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Scotland: Smith Commission

Volume 757: debated on Thursday 27 November 2014


My Lords, with the leave of the House, I shall now repeat a Statement made in the other place by my right honourable friend the Secretary of State for Scotland. The Statement is as follows.

“With permission, Mr Speaker, I wish to make a Statement to the House about the further devolution process in Scotland and the publication of the heads of agreement resulting from Lord Smith’s five-party talks. As the Prime Minister has already said this morning, we back the agreement and its recommendations and will produce draft legislation in January. The referendum on independence held on 18 September 2014 saw Scotland vote decisively to remain within our UK family of nations of England, Wales, Scotland and Northern Ireland, backed by the strength, security and stability of the United Kingdom. The turnout across Scotland was nearly 85% and more than 2 million people made a positive choice for Scotland to remain part of the United Kingdom.

During the referendum campaign, the Prime Minister, the Deputy Prime Minister and the Leader of the Opposition made a joint commitment to deliver more powers to the Scottish Parliament. The Smith commission, chaired by Lord Smith of Kelvin, was up and running on 19 September. Lord Smith convened cross-party talks to reach agreement on the proposals for further devolution to Scotland. This process has been thorough and extensive. The party representatives were drawn from the five main political parties in Scotland; the first time ever that all five have participated in a devolution process. I would echo the comments of Lord Smith himself in the foreword to his report. He said:

‘This agreement is, in itself, an unprecedented achievement. It demanded compromise from all of the parties. In some cases that meant moving to devolve greater powers than they had previously committed to, while for other parties it meant accepting the outcome would fall short of their ultimate ambitions. It shows that, however difficult, our political leaders can come together, work together, and reach agreement with one another’.

In preparing the report, Lord Smith heard from a wide range of Scottish civic institutions and members of the public. Over 400 submissions were received from organisations and groups and over 18,000 submissions, including e-mails, letters and signatures to petitions, from people right across Scotland. The Smith commission has today produced a comprehensive heads of agreement ahead of the St Andrew’s Day deadline contained in the timetable set out. This is a significant achievement and is an historic moment for Scotland. I would like to thank Lord Smith and the party representatives for their work. They have worked hard against a challenging timetable covering an enormous area of ground. This work will deliver a substantial package of new powers to the Scottish Parliament. The heads of agreement provides for a durable but responsive constitutional settlement for Scotland within the United Kingdom. It gives greater financial responsibility to the Scottish Parliament with an updated fiscal framework for Scotland, consistent with the overall UK fiscal framework.

For the first time, over 50% of the money spent by the Scottish Government will be funded by the Scottish Government. This is an important step which builds on the measures brought forward by this Government in the Scotland Act 2012 and further increases the financial accountability of the Scottish Parliament to the people of Scotland. The recommendations provide for key welfare measures to be designed by and delivered in Scotland. This will give the Scottish Parliament the tools—and the responsibility—to tackle a range of issues with specific consideration of local circumstances, including those related to social care, long-term unemployment and housing, while continuing to benefit from the strength and stability of the UK-wide system. The recommendations build on the already significant powers of the Scottish Parliament in social justice and a range of other policy areas. Together, these recommendations give greater responsibility for more decisions affecting Scotland to be made in the Scottish Parliament and paid for by revenue raised by the Scottish Parliament.

Further devolution is just one part of this story. People in Scotland were unequivocally clear on 18 September that Scotland should retain the security of being part of our United Kingdom. The Smith commission’s remit was clear—to set out proposals for further devolution within the United Kingdom—and this remit was signed up to by all parties participating in the process, including the Scottish Government. The conclusions reached by the parties ensure a set of proposals that do not cause detriment to the United Kingdom as a whole or any of its constituent parts. The Government are committed to ensuring that Scotland and the whole of the United Kingdom continue to prosper from our single domestic market, our social union and the strength that comes from the pooling and sharing of risks. People in Scotland voted on 18 September for the jobs and opportunities that are created by being part of a larger United Kingdom with one currency, no borders and more money to spend on public services in Scotland. People in Scotland want to keep the advantages of a UK pound, UK pensions, UK Armed Forces and a strong UK voice in the world. The package that has been announced today allows that to happen.

