Scotland Bill

Lord O'Neill of Clackmannan Excerpts

Thursday 15th March 2012 Lords Chamber

[Lord Browne of Ladyton]

I hope the noble Lord will not be surprised to hear that I anticipated this very point about devo-max. I intend to cover it very specifically. However, I am driven in these arguments by the political imperative of concentrating most of my political firepower on the arguments for retaining the union of the United Kingdom. I have tested every contribution that I have made to this debate against whether or not it makes that retention more or less likely. I ask noble Lords to join me in concentrating their minds on that issue, to look at this matter in the context of the political circumstances that face us at the moment and to make priority choices. In other circumstances I might well have supported the amendment of the noble Lord, Lord Forsyth, but in these circumstances I do not. I am trying to lay out the arguments.

As I was saying, there is no political movement for such a referendum. There is remarkably complete coherence between the parties in Scotland on the view that there is no necessity to seek a further mandate from the electorate as regards a referendum on these powers. Further, as the Calman commission noted, and the noble Earl, Lord Mar and Kellie, has reminded the House, there is an argument contrary to the argument put forward by the noble Lord, Lord Forsyth, that such a mandate has already at least partially been granted by the 1997 referendum on Scottish devolution in which 63.5 per cent of the Scottish electorate agreed with the statement,

“I agree that a Scottish Parliament should have tax-varying powers”.

That was the question, not plus or minus 3p, or what the consequences would be if this power was or was not used—we know the history of that—but whether the Scottish electorate agreed with the statement,

“I agree that a Scottish Parliament should have tax-varying powers”.

In a recent report on a referendum on Scottish independence, the Select Committee on the Constitution agreed with the UK Government’s position—this comes to the point the noble Lord raised about devo-max—that whereas independence is a Scottish question, devolution-max is not solely a Scottish question and proposals for a significant change to the devolution settlement considered under this title must be addressed only once the issue of secession has been clearly and decisively addressed by a referendum of the Scottish people. Therefore, we need to deal with these things in series and we need to keep our eye on the ball as regards the issue which is foremost in Scottish and UK politics at the moment in terms of the constitution. It is within this public and political discourse that we need to consider the priority of a referendum on the devolution of financial powers. I argue that the conclusions of the Select Committee are of precise relevance to this question. A referendum on the devolution of financial powers as proposed by Calman, and elaborated in this Bill, would in my view be politically misguided and publicly rejected prior to a referendum on devolution.

These are powers which I have said repeatedly the Scottish people want. There is significant evidence of that. I regret that I am not able to refer noble Lords to detailed debates in the other place to advance that argument but I know from extensive consultation with Scottish parliamentarians and Scottish people that the Scottish people want these powers. Much more importantly, they want these powers now because they want them to address issues which are important to the Scottish people now and were made obvious as a priority to them by yet another performance of the Scottish economy that has reversed the previous trend of devolution over the past few years in that we are now behind the rest of the United Kingdom in unemployment and growth. For almost all the period of devolution in Scotland the opposite situation applied. It is only since the SNP has taken control of government in Scotland that we have got into a situation whereby we are falling behind the rest of the United Kingdom as regards unemployment and comparative growth of GDP. Therefore, these powers are needed now.

The future development of the devolution settlement, be that full fiscal autonomy or whatever—there are all sorts of titles—may well ultimately be a question for a referendum, but it is a question that needs to follow the broader one of Scotland’s future membership of the union. In my view it cannot coherently be proposed before that. Consequently, these Benches cannot support the noble Lord’s proposed amendment of the Bill. I apologise to my noble friend Lord Foulkes far more in advance than I would normally have to do as we will not support his call for a referendum, no matter what the motivation for it is, when we come to that part of our debate in Committee.

