convention or EU law. As I said, this will ensure that questions about the compatibility of ASPs with the convention and EU law that are raised in criminal proceedings can be raised only as compatibility issues. Questions as to the compatibility of acts of the Scottish Ministers raised in criminal proceedings will be raised as compatibility issues, not devolution issues, by framing these as questions of whether the Scottish Ministers have acted, or propose to act in a way which is unlawful under Section 6(1) of the Human Rights Act 1998.
Amendment 33 amends the definition of “compatibility issue” to make clear that such an issue can arise only in criminal proceedings—in other words, if there is an issue about an Act of the Scottish Parliament and its relationship to EU law that is not in the context of criminal proceedings, the normal devolution issues will apply.
Amendment 37 provides a procedure for the reference of compatibility issues. It allows the lower courts to refer a compatibility issue to the High Court before trial proceedings are concluded. The decision of the High Court on the compatibility issue can then be appealed to the Supreme Court. The amendment also allows the Advocate-General or the Lord Advocate to require the lower court to refer a compatibility issue to the High Court, acting as an appeal court, before trial proceedings are concluded. Where this power is exercised, the High Court can refer the issue to the Supreme Court or determine the issue itself. If the High Court determines the compatibility issue itself, this again can be appealed to the Supreme Court.
Where a compatibility issue arises in the High Court sitting as an appeal court, the amendment allows the High Court itself to refer the issue to the Supreme Court rather than determining the issue. However, if the compatibility issue is being considered by the High Court on a reference from the lower court of its own volition, the High Court must determine the issue and cannot refer it to the Supreme Court. The powers of the Supreme Court in determining a compatibility issue arising out of a reference will be the same as on an appeal of a compatibility issue, so the Supreme Court will determine the compatibility issue and remit proceedings to the High Court. We do not expect these reference powers to be used frequently but consider that there may be cases when these powers are beneficial and enable important issues to be dealt with quickly. It will still be possible for both the lower court and the High Court to hear cases expeditiously and there may be cases where this is more appropriate than the making of a reference.
I turn to the amendments tabled by the noble and learned Lord, Lord McCluskey, and we acknowledge what he said earlier in our proceedings. I am grateful to him for the way in which he has engaged with officials on this issue. The amendments raise the question of whether the Lord Advocate and Advocate-General should be able to refer to a compatibility issue to the Supreme Court without the permission of the High Court. It is an issue that I will consider further. In particular, I wish to consider what the role of the High Court should be in a reference of a compatibility issue by the Law Officers to the Supreme Court. It is one that I want to discuss with the Lord Advocate. It may, therefore, be necessary to table further amendments at Third Reading to provide for such a further power of reference for the Lord Advocate and Advocate-General.
Perhaps the most controversial issue in this matter is the issue of certification. I have not been persuaded that it is necessary to provide a compatibility issue that can be appealed to the Supreme Court only if the High Court has certified that it raises a point of law of general public importance. However, as I said in Committee, I consider that the arguments in respect of this are finely balanced and I have considered very carefully the views expressed by the Lord Justice General and the review group of the noble and learned Lord, Lord McCluskey.
The amendments that I have tabled do not seek to introduce a certification requirement. However Amendment 52 makes provision for there to be a review arranged by the Secretary of State of the new compatibility issue procedure and of the introduction of time limits for devolution issue appeals to the Supreme Court in Scottish criminal proceedings. The review is to be carried out as soon as practicable after the provisions have been in force for three years. I consider three years to be an appropriate time to enable us to asses how the new procedure is working. Before the review takes place, there must be time for the new compatibility procedure to bed in, and having the review before a three-year period may not allow this to happen. Even allowing for the limited number of cases where permission to appeal a devolution or compatibility issue is likely to be sought, there should be sufficient evidence available after the provisions have been in force for three years for a review to take place. The review can be carried out earlier if the Secretary of State considers this appropriate—for example, if circumstances arise that suggest the need for an earlier review.
The review will be wide-ranging. It will look at all aspects of the provisions and consider whether changes should be made. In particular, it will consider whether compatibility issues should be appealable to the Supreme Court only if the High Court certifies that the issue raises a point of law of general public importance. The review will not be limited to considering whether certification, in the form used in England and Wales, should be introduced: it will be able to consider alternative forms of certification.