As the Prime Minister has already made clear, the Government back the heads of agreement and its recommendations and we will get on with producing draft legislation. The draft clauses will be produced by Burns Night, 25 January, meeting the next phase in our commitment to the people of Scotland. That work begins today. A team has been set up to bring together lead officials in the Scotland Office, HM Treasury, the Department for Work and Pensions and the Cabinet Office. This team will work closely with all lead policy departments within the United Kingdom Government and the team will remain in place ready to deliver a Bill in the UK Parliament following the UK General Election. To support the preparation of the draft legislation I have invited key Scottish stakeholders representing a wide range of different sectors to form a stakeholder group. I will provide further details of the membership and terms of reference of the group in due course, but it is my intention that it will support the Government’s work translating the heads of agreement into the draft legislation that we will publish by 25 January.

As Lord Smith said in the foreword to his report:

‘Through this process I have worked closely with people who can argue passionately with one another while sharing an equal concern and love for their country. I would like to thank them all for their input, challenge and support. I hope that, in the end, they can work together, maintain their energy and use it to create a Scotland which is even stronger and even better’.

Having a more powerful Scottish Parliament inside a strong United Kingdom is the best outcome for the people of Scotland. This is what we voted for on 18 September. Today’s report is an affirmation of the vow that was made in September. It is an historic moment for Scotland. The cause of home rule has been at the heart of Scottish politics since the days of Gladstone. This agreement provides a modern blueprint for Scottish home rule within our strong United Kingdom. Home rule for Scotland can open the door to constitutional reform for the whole of the UK. We can deliver home rule all round”.

My Lords, I thank the Minister for advance sight of the Statement and join him and the Secretary of State in thanking the noble Lord, Lord Smith of Kelvin, for his work and for this report. I pay tribute to the right honourable member for Kirkcaldy and Cowdenbeath, whose proposals during the referendum set us on the way to delivering this historic agreement. Anyone who witnessed the towering statement by Gordon Brown that day will always remember it.

As the Secretary of State said in the other place, this is an historic day for Scotland. Ten weeks ago the people of Scotland, in overwhelming numbers, confirmed Scotland’s place in the United Kingdom. That mandate was received from the people of Scotland, but it is not to say that we should not take into account the people who voted yes. However, it should always be remembered that the people voted for Scotland’s place in the UK. It was also a decision made on the highest turnout ever seen in this country. It was a vote for change: a change in the way Scotland is governed; a change that will see more decisions taken closer to people; but safer, faster and better change as part of the UK. This is a promise kept and an agreement delivered. The Labour Party was very clear that it would honour the promises made during the referendum. This has been achieved in a co-operative and constructive process, working in the spirit of consensus that people across Scotland had the right to expect. That is why we wholly endorse the recommendations of the Smith commission and we give our guarantee to the people of Scotland that, if we are in government after May, we will legislate for these powers in our first Queen’s Speech.

This agreement will see more powers over tax, welfare and jobs transferred to the Scottish Parliament. We have secured guarantees over the voting rights of Scottish MPs on the Budget and on the continuation of the Barnett formula. We believe this provides the best deal for the people of Scotland. The agreement also means £3 billion of welfare spending at Holyrood. This is an extensive package of powers, which many people said could not and would not be delivered. Today’s deal is in fact more radical and goes further than many had anticipated. Very importantly, it also respects the outcome of the referendum in ensuring that Scotland still benefits from pooling and sharing across the UK.

On this side of the House, we believe that the principle we have worked to today—pushing power closer to people—should be followed for the rest of the country. That is why we will continue to call for a constitutional convention to be established to consider how this can be achieved, working with all the nations and regions of the UK.

Now that agreement has been reached, will the Minister tell the House how the recommendations of the Smith commission will be implemented, what the timetable will be and how noble Lords will be involved in the next stage of the process as the draft clauses are produced? We want to know how the timetable will be put through both Houses. Given the success of cross-party working, will he tell the House how the parties involved in the Smith commission process will be involved in this next stage?