[Lord O'Neill of Clackmannan]

I should like to follow my noble friend and say that I do not support the amendment. I had the privilege of being a neighbour of the noble Lord, Lord Forsyth, for many years. I have seen him exercise political skill across a broad spectrum, but on many occasions not without a degree of cynicism. I have to say that his amendment today is just a cynical opportunity to attack the principle of taxation. The idea that referenda have anything of any substance to do with this is just a bit of a smokescreen. The fact of the matter is that a referendum agreed that a Scottish Parliament would have tax-raising powers. The powers have never been exercised. Do we therefore need a referendum to take away powers that we have never used? I do not think so. There is a case, which has been made quite well by the noble Lord, regarding the clumsiness of the manner in which this taxation will be imposed. Were it to be imposed in its present form, it would probably be grossly unfair to too many of the poorest people within Scotland. That is the issue.

Let us not bother about the referendum question. Let us just question whether or not taxation in the form that is being suggested is the most appropriate way of trying to develop a sense of fiscal responsibility in a Scottish Parliament—whether it is separate or devo- maxed, or even with its present fumbling, incompetent and profligate way of expenditure.

[Lord Wallace of Tankerness]

My Lords, the amendments we are discussing relate to whether there should be a referendum on the provisions contained within the Bill’s specific reference to the changes to income tax and Scottish income tax. There will, of course, be opportunities at the next sitting of the Committee to debate amendments relating to an independence referendum. Indeed, later today there will be an opportunity to consider the details of the income tax proposals. I have no doubt that my noble friends Lord Forsyth and Lord Lyell will contribute to that, and my noble friend Lord Sassoon will be very pleased to respond.

I should make a point of clarification to my noble friend Lord Lyell, who raised a question about the Income Tax Act 2007. I can advise him that that Act sets out, as part of the tax law rewrite programme, how an individual’s income should be taxed and the distinction between savings and non-savings income. It is right that the Bill follows that approach.

The Government have a clear mandate to implement the Calman commission’s conclusions, as we seek to do in the Bill. There were pledges to do that in not only the manifestos of the two coalition parties but in the manifesto of the Official Opposition, the Labour Party. It is fair to say that these proposals were worked out after consultation by the Calman commission. I do not think that anyone can fault the level of consultation. There was considerable public discussion after the publication of that commission’s report. There was a White Paper by the previous Labour Government. There was a Command Paper by this Administration. These matters have been pretty well aired and the noble Lord, Lord Browne, said that these are powers that people want. The Scottish Social Attitudes Survey 2010 showed that 57 per cent of people wanted the Scottish Parliament to have powers of taxation and, significantly, only 37 per cent wanted Westminster to have tax powers. There has been considerable discussion of this, and I am not aware, with some respectable and respected noble exceptions, of any great clamour to have a referendum on these matters.

The proposal would be to have a referendum prior to the implementation of the finance provisions. These provisions will give the Scottish Parliament increased powers to take decisions on how to raise money as well as how to spend it. The crucial point was the final one made by the noble Lord, Lord O’Neill—the Bill will give the Parliament increased accountability and fiscal responsibility. While these reforms are significant and substantial new powers, they fall very much within the framework of the original Act.

The noble Lord, Lord Browne, reminded us that the question on tax powers was answered overwhelmingly in the affirmative in the 1997 referendum. In it, the Scottish electorate endorsed the establishment of a Parliament with the ability to exercise tax-varying powers, and therefore have a degree of financial accountability for taxation and spending decisions. As has been pointed out, these powers have not been used, but it is clear that there is demand for increased financial accountability, and that call was regularly made to the Calman commission—the Parliament should be not only responsible for how it spends money but have some greater accountability and responsibility for how it raises money. That has widespread support. It was also within the existing framework of the Scotland Act to vary the powers of the Scottish Parliament and its Ministers by order-making powers, such as those in Sections 30 and 63 of that Act. Here, of course, we are doing that by primary legislation.

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[Lord Lyell]

It has gone.

[Lord O'Neill of Clackmannan]

The Minister has not addressed the interface of tax and benefit. Tax credits perhaps give rise to some of the most complicated questions. Speaking as a former Member of Parliament, I am aware of the issues that arise when there is the slightest adjustment to the income of some of the poorest people in our community. It would be remiss of us not to address that aspect of taxation being imposed at different rates on different sides of the border.