The United Kingdom and Scottish Governments have agreed that the review will be chaired by the Lord Justice General. It will seek a wide range of views, including those of the Lord Advocate, Scottish Ministers, the Scottish courts, the Supreme Court and representative bodies with an interest in the criminal justice system. The Lord Justice General is the appropriate person to chair the review as he—or she; a new Lord Justice General will be in post by then—will have the appropriate overview of criminal procedure. It is not necessary for the Bill to provide that the review should be chaired by the Lord Justice General. I hope that my statement to the House to that effect should be sufficient.
I will address two further issues. There was discussion about the role of the Supreme Court in relation to compatibility issues. This was considered by the review group of the noble and learned Lord, Lord McCluskey, and by the Scotland Bill Committee. In Committee in this House I tabled amendments to provide that when the Supreme Court considers a compatibility issue, its role is only to determine that issue and then remit the case back to the High Court for disposal.
The Supreme Court has the power under Section 40 of the Constitutional Reform Act 2005 to consider any question that must be determined for the purpose of doing justice in an appeal to it, and can make rules governing its practice and procedure. New Section 288AA of the Criminal Procedure (Scotland) Act 1995, inserted by Clause 38, makes it clear that the powers of the Supreme Court in relation to compatibility issues are exercisable only for the purpose of determining such issues.
The general powers of the Supreme Court, as set out in provisions such as Sections 40 and 45 of the Constitutional Reform Act 2005, will be read subject to the specific provisions in new Section 288AA that limit the court’s powers in relation to compatibility issues. For the purpose of determining compatibility issues, the Supreme Court will have the power to make any change in the formulation of the compatibility issue that it considers necessary in the interests of justice. New Section 288AA also expressly provides that when the court has determined the compatibility issue, it must remit the proceedings to the High Court.
Rule 29 of the Supreme Court Rules 2009 makes provision on Supreme Court powers in relation to appeals. This was discussed with the chief executive of the UK Supreme Court. She confirmed that Rule 29 would be read in the light of any relevant changes to the primary legislation agreed as part of the Bill.
There are currently no time limits for appealing devolution issues in criminal proceedings to the Supreme Court. It is important that there is finality and certainty, not least for victims, in relation to criminal proceedings. Amendment 51 provides for time limits for appeals to the Supreme Court in relation to devolution issues that arise in criminal proceedings. The limits are the same as those that will apply in relation to compatibility issue appeals to the court. An application will have to be made to the High Court for permission to appeal within 28 days of determination of the appeal, or such longer period as the court considers equitable. If the High Court refuses permission, an application to the Supreme Court must be made within 28 days of the High Court’s refusal of permission. Again, the time limit can be extended if the court considers this equitable. This will strike an appropriate balance and reflect the need for finality in criminal proceedings, while taking account of circumstances when it might be appropriate for the time limit for appeals to be extended.
Finally, Amendment 38 amends Section 102 of the 1998 Act. It provides that if the Supreme Court, in considering a compatibility issue, decides that a provision of legislation is outwith legislative competence, it will be the High Court rather than the Supreme Court that will decide what retrospective or other orders might be made under Section 102 of the Scotland Act 1998. If the Supreme Court, in determining a compatibility issue, decides that an Act of the Scottish Parliament is outwith competence, the ASP will still not be law. Amendment 38 is about dealing with the consequences of the ASP not being law, and reflects the respective roles of the Supreme Court and the High Court.
Amendments 41 and 44 are technical drafting amendments. Amendments 53 and 54 are consequential amendments as a result of the provisions on the role of the Supreme Court in Scottish criminal proceedings being moved from Part 2 of the Bill to Part 4.
It is an important issue and I appreciate these amendments are technical. They raise a number of important issues, too. After much dialogue and discussion I believe that we have struck the right balance and I beg to move.
My Lords, I rise to support the amendments to which the noble Lord has spoken, and to speak to the amendments standing in my name and that of my noble and learned friend Lord Boyd of Duncansby. On his behalf, I should first tender his apologies for not being here to speak. Unfortunately, he has commitments that he could not avoid. He would have wanted to be here. He has put a lot of time and investment into this part of the Bill and this issue. He has given me an exhaustive seminar on it and I shall try to do my best to support the amendments which he would otherwise have spoken to.
Could we also offer our congratulations to the noble and learned Lord the Advocate-General for Scotland on achieving this level of agreement and the solution to what was a highly charged political problem in Scotland for a period of time? When it blew up, it was not obvious that it could have been resolved in this way. The extent to which the Minister has found agreement and a resolution to this problem lies in the words of the noble and learned Lord, Lord McCluskey, before he left. He said that he was 98 per cent satisfied.