As the noble Lord, Lord Smith, pointed out in his statement this morning, these additional powers will also mean that the Scottish Parliament’s own processes will need to be strengthened to enable it to hold that Government to account. What consultation will there now be with the Scottish Parliament to ensure that it is well prepared for this transfer of powers? Lastly, the noble Lord, Lord Smith, also recommended closer working between the Scottish Parliament and Government and this Parliament and the UK Government. How do the Government intend to take forward this recommendation?

For the past two years our country has divided along yes and no lines. As Scotland’s five political parties come together, today marks an important moment for us to look forward. I am confident that Labour will deliver these new powers in our first Queen’s Speech next May. More power is now in Scotland’s hands, and it is for all of us to work together to create the better country we want.

My Lords, I am grateful to the noble Lord, Lord McAvoy, for his remarks, his welcome of this and the commitment of the Labour Party to the implementation of the heads of agreement and recommendations. I pick up what he said about this having been a co-operative and constructive process; that is very much to be welcomed, and I know that there are those in your Lordships’ House today who have the T-shirt from the Scottish constitutional convention and took part in the Calman commission. What was missing from both of those was the engagement of all the political parties in Scotland. It is therefore significant that this is an agreement in which all five parties represented in the Scottish Parliament were involved.

The noble Lord asked me about the timetable for implementation. As has been made clear, there is a commitment that the draft clauses will be available by 25 January, Burns night. The Prime Minister indicated today, and the Secretary of State indicated in the other place, that that is a timetable we intend to stick by. The Secretary of State also indicated that he intends to set up a stakeholder group, which presumably would include political parties but go beyond the political parties for involvement. He said that that group should support the Government’s work in translating the heads of agreement, which I hope again will involve the parties.

I certainly share the view of closer working between Governments and between Parliaments. The Calman commission did a bit of work on that, so some thought has already been given to it. I think that the noble Lord, Lord Smith, also recommended that the Speaker of the House of Commons and the Presiding Officer of the Scottish Parliament should meet to address some of the issues, not least regarding an explanation of what the powers of the respective Parliaments are. Public education and information is required on that. I think I am right in saying that the Presiding Officer of the Scottish Parliament has already set in train a report or some mechanism to look at the way in which the Scottish Executive—the Scottish Government— can be more accountable to the Scottish Parliament. It is also worth noting that, whatever seems to play out on the public stage day in and day out, there is very good co-operation between officials in the Scottish Government and the UK Government, and between Ministers, over a whole range of issues. There is a lot of good work to build on.

My Lords, this important report brings forward further proposals implementing the three commitments made by the three main party leaders in the final days—some may think that they were somewhat chaotic or even rather panicky days—of the referendum campaign. Does my noble friend agree, though, that the crucial sentence in this report states that,

“rules will ensure that neither the Scottish nor UK Governments will lose or gain financially from the act of transferring a power”?

That is very important but, if that is so, where is the point in transferring some of the VAT revenue to Scotland if it will then be offset by a change in the block grant, which is the obvious implication of that sentence? The other important sentence states:

“The Barnett Formula will continue to be used to determine the remaining block grant”.

Lord Barnett himself said that that formula was defective. Indeed, if it continues in the way in which the report suggests, that will effectively solidify the situation embodied in the Barnett formula, which I believe is unfair for UK taxpayers. We ought not simply to solidify that position.

The Scots Parliament would be given power over income tax rates and allowances. Why should that be any different in Scotland from the UK if it has no implication for the allocation of resources? There is no real reason to believe that.

