Scotland Bill

Debate between Baroness McIntosh of Pickering and Lord Turnbull

Monday 29th February 2016 Lords Chamber

[Baroness McIntosh of Pickering (Con)]

My Lords, I have a great deal of sympathy with the arguments put forward by my noble friend Lord Forsyth, as I do for those put by my noble friend Lord Caithness as regards the cross-border implications. As a Scot by birth and resident in the north of England for the past 18 to 20 years, the air passenger duty alone has enormous implications; those points have been well made.

The noble Lord, Lord Kerr, asked: what can we ask the Ministers on the Front Bench to do? They have been immensely helpful and have been bending over backwards to answer many of our queries. But to have a Statement and a debate last Wednesday on a document that was available only on the Thursday certainly posed great difficulties for those of us who have legitimate questions to ask. We had a briefing earlier today on the question of fiscal scrutiny. I am a newcomer to the Chamber, but I believe that the main thing that your Lordships’ House does extremely well is to scrutinise the legislation that comes before us. I believe that it would be hugely remiss of this Chamber not to scrutinise the fiscal framework, which as I say has been put before the House only in the past week.

We are being asked to take it on trust that the Scottish Government will table an amendment that will allow the Office for Budget Responsibility to have some force in this process in the Scottish Parliament. But what if that amendment is not forthcoming? The present complexion of the Scottish Parliament and the Select Committees that would normally perform the scrutiny of this and other parts of the Scotland Act, as it will then be, is by and large SNP; they are populated by a large majority of Members of the Government from that party. I cannot believe that the scrutiny will actually take place in the Scottish Parliament to the extent that we would wish to see.

I have some sympathy with Amendment 56ZA for the simple reason that we would be failing in our duties if we did not subject the fiscal framework and other parts of the Bill to scrutiny by your Lordships’ House. The noble Lord, Lord Kerr, asked what we are asking Ministers to do. I do not think that we wish to delay. It would not be in the interests of your Lordships’ House or of Parliament to delay the adoption of this Bill, but we owe it to the people of Scotland and the people of the United Kingdom to scrutinise the fiscal framework and those remaining parts of the Bill of which we have not previously had sight.

[Lord Turnbull (CB)]

My Lords, after long negotiations we have arrived at an outcome that was pretty predictable. Scotland has taken the approach of “What we have we hold” and has very largely succeeded in that. The UK Government have followed the philosophy of Mr Wilfred Pickles: “Give ‘em the money, Mabel”. It all takes as the starting point the Barnett formula with all its faults. Reference has been made to the fact that there is no provision for needs. Scotland has a substantially greater GDP per head than Wales and, indeed, all the regions of England except London and the south-east, but its public spending per head is substantially higher. All efforts since 2009 to tackle the concept of needs have foundered.

The other flaw, as described by the noble Lord, Lord Lang, is that this is incremental rather than based on levels. At the end of each spending round there is a calculation of the increase in spending in English departments and a population share is applied to Scotland. The population of Scotland has for many years been growing more slowly, so that share, within the Barnett formula, should gradually decline over time. The problem is that it is adjusted, I believe, with a considerable lag, resulting in Scotland always being overpaid as the population is calculated as being higher than it is. Is a bit like the old payrolls of the print unions before reform.

It is a bit like PAYE. If you get a tax code from your inspector, and then it turns out at the end of the year that you have not paid enough tax, he does not one but two things: he adjusts the tax code to capture what he thinks will be the right amount of expenditure for the coming year, but he also adds a bit more or takes a bit more off the tax code, to ensure that the past excess was recovered. Of course, in the Barnett formula, that second adjustment never takes place.

I am getting to the important area of lack of clarity. We are told that, on the one hand, there has always been in its 30-odd years an element of applying a population share. The Barnett formula accepted that that would decline over time. Then there is the sentence about protecting Scotland against population risk. There are two interpretations of this, which have very different outcomes. The first is that you do the Barnett formula in the normal way, including the calculation of a population share. Then you come to the BGA—the block grant adjustment—which is on the basis of a per capita change in tax. In other words, a population element that is frozen applies only to the block grant. If it means that the adjustment on the expenditure side has also been frozen, it is not simply perpetuating the Barnett formula as we have known it, it is making it more generous. We need to know which it is. One is what we would always expect to be the outcome of these negotiations, and the other is an outrage. That ought to be explained to us.

One feature of this is that the balance of risks between Scotland and the rest of the United Kingdom has been changed to some degree. Scotland has been set a challenge. If it is to maintain the block grant at the rate that it would have grown had the Barnett formula never been changed, it now has to increase tax per head at least as fast as in the rest of the United Kingdom. That is taking the population out of that bit of it. That is quite a considerable challenge. What I think is happening here is that we are entrenching an existing privilege. It is preserving the unfairness to the other devolved Administrations and the English regions. Maybe we have the prospect that it will not get any worse, but that all depends on the answer to the question about whether the population share on the expenditure side is also being frozen.

A point was made about borrowing. I think the answer is that under an amendment that was originally tabled by my noble friend Lord Kerr, but has now been effectively adopted by the Government, limits will be set. It is recognised that the borrowing of Scotland is part of the borrowing of the United Kingdom. Whether the Government explicitly say it is guaranteed, effectively it is.

My conclusion is that we have been blackmailed by threats of a second referendum if the Smith commission was not implemented in full. We need to lose our fear of the second referendum because it is now apparent that, having been sold a prospectus that Scotland could afford to go it alone with no great detriment to its economic prospects, with oil at $110 per barrel, it cannot do it with oil at $33 a barrel. In effect, it would be voting for bankruptcy. I suspect that a lot of this stuff is bluff and in future negotiations we should not be intimidated by it.