[Lord Sassoon]

I will come back to that point because the question of credits is very important. I am happy to talk to that but let me answer one or two of the other questions that have already arisen. I shall pass over some of the detailed questions that are largely in the same category as some that I have already addressed.

On the question of safeguards and appeals, the appeals process will apply as it does to appeals and disputes with HMRC across the rest of the UK. That is clear and straightforward and, in general, applies to a number of the concerns of the noble and learned Lord, Lord Davidson of Glen Clova.

Let me address the issue of personal service companies as that has been somewhat topical recently. The Calman commission recognised that the changes would need to apply the Scottish rate of income tax to income from savings and dividends. The changes needed to apply the changes to savings and dividends would be prohibitive and so, as noble Lords know, savings and dividends are not within the scope of the Scottish rate of income tax. However, HMRC’s compliance work, including that relating to IR35, will continue to ensure that all taxpayers pay the correct amount of tax and national insurance contributions, including those who are liable at the Scottish rate. As is evident, all noble Lords who are here today are expert in these matters and I hardly need remind them that the aim of IR35 is to eliminate the avoidance of tax and national insurance contributions through the use of intermediaries such as personal service companies or partnerships. The noble and learned Lord is right to be concerned about this but the matter has been considered by HMRC in the construct that we are talking about today.

[Lord Sassoon]

My Lords, depending on the nature of the scheme, it may or may not be caught by the anti-avoidance rules that already exist. Clearly HMRC, in its compliance role, will have to ensure that the issue of avoidance is fully addressed. These are complex areas and perhaps my noble friend will permit me to consider whether there is anything I can do to help where we see new areas of avoidance, if any, potentially being opened up, and what the technical thinking is about how these might be closed down. Some of the areas referred to by my noble friend sound as though they are getting precious close to artificial schemes that would be covered at present. However, let me take the matter away.

Let me address a couple of more points. On the broader question of the noble Lord, Lord Foulkes of Cumnock, of what had changed since the workshop, yes, I appreciate that the workshop raised a number of issues and I wrote to all noble Lords who were there answering the questions that arose. There have not been any changes proposed as a result of the issues that came up but it was a useful session. As noble Lords who were there will know, HMRC was there and listening hard. All the issues raised were already being thought about and, of course, this will be reflected in the guidance. It was a useful session because it will inform the drafting of the guidance. As the noble and learned Lord, Lord Davidson of Glen Clova, said, there will need to be clear guidance around this issue and therefore the more questions that are raised generally—but, please, not immediately—will help HMRC with the drafting of the guidance that will be needed.

Finally, I want to come back to this question of benefits and the universal credit, which is a very important area. The clause does not address it directly but it would be wrong to dismiss it at this point. The universal credit forms the background against which we must look at this. As noble Lords know, the universal credit is going to deliver a dramatically improved, simpler benefits system that smoothes the transition into work and improves work incentives. By 2016, when the Scottish rate of income tax is proposed to come into effect, the transition to universal credit will almost be complete, as that will be finished by April 2017. Universal credit is expected to be awarded on the basis of income net of tax, as existing income-related benefits are now. If the Scottish rate and the UK rates differ, then net incomes may of course differ depending on the amount of income tax paid, so that it is possible that there would be a difference to an individual’s universal credit entitlement as a result of the Scottish rate.

However, it is worth bearing in mind that many factors determine an individual’s net income and that a range of local factors could determine their universal credit award, such as housing or childcare costs. The Scottish rate would be another factor to be taken into the calculation. The extent of any divergence of entitlement would depend on a number of factors, including the prevailing rates in the United Kingdom, the rate set by the Scottish Government and whether an individual’s income is subject to income tax at all. I hope that gives the noble Lord some reassurance that the linkage with universal credit has been carefully considered.