My Lords, my noble friend raises a number of important issues regarding the tax proposals in the heads of agreement. He is right to draw attention to the fact that there should be no detriment as a result of the decision to devolve further power. What is intended is that at the point of transfer, the value of the tax receipts that have been transferred will be deducted from the block grant. Thereafter, it is a matter for the Scottish Parliament to determine the tax rates and how the books are balanced. Under the Azores judgment in the European Court of Justice we cannot do anything other than that. With regard to VAT, it is obviously in the interest of the Scottish Government to propose policies that will raise the buoyancy of the Scottish economy so that VAT receipts would be greater. Likewise—depending on how well their policies go—the more economic activity, the greater the income tax receipts that they will receive. Of course, the counter is also the same: if they screw it up, the tax receipts are liable to be less and there will be consequences for that, which is an important point of accountability.

My Lords, as we make progress with Scottish devolution, as we consider the clauses and as these meetings take place, do we not all agree that it will be understandable if resentment grows in England because of the English democratic deficit? If we can agree the vow effectively overnight, and if the Smith commission can be set up so quickly, why is it that the parties—the Liberal Democrats, the Conservatives and the Labour Party—cannot get together and get the UK constitutional convention up and running as quickly as possible so that we can look at the situation in the whole of the UK in a comprehensive and holistic way?

My Lords, I know that the noble Lord has regularly put forward the case for a UK-wide constitutional convention. As I said when your Lordships’ House debated these issues on 29 October, the Government will consider proposals for the establishment of such a convention. While it is important that we debate these things, it is also important that we engage with the wider public. Let me make it clear that today’s heads of agreements should not in any way be held up by any constitutional convention, but I am sure that there is no shortage of issues that could be sent to such a convention.

My Lords, bearing in mind that the Smith commission had only 11 weeks in which to prepare its report, the outcome should be regarded as a useful first step towards further devolution to the Scottish Parliament and Government. Do Her Majesty’s Government agree, however, that since its proposals cannot be enacted before the general election in May, and since the commission itself referred to,

“the additional variability and uncertainty that further tax and spending devolution will introduce into the budgeting process”,

it would be wise for the three parties, in support of what the noble Lord, Lord Foulkes, has said, now to set up a commission to appoint a convention involving the public on the future constitution of the United Kingdom? This would enable consideration and analysis of this report to be given by those affected in order to seek a real consensus across the United Kingdom on the Smith commission’s recommendations.

My Lords, as I indicated to the noble Lord, Lord Foulkes, there is clearly an agenda that could go to a UK-wide constitutional convention. It is certainly not the policy of the Government—nor, I think, of the Labour Party—that the matters in the Smith commission report should be the subject of a subsequent constitutional convention. If we were to do that, we would be accused of breaking the vow. It is not our intention to do that; the intention is to have the draft clauses by 25 January, and that will pave the way for commitments in respect of party manifestos and for legislation to be pretty well ready for the incoming Government after the May election. I know that my noble friend has regularly put forward the case for a wider UK constitutional convention. As I said, and as the Leader of the House of Commons said in a debate on 14 October, there is merit in that idea, given that the British constitution is a living entity. No one will pretend in the coming months that it has reached a perfect form, whatever we decide on Scotland, Wales and Northern Ireland.

My Lords, while the fact that there is an agreement is certainly welcome, the content of the agreement will perhaps prove that allowing 11 weeks to make decisions of this nature is not necessarily the best strategy. I think that in the longer term everybody involved may come to regret putting all the eggs in the income tax basket rather than looking at a spread of taxes.

I want to ask two specific questions of the Advocate-General today. First, given that the assignation of VAT is not the devolution of a power to vary tax, will he, or the Secretary of State, publish the calculation that leads to the claim that 50% of taxation is now devolved to the Scottish Parliament? I cannot see how that calculation has been made. Secondly—partly endorsing the points made by my noble friend Lord McAvoy—the four additional points made by the noble Lord, Lord Smith, in his introduction to the report seem to be almost as important as the actual devolution of more powers. Will the Government give an unequivocal statement of support for those four additional points and do everything they can to support the Scottish Government, the Scottish Parliament and, indeed, Scottish civic society to ensure that they are implemented alongside the new powers that are now on the way?