In all the years I have known him, I cannot imagine the noble and learned Lord being 98 per cent satisfied in relation to almost any argument ever put before him. If he is satisfied to that extent, it is a measure of the achievement of the Minister and his officials. From observing this closely, I know that my noble and learned colleague has put a significant amount of his time and effort into trying to resolve this. I do not intend to speak to any of the amendments that the Minister has spoken to, with the exception of Amendment 52, because the two amendments proposed by the Opposition are attached to their Amendment 52. If noble Lords bear with me, even at this late hour I will try to cover this in a few minutes.
Amendment 52 is a wholly new provision which comes out of the agreement with the Scottish Government, paving the way for the legislative consent Motion. It establishes a review of the new procedures to take place,
“as soon as practicable after the end of three years”.
In principle, we see no difficulty with the concept of a review. It has much to commend it and the Minister set out some of those reasons. However, it is clear from the Written Statement from the Secretary of State, dated 21 March, that the agreement for this review stems from the dispute about whether there should be a requirement for certification of an issue by the High Court as one that raises a point of law of general public importance. Can I say how pleased we are that the Government have resisted the request from the Scottish Government to include certification as part of the package of agreement for the LCM? My noble and learned friend Lord Boyd set out the reasons for our approach in Committee and I do not intend to repeat them here.
More importantly, the clear tenor of the debate in Committee was against certification as a prerequisite for an appeal to the Supreme Court. Those who were present at that debate will recall the cogent and persuasive reasons advanced by the noble and learned Lords, Lord Cullen of Whitekirk and Lord Cameron of Lochbroom, who is in his place today. These were about why such an innovation should not now be made, restricting the right in cases involving the determination of issues of fundamental human rights. Had certification now been included in the agreement it would have been against the wishes of this House.
We appreciate, however, that Scottish Ministers wish to have a commitment to a review of the operation of the new procedures, with the issue of certification being directly addressed in that process. The noble and learned Lord has already alluded to this. If a review is to be meaningful, it must have sufficient evidence to inform it, and it must take into account all sides of the debate. This is where our concerns come in and why we have put down two amendments to Amendment 52.
First, we suggest that the review should be conducted after five years, rather than the three years specified in the amendment. We do not think that three years is long enough for a meaningful review. The Supreme Court took over the jurisdiction of the Judicial Committee of the Privy Council on devolution issues in October 2009. In the approximately two and a half years since then there have been around 12 cases from Scotland. However, seven of those were what have become known as “sons of Cadder”, arising from the case of Cadder on access to a solicitor before a police interview. These seven cases came before the court in two batches as they raised substantially the same issues, so the reality is that of 12 cases, eight arose out of the same issue; namely, access to a lawyer. Our concern is that in conducting a review after only three years there will be insufficient material and an insufficient spread of cases for a proper judgment to be made on the efficacy of the new arrangements. This is a serious issue as the person conducting the review may feel obliged to make findings and recommendations where it would be more prudent to await further information.
Secondly, although this is not in the Bill, the Written Statement made by the Secretary of State states that the review will be chaired by the Lord Justice General, whoever she or he may be at the time. The present Lord Justice General has been making the case for certification on behalf of the Scottish judiciary. We do not, of course, know the identity of the new Lord Justice General, nor do we know what view he or she may form on the evidence. Whoever it is, it seems inevitable that he or she will have been part of the debate on certification among the Scottish judiciary. It is improbable that the new Lord Justice General will not emerge from the existing Scottish judges. Moreover, he or she will have presided over a court whose judgments will have been subject to review by the Supreme Court. His or her opinions may have been overturned and he or she may have been criticised by the Supreme Court in the course of those judgments. This person is then being asked to stand back and conduct an impartial review of the mechanism by which such cases get from his or her court to the Supreme Court. Fundamentally, we do not think this is right. With the best will in the world, even the best jurist will find such a task very difficult and, indeed, may not even welcome such an imposition.
The issue of certification for the Scottish judiciary has arisen out of concerns raised by it about the effect of the Supreme Court on the criminal law in Scotland, and we believe that the new procedures in this Bill go a long way to addressing such concerns. Scottish judges have also seen this as a matter of respect. They point to the fact that in appeals to the Supreme Court from ordinary criminal proceedings from courts in England and Wales and Northern Ireland certification is required from the courts below. They consider that not to require such a certification procedure in appeals from the High Court of Justiciary raises the issue of consistency of approach. However, as the Minister pointed out in Committee, the introduction of certification in the other jurisdictions was, if I remember correctly, to stop what might turn out to be a flood of criminal cases coming from the courts below to the House of Lords. The purpose was wholly different from the issues of respect and consistency that were raised by Scottish judges.