[Lord O'Neill of Clackmannan]

I am grateful to the Minister for seeking to respond to this very complex issue. The kind of people who are likely to be affected by this may well be those who are currently employed in the public sector and whose wages are being considered for possibly no longer having a national rate. We could have the anomalous position of someone working for a local authority in Berwickshire being paid the same rate as someone in Northumberland—which is probably less than some other parts of the county—but ending up, because of the universal credit, getting paid more through benefit compensation than people south of the border in Cumbria or Northumberland, because they are being charged a higher rate of tax in Scotland. This kind of anomaly is going to create all kinds of difficulties. This form of taxation may not be the cause of it, but it will certainly be an exacerbating factor and have social consequences of quite a dire character.

[Lord Forsyth of Drumlean]

My Lords, I was going to follow up on the noble Lord’s point by saying that one of the consequences of this will be that the Scottish rate of income tax is higher in order to fund the Parliament’s additional commitments, but the English taxpayer is going to have to foot the Bill for the increased benefits payments that arise. Will my noble friend make arrangements so that the additional cost of the benefits that arise, because of the increased taxation being levied on benefit recipients, is taken from the Scottish block grant?

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[Lord O'Neill of Clackmannan]

If the Minister is discussing air passenger duty then it is surely incumbent on him to try to put it in another context apart from the rather narrow one of revenue-raising, namely its impact on the provision of transport. Transport is a devolved responsibility, but sometimes that devolved responsibility seems a moveable feast. We talk about a high-speed train and claims are made that it should start in either Edinburgh or Glasgow, or at least finish in one, but there is no clear indication of who will fund it. But let us face the fact that regardless of whether the funding comes out of a block grant or a form of increased air passenger duty, a fast train would largely eliminate the need for Edinburgh-to-London or Glasgow-to-London air journeys. However, that would be the case only within the United Kingdom. The paradox is that were we to have the power to reduce airport duty, we might well have a situation in which transatlantic travel from Edinburgh or Glasgow is a more attractive option than travelling from Manchester and London, which are currently the main—almost oligopolistic—providers of transport across the Atlantic.

It is therefore incumbent on the Minister to get away from this narrow tax-raising, shopkeeper approach. This is a matter of greater significance to Scotland, given the devolved powers. The Government must consider this issue rather more seriously than their current, somewhat blinkered approach would suggest. Although I realise that the noble Lord, Lord Forsyth, has framed the issue in the context of taxation, it has implications which make taxation itself not a sufficient context in which to consider it. It has to be done on a broader basis. I would therefore be grateful if the Minister considered it in his response.

[Lord Sassoon]

Before this stream of questions and interventions I made precisely the point that, in response to the consultation, arguments were raised pro and against the devolution of APD on grounds relating to distinct economic and social conditions—indeed, those were the points that I was addressing rather than revenue-raising points. I am slightly surprised at the noble Lord’s intervention on this. I completely agree with him that APD has all these potential effects. Some of the effects that he suggested go very wide, but I agree that this is complicated and the economic and social issues are relevant.

[Lord O'Neill of Clackmannan]

My Lords—

[Lord Sassoon]

Forgive me if I do not give way to the noble Lord immediately. His last intervention was rather long and I had already covered the point. May I carry on with the argument?

[Lord O'Neill of Clackmannan]

We have spent 30 minutes on this amendment, and that is not unduly long.

[Lord Sassoon]

I would suggest that it is really very long for this amendment. The previous intervention from the noble Lord asked me to address points that I had precisely addressed: the non-tax-raising issues indeed include important issues related to APD. Those were the issues that, among others, came up in response to the consultation. That is why, in the response to the consultation published last December, we continued to explore the feasibility and likely effects of devolution of APD to Scotland—for the very reasons, among others, that the noble Lord sets out. That is what we will do.

I should like to think that not only the noble Lord, Lord O’Neill, but other noble Lords would recognise that it would be inappropriate for the Government to devolve APD until we have considered the impact of the proposals fully from both the Scottish and the UK perspectives. In this connection, I say to the noble Lord, Lord Kilclooney, that a particular consideration applies in Northern Ireland because of the land connection in Ireland and competition on flights of a different nature, which is why a particular stance was taken on Northern Ireland.

