Scotland: Block Grant

Monday 15th June 2015 Lords Chamber

Question

14:59

Asked by

[Lord Foulkes of Cumnock]

To ask Her Majesty’s Government what changes they propose to the calculation of the block grant to Scotland, in the light of the recent and proposed increased tax-raising powers of the Scottish Parliament.

[The Parliamentary Under-Secretary of State, Scotland Office (Lord Dunlop) (Con)]

My Lords, as set out in the cross-party Smith agreement, the Scottish Government’s block grant will be reduced to reflect their increased tax powers. The UK and Scottish Governments have agreed to work to finalise the new fiscal framework by the autumn, alongside the passage of the Scotland Bill. The Barnett formula will continue as part of these arrangements, but as the Scottish Government will become more than 50% self-funded, changes in their funding will increasingly reflect changes in Scottish tax.

[Lord Foulkes of Cumnock (Lab)]

My Lords, it is good to see a Scotland Office Minister answering on behalf of the Treasury. Will he agree with me that, as long as any part of the expenditure of the Scottish Government is covered by a block grant, they will find a way of blaming Westminster either for cuts in expenditure or increases in taxes? Therefore, is it not time that the Government thought seriously about setting up a constitutional convention—or commission or convocation, whatever they would like to call it—which would look at all aspects of the governance of the United Kingdom, including full fiscal responsibility for every Parliament within the United Kingdom?

[Lord Dunlop]

My Lords, the noble Lord may well be right that the SNP Government will seek to continue to blame the United Kingdom Government, but the people of Scotland would certainly blame the UK Government more if we landed them with a £10 billion funding gap, costing every family in Scotland £5,000 in higher taxes or spending cuts. That would be the price of full fiscal autonomy. The Government cannot support such a plan because we do not believe that it would be good for Scotland. We want a balanced settlement fair to all parts of the UK and our priority is to deliver the Scotland Bill, which will make Holyrood one of the most powerful and accountable devolved Parliaments in the world.

[Lord Lang of Monkton (Con)]

My Lords, I congratulate my noble friend on the way in which he managed to imply fairness to a block grant calculation system that bears no relation to, or has any connection with, any needs assessment relating to the other parts of the United Kingdom. Can he tell the House how he expects the no-detriment principle enshrined in the new Scotland Bill to apply in a way that does not inhibit the viability of individual parts of the United Kingdom from pursuing policies and expenditure that depart from the UK norm?

[Lord Dunlop]

I thank my noble friend for that question. The simple overarching principle is that neither Scotland nor the rest of the United Kingdom should gain or lose financially as a direct consequence of implementing the Smith agreement. There are two aspects to this. First, at the point of devolution, the tax and spending block grant adjustments made to reflect the transfer of powers should of themselves leave funding for Scotland and the rest of the UK unchanged. Secondly, post devolution, both the UK Government and the Scottish Government should bear the risks and reap the rewards of their own policy choices. That will strengthen fiscal responsibility and accountability. How these principles work in practice must be discussed and agreed by the UK Government and the Scottish Government, but the fact that the principles are agreed by all five of Scotland’s political parties is a helpful starting point.

[Lord Richard (Lab)]

My Lords, the noble Lord said that he is anxious to get a settlement that is fair to all parts of the United Kingdom. Will he please remember Wales when he is talking about keeping block grants and being fair? The Barnett formula has proved detrimental to the economy of Wales ever since it started. Is he also aware—and if he is not, he should be by now—that a committee of this House recommended very strongly not too many years ago that the Barnett formula should be looked at again because, as the noble Lord, Lord Lang, just said, it is totally unrelated to need? It is perfectly possible to produce a fair formula that is based on need and it is high time that the Government did that.

[Lord Dunlop]

My Lords, we are very mindful of the funding needs of Wales. Obviously, Welsh funding was the subject of the Holtham review and, according to the criteria set out by Holtham, Wales is not currently underfunded. For the foreseeable future, per-head funding is unlikely to converge with that of England in the near term. The UK Government have committed to introduce a funding for Wales that will ensure fair funding for Wales.

[Lord Stephen (LD)]

My Lords, is there not now a clear opportunity to create a new cross-party consensus for a constitutional convention to look at the whole of the United Kingdom on these issues? We have seen concern from Wales, and today the SNP lodged amendments that back away from full fiscal responsibility and simply want to give power to the Scottish Parliament to implement it at some point in the future. Doubtless, that is due to the fact that it involves the scrapping of the Barnett formula and £7 billion per year of cuts to public services in Scotland or increased taxes in Scotland. Is it not now time, building on the Smith commission and reflecting the outcome of the election in Scotland, for there to be at least an attempt at a cross-party consensus that would involve the nationalist parties to try to work together for a fairer settlement for the whole of the United Kingdom?

[Lord Dunlop]

My Lords, the Smith agreement was, of course, an all-party consensus. We have an extensive package of constitutional reform for all parts of the United Kingdom and our priority is to deliver on the constitutional commitments that we have made. We want a balanced and fair settlement across the United Kingdom. I am sure that there will be a lively debate on what more can be done, which the Government welcome wholeheartedly.

[Lord Davies of Oldham (Lab)]

My Lords, has the Minister not been convinced by the contributions in the House today that it is clear, to take into account the implications for all parts of the United Kingdom, in particular as far as Scotland is concerned, which would start off with a very significant deficit if it went for full fiscal responsibility—it also has to come to terms with the very significant drop indeed in oil revenues that are now predicated—that we need a United Kingdom-wide convention on these issues?

[Lord Dunlop]

I thank the noble Lord. As I have said, our priority is to deliver the commitments that we have made. Of course we will listen to other ideas. As I have said, there will be a lively debate, including in this House. We will listen very carefully to what noble Lords and others have to say on this matter.