Our amendment addresses these issues. Of course it is right that there should be a senator of the College of Justice intimately involved in the review, but that surely has to be balanced by a view from the Supreme Court itself. That is why we wish to see a commitment that a justice of the Supreme Court will be a member of the review panel to bring the other perspective. I hope that the noble and learned Lord, Lord McCluskey, will forgive me for reporting a private conversation I had with him in the precincts of your Lordships’ Chamber before he left. He suggested, and I agree with him, that it would probably be better if that justice of the Supreme Court was not one of the Scottish justices appointed to the Supreme Court. We on these Benches would very much prefer to see a chairman of the review who had no present involvement with either court, but we know the agreement that has already been reached and, although we think it is wrong, we are prepared to respect it.
I have one question for the Minister, but I hope he will respond to the points that I have raised. I know that he was aware of them in advance because I know there was communication between him and my noble and learned friend. Will the Minister give a commitment that the new Lord Justice General, whoever that might be, will be consulted on whether he or she thinks it is right for him or her to chair this review? If the new Lord Justice General considers that it might be difficult to do that task because of the points that I raised, will the Minister give an assurance that that view will be respected? Will he then work with Scottish Ministers to find a mutually acceptable alternative?
My Lords, I pay tribute to the Minister for having listened so obviously to what has been said in all quarters—not least in your Lordships’ House—about these matters. The proposals in these amendments seem entirely reasonable and appropriate, particularly in the light of certain remarks that my noble and learned friend Lord Cullen and I made about the place of the Supreme Court in our judicial system.
Having listened to the noble Lord, Lord Browne of Ladyton, I have sympathy with the view that he has expressed, and indeed the amendment proposed, that the review should be carried out after a longer period than that proposed in Amendment 52. It seems that this is an important review, although apparently not one that will be repeated; therefore, the importance of its conclusions must be based upon a sufficient period to give those conclusions some justifiable basis.
Although the matter of the chairmanship and membership of the review does not appear in the amendment, there is substance in what the noble Lord, Lord Browne, has said about both the chairmanship and the inclusion of one of the Justices of the Supreme Court. I therefore support what he has said in that regard. Otherwise, I pay tribute to the noble and learned Lord for what he has achieved in bringing these amendments forward.
My Lords, I am very grateful to the noble Lord, Lord Browne of Ladyton, and the noble and learned Lord, Lord Cameron of Lochbroom, for their general welcome for the position that we have reached with regard to these amendments and the role of the Supreme Court and issues of compatibility in criminal proceedings with European convention rights or European Union law.
I also pay tribute to the noble and learned Lord, Lord Boyd of Duncansby, who not only has made a very constructive contribution to this and other debates on this Bill but was a member of the expert group I set up under the chairmanship of Sir David Edwards; he has been contributing to this debate from a very early stage. I also welcome the 98 per cent satisfaction rate that I seem to have achieved from the noble and learned Lord, Lord McCluskey. I think that is a recognition of the amount of work that has been done by so many people in trying to bring this matter to a satisfactory outcome.
The noble Lord, Lord Browne of Ladyton, is right to recognise that this is part of the agreement that we reached with the Scottish Government. He and the noble and learned Lord, Lord Cameron, asked whether three years was sufficient. The noble Lord, Lord Browne, explained why we had resisted the idea of certification. The comparison with England and Wales was that certification was brought in under the Administration of Justice Act 1960 to stem a flood. If after three years, there have only been five or six cases, that would be a relevant factor to be taken into account; the flood has not happened. Without in any way prejudging any inquiry, the fact that there has not actually been a huge number of cases would have to weigh in to the consideration, if that is how it indeed turns out.
I do not believe that that the composition of the committee and its chairmanship is inappropriate. Many commissions are headed up by a judicial figure. I do not think that to head up a commission with the most senior judicial figure in Scotland is inappropriate, given that one can be assured that a figure of such stature will undoubtedly deploy the judicial qualities which have put him or her into that position. In moving the amendment, I indicated that there will be a number of views. We would expect bodies such as the Lord Advocate, Scottish Ministers, the Scottish courts and the Supreme Court and a number of representative bodies—and the bodies such as have responded to the consultations which I held, including, for example, the Scottish Human Rights Commission, Justice, the Law Society of Scotland and the Faculty of Advocates—to contribute.