My Lords, I hope that we will be able to set out some infographics—if that is the current “in” word—showing how the tax take of the Scottish Parliament will relate to spending, bearing in mind that the spending of the Scottish Parliament is going to go up as a result of these proposals. The denominator is an important factor in that. I listened to the noble Lord, Lord Smith of Kelvin, on the TV broadcast of his announcement this morning. I hope that nobody is going to ask me to remind them what the four points were, but, like the noble Lord, Lord McConnell, I thought that they were all very pertinent. They were points that had been made by many people in your Lordships’ House and by others. The one that sticks out in my mind—because it has been a theme in a number of our debates—is the importance of decentralisation generally: that to devolve power from Westminster to Edinburgh is only part of the story. There has to be further decentralisation within Scotland because the last seven years have seen considerable centralisation within Scotland.

My Lords, this is a very important Statement, which is worthy of longer consideration than a short question period late on a Thursday. I hope that the Leader of the House recognises that we expect a very full debate on this matter in this House.

Will the Minister reply to what I describe as the “Dorking question”? If the Member for Glasgow Central in the other place, who has no control over the taxation affecting his constituents, none the less has the power to affect the taxation of my former constituents in Dorking, how will this be reconciled with any democratic process? It is a topsy-turvy situation. In the 18th century, the great cry was, “No taxation without representation”; the cry today would be, “Without representation, no taxation”.

My noble friend makes a point that a number of people and commentators have been making. When we had our debate, my noble friend Lord Lexden said that in the days of Joseph Chamberlain and Gladstone that very issue was being debated in the Irish context. We have gone beyond the stage of saying that the best answer to the so-called West Lothian question was not to ask it. Those days are past, and the Prime Minister said this morning that there will be a publication of proposals on what is now called “English votes for English laws”. I resist using the acronym EVEL, because that might sometimes be a misrepresentation, but a publication of proposals will be out before Christmas and we will wait to see it. It is a proper question and a fair one, but some of the answers are not entirely straightforward.

My Lords, I should like to ask the Minister a question in a slightly different Celtic context. He will recognise that detailed proposals are being produced for Scotland. He will also recognise that, in that event, the situation in Wales cannot be allowed to continue as it is at present. I draw attention to two points. First, do the Government have any proposals that they wish to make to the people and the Government of Wales in respect of tax powers being devolved to Wales on a similar basis to those being devolved to Scotland? Secondly, how on earth can the Government justify saying that the Barnett formula should continue to apply? I listened to the Secretary of State making his Statement in the Commons this morning and he said at one stage, “Well, nobody has been able to think of anything better”. Would the Minister care to pass on to the Secretary of State the report of your Lordships’ committee on the Barnett formula? He will find that we went into it in great detail and produced an alternative that, in my submission at any rate, was clear, cogent and practicable, and it would have been effective. For the Government now to accept that the Barnett formula should continue seems to me absolutely preposterous.

My Lords, I know that the noble Lord is well aware that the Wales Bill, which had a Third Reading in your Lordships’ House on Monday of this week, makes provision for the devolution of tax powers to Wales. They are subject to a referendum, but of course Scotland had a referendum on the principle of tax powers back in 1997. My right honourable friend the Secretary of State for Wales has also indicated that he will produce a reserved powers framework for Wales by St David’s Day. I think someone said that it was just as well that St George’s Day is during “purdah” or we would have yet another commitment for England.

On the question of the Barnett formula, the leaders of the three UK political parties made it clear that the formula will continue; but with regard to Wales—and I am aware of the importance of this, having been the spokesman for the Wales Office in your Lordships’ House for two years—the United Kingdom and Welsh Governments have established a joint process to review relative levels of funding for Wales and England in advance of each spending review. That process is not affected by the commitments contained in the Smith commission proposals.

My Lords, does the Minister accept that, while of course promises given by leaders must be honoured, and we accept that clauses—which I hope will be debated in this House in detail—will be produced by 25 January, there is a real danger in deadline democracy? There is no situation in politics or any other aspect of life that is not made worse by panic.

I heed what my noble friend says. It is also fair to say that much in the heads of agreement that has emerged today is based on previous work. In my party’s case, it was done by a commission under the chairmanship of my right honourable friend Sir Menzies Campbell. Proposals came from the work done by the Labour Party. The Conservative Party produced proposals through a committee chaired by my noble friend Lord Strathclyde. So the Smith commission had a considerable volume of work available to it to help to formulate its proposals. My noble friend, and my noble friend Lord Baker, mentioned the opportunity to debate. My noble friend the Leader of the House is here, and the understandable wish for further debate will certainly be taken on board by the usual channels.

My Lords, this is a very clear Statement by the Minister on the way forward for Scotland. Does he accept that this also provides a great opportunity for all four parts of the United Kingdom to look at how we organise our government, both devolved government between the four parts of the United Kingdom and government of the United Kingdom itself? That is why so many of us say that there needs to be a constitutional convention. If we do not take it forward in that way, there is a real risk that we will drift into making short-term amendments to our constitutional arrangements which do not solve some of the problems that exist not just within England but within Wales and between the four parts of the United Kingdom. I know that the Minister is treading a fine line here, but I strongly urge that a constitutional convention is considered as taking an opportunity, rather than leaving the risk that we begin to make back-of-a-fag-packet amendments.

I agree with the noble Lord, Lord Soley, who I know has had a strong interest in these issues and how they affect not only Scotland but other parts of the United Kingdom. I repeat that the Government have made it clear that they will consider proposals for the establishment of a convention. As my noble friend Lord McConnell, who is sitting beside the noble Lord, knows, a convention is not necessarily a quick answer, but nor should it be an excuse for kicking things into the long grass.

I ask the Minister a specific question about air passenger duty. I refer to paragraphs 86 and 95 of the Smith commission report. Paragraph 86 gives the Scottish Parliament the power to charge tax on air passengers leaving Scottish airports, or it can decide to abolish it. That is the existing policy under the Scottish Parliament. However, the abolition of APD in Scotland but not in England would give a huge competitive advantage in the cost of air fares to those flying from Scotland compared to those flying from the north of England. I wonder whether, in line with the no-detriment principle in paragraph 95, the Government have any plans, should Scotland abolish APD, to abolish APD across the north of England.

My noble friend makes an interesting point, which I am sure my colleagues in the Treasury will note. I recall considering APD during the Calman commission. First, there is no guarantee. My noble friend says that the current policy of the Scottish Government is to abolish it or change the rates, but if they reduce one tax, they have to find the money for some of their spending commitments, which are not small, somewhere else. Therefore, I do not think we can necessarily be sure how that power, when devolved, will be used. Many other factors will come into a passenger’s choice of airport other than APD. If one was travelling, let us say, from Hull, I am not sure that one would want to take on the extra journey to go to Edinburgh, bypassing Newcastle, to start a journey. APD is only one part of a passenger’s choice.

My Lords, if my noble friend Lord Maclennan is right and this is the first step towards devolution—I must say that I thought that we had had a few already and that there are more to come—are not those steps all a ratchet turning in one direction, which is towards the independence of Scotland? Secondly, if we are granting the right to raise income tax in Scotland and, incidentally, corporation tax in Northern Ireland, does that not completely undermine the single currency of the United Kingdom?

My Lords, I do not believe that this is a one-way street to independence—far from it. The majority of the Scottish people on 18 September clearly indicated that they wanted to be part of the United Kingdom. The terms of reference of the Smith commission were that these proposals should be consistent with the integrity of the United Kingdom. The principles agreed by members of the commission were that the proposals had to be in the context of a United Kingdom.

That leads into the second part of my noble friend’s question. With regard to Scotland’s fiscal framework and borrowing powers, the report states:

“Borrowing powers should be set within an overall Scottish fiscal framework and subject to fiscal rules agreed by the Scottish and UK Governments based on clear economic principles, supporting evidence and thorough assessment of the relevant economic situation”.

Therefore, considerable tax powers, including on income tax, the definition of a taxpayer, personal allowances, taxation of savings and investment income, will all still be the responsibility of the United Kingdom Parliament. The proposals have to be considered in the context of the remit that was given: to be consistent with maintaining our United Kingdom.