We did not seek to put into statute that it should be the Lord Justice General, not least because—in answer to the point made by the noble Lord, Lord Browne—of what would happen if a future Lord Justice General does not want to be involved. When the time comes for the review to be held, should the Lord Justice General at that time not consider that it would be appropriate for him or her to undertake the review, of course the United Kingdom and Scottish Governments would work together to agree an alternative chair for the review.
By the same token, I do not think that we would wish to be constrained by specifying, as the amendment proposes, a Justice of the Supreme Court. For example, a recently retired Justice of the Supreme Court might be an appropriate person—either one from Scotland or one from another part of the United Kingdom. I hear the fair point that someone having had that experience might well be an appropriate person to be a member of the review body but I do not think that it would be appropriate to put that into statute. As I have said, it might not be a currently serving Justice of the Supreme Court but one who nevertheless everyone agrees is an appropriate person to serve.
When the time comes for the review to be set up, I am sure that soundings will be taken as to who would be appropriate to serve on that commission. With these words, I hope that I can reassure the House that the review will properly look at all the issues, not just those of certification but at how time limits have worked. I have no doubt that the issues of certification will be properly aired before that commission as they have been before your Lordships’ House and in the wider legal and public debate.
As this is the last group of amendments, I thank all noble Lords who have taken part in the debates on Report. I believe that in these two days of Report, and in Committee, this House has done what it is intended to do; namely, to give proper scrutiny to the measures brought forward in this Bill. I am very grateful to noble Lords, and to my noble friend Lord Sassoon for helping me in responding. I hope that colleagues in all parts of the House will enjoy and refresh themselves over the Easter Recess before returning to Third Reading.
Perhaps I may say how much we have appreciated the way in which the noble and learned Lord and the noble Lord, Lord Sassoon, have handled this Bill. I do not think that, from all sides of the House, this has been a particularly easy time for them but we have certainly done our job and very much appreciate the way in which the Government have dealt with this.
Amendment 33 agreed.
Amendment 34 not moved.
35: Clause 37, page 29, line 30, at end insert “, or
(b) whether an Act of the Scottish Parliament or any provision of an Act of the Scottish Parliament is incompatible with any of the Convention rights or with EU law.”
Amendment 35 agreed.
Amendment 36 not moved.
37: After Clause 37, insert the following new Clause—
“References of compatibility issues to the High Court or Supreme Court
In the Criminal Procedure (Scotland) Act 1995, after section 288ZA (inserted by section 37) insert—“288ZB References of compatibility issues to the High Court or Supreme Court
(1) Where a compatibility issue has arisen in criminal proceedings before a court, other than a court consisting of two or more judges of the High Court, the court may, instead of determining it, refer the issue to the High Court.
(2) The Lord Advocate or the Advocate General for Scotland, if a party to criminal proceedings before a court, other than a court consisting of two or more judges of the High Court, may require the court to refer to the High Court any compatibility issue which has arisen in the proceedings.
(3) The High Court may, instead of determining a compatibility issue referred to it under subsection (2), refer it to the Supreme Court.
(4) Where a compatibility issue has arisen in criminal proceedings before a court consisting of two or more judges of the High Court, otherwise than on a reference, the court may, instead of determining it, refer it to the Supreme Court.
(5) On a reference to the Supreme Court under this section—
(a) the powers of the Supreme Court are exercisable only for the purpose of determining the compatibility issue;(b) for that purpose the Court may make any change in the formulation of that issue that it thinks necessary in the interests of justice.(6) When it has determined a compatibility issue on a reference under this section, the Supreme Court must remit the proceedings to the High Court.
(7) An issue referred to the High Court or the Supreme Court under this section is referred to it for determination.
(8) In this section “compatibility issue” has the meaning given by section 288ZA.””
Amendment 37A (to Amendment 37) not moved.
Amendment 37 agreed.
Clause 38 : Convention rights and EU law: criminal appeals to the Supreme Court
Amendments 38 and 39
38: Clause 38, page 30, line 23, at end insert—
“( ) In section 102 (powers of courts or tribunals to vary retrospective decisions)—
(a) in subsection (4)(b) at the end insert “or to a compatibility issue,”;(b) after subsection (5) insert—“(5A) Where the decision mentioned in subsection (1) is a decision of the Supreme Court on a compatibility issue, the power to make an order under this section is exercisable by the High Court of Justiciary instead of the Supreme Court.”;
(c) in subsection (7) before the definition of “intimation” insert—““compatibility issue” has the meaning given by section 288ZA of the Criminal Procedure (Scotland) Act 1995.””
39: Clause 38, page 30, leave out lines 26 to 29 and insert—
“But a question arising in criminal proceedings in Scotland that would, apart from this paragraph, be a devolution issue is not a devolution issue if (however formulated) it relates to the compatibility with any of the Convention rights or with EU law of—(a) an Act of the Scottish Parliament or any provision of an Act of the Scottish Parliament,(b) a function,(c) the purported or proposed exercise of a function,(d) a failure to act.”
Amendments 38 and 39 agreed.
Amendment 40 had been withdrawn from the Marshalled List.
41: Clause 38, page 31, line 6, leave out “court that made the determination” and insert “High Court”
Amendment 41 agreed.
Amendments 42 and 43 not moved.
44: Clause 38, page 31, line 10, leave out from second “the” to “or” in line 12 and insert “determination against which the appeal lies,”
Amendment 44 agreed.
Amendments 45 and 46 not moved.
47: Clause 38, page 31, line 29, leave out “section” and insert “sections 288ZB and”
Amendment 47 agreed.
Amendment 48 not moved.
49: Clause 38, page 31, line 29, at end insert—
“( ) after “purposes of” insert “a reference under section 288ZB or”;”
Amendment 49 agreed.
Amendment 50 not moved.
51: After Clause 38, insert the following new Clause—
“Time limits for appeals on devolution issues in criminal proceedings
In Schedule 6 to the 1998 Act (devolution issues) after paragraph 13 insert—“13A In criminal proceedings, an application to the High Court for permission under paragraph 13 must be made—
(a) within 28 days of the date of the determination against which the appeal lies, or(b) within such longer period as the High Court considers equitable having regard to all the circumstances.13B In criminal proceedings, an application to the Supreme Court for permission under paragraph 13 must be made—
(a) within 28 days of the date on which the High Court refused permission under that paragraph, or(b) within such longer period as the Supreme Court considers equitable having regard to all the circumstances.””
Amendment 51 agreed.
Amendments 52A to 52C (to Amendment 52) not moved.
52: After Clause 38, insert the following new Clause—
“Review and power to amend sections 37 to (Time limits for appeals on devolution issues in criminal proceedings)
(1) The Secretary of State must arrange—
(a) for a review of the provision made by sections 37 to (Time limits for appeals on devolution issues in criminal proceedings),(b) for a report of the conclusions of the review to be made to the Secretary of State, and(c) for a copy of the report to be given to the Scottish Ministers.(2) The review must be carried out as soon as practicable after the end of 3 years beginning with the day on which section 38(5) comes into force, or earlier if the Secretary of State considers it appropriate.
(3) The review must—
(a) consider whether changes should be made to the provision made by sections 37 to (Time limits for appeals on devolution issues in criminal proceedings);(b) consider whether further provision should be made in relation to any matter dealt with by those sections; (c) consider (in particular) whether an appeal to the Supreme Court on a compatibility issue should lie only if the High Court of Justiciary certifies that the issue raises a point of law of general public importance.”(4) The Secretary of State may by order—
(a) amend the provision made by sections 37 to (Time limits for appeals on devolution issues in criminal proceedings);(b) make further provision in relation to any matter dealt with by those sections.(5) Provision made by order under subsection (4) may—
(a) amend, repeal or revoke an enactment passed or made before the order is made;(b) confer power on the Secretary of State or the Scottish Ministers to make an order or regulations;(c) include consequential, transitional or saving provision.(6) In this section “enactment” includes an enactment contained in subordinate legislation (within the meaning of the Interpretation Act 1978) and an enactment contained in, or in an instrument made under, an Act of the Scottish Parliament.
(7) In making the first order under subsection (4) the Secretary of State must take into account the report made in accordance with subsection (1)(b).
(8) No order under subsection (4) may be made unless the Secretary of State has consulted the Scottish Ministers.
(9) A statutory instrument containing an order under subsection (4) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”
Amendment 52 agreed.
Clause 42: Power to make consequential, transitional and saving provision
Amendments 53 and 54
53: Clause 42, page 32, line 36, leave out “section 39” and insert “the preceding provisions of this Part”
54: Clause 42, page 32, line 38, leave out “section 39” and insert “the preceding provisions of this Part”
Amendments 53 and 54 agreed.
Clause 44: Commencement
Amendments 55 to 61 not moved.
Amendment 62 not moved.