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[Lord Forsyth of Drumlean]

My Lords, the noble Lord, Lord Barnett, left me a note saying that unfortunately he had been detained and would not be here to move his amendment, and asking me whether I might find the time to do so. As I have added my name to it, I will do so with pleasure. I know that the noble Lord was keen to discuss the issue in Committee.

We had a good preparatory discussion for the amendment when we heard from the Minister how any reduction in the tax base would be compensated for by an addition to the block grant. The fundamental flaw in the Bill is that it is presented as being about accountability, but the accountability is limited. This is partly because of the limited nature of the taxes being devolved and partly because of the compensation for changes in policy in the tax base, to which I have just referred. However, the accountability is limited mainly because the bulk of the funding in the block grant is still based on the world as it existed in the 1970s, as amended and altered by subsequent Governments, including those of which I was a member. I plead guilty to using some of the techniques to enhance the effects of the Barnett formula and to reduce the squeeze that otherwise would have occurred on Scotland’s budget.

A Scottish Parliament has to be accountable when it pursues its different policies, whether they are on health, free care for the elderly, free tuition fees, free bus travel, extra nursery care provision or free prescriptions on the NHS—all of which are no doubt popular. Indeed, I venture to suggest that one reason why Mr Salmond did so well in the elections was because he was able to make such promises. I am not sure he will be able to keep them, but he certainly benefits from the fact that Scotland is more generously funded relative to need than the rest of the United Kingdom. That is historically the position and I do not apologise for it. When I was in office I did everything that I could to keep it that way.

However, we are going to move to a Parliament which has its own tax-raising powers. It was interesting that at the start of our discussions people tried to maintain the idea that the tax-raising powers might be used to lower taxes. That finally fell over and the debate swung toward the consequences of higher taxes. One can imagine what the consequences would be of lowering taxes while providing additional services and being funded at a rate of 20 per cent more per head—perhaps a little less—as a result of the impact of the Bill and the 10p tax-raising power. Over time it would cause great resentment and great difficulty in other parts of the United Kingdom. As the noble Lord, Lord Browne, pointed out, we should always focus our attention on what the consequences are for the United Kingdom and the union as a whole.

The noble Lord, Lord Barnett, has a habit of landing me in it on this subject. He had several goes on the Floor of the House, as he did today on the car park—and if it is in order to give advice to Black Rod, I would urge him to give in gracefully, because the noble Lord is a terrier. He tried and tried to get the House to set up a special Select Committee to look at the Barnett formula. I served on that committee, along with my noble friend Lord Lang and a number of distinguished Members of this House. We laboured long and hard, took lots of evidence and were absolutely unanimous that the funding for Scotland needed to move to a system based on need. Various arguments have been put against that. The one put by the Government is perhaps the weakest—that the time is not right and that they are concentrating on reducing the deficit. Both of those reasons seem to be difficult to understand and illogical. Surely, the right time to address this is when you are seeking to set out hugely innovative constitutional change.

[Lord O'Neill of Clackmannan]

Will the noble Lord not concede that this is probably the wrong time to change the Barnett formula, given the failure of the nationalist Administration’s economic policy in Scotland, where unemployment is rising at a faster rate and the economy is growing even more slowly than in the rest of the United Kingdom? Sadly, we need the Barnett formula to keep the show going in Scotland. I admit that there are areas of expenditure that we may well dispute—I am not happy about the priorities of the nationalist Administration—but nevertheless, the money is required to try to keep our economy limping along at this very difficult time.

[Lord Forsyth of Drumlean]

The noble Lord may be surprised to hear that I agree with him. I am deeply concerned about what is going to happen to jobs and public services in Scotland as a result of the impact of the Bill. If he is saying that this is the wrong time to fiddle around with the Barnett formula, I would say that this is absolutely the wrong time to introduce tax-raising powers in Scotland that are limited in scope, with an Administration that appear to spend money without any idea of where the resources will come from. The Scottish budget is very stretched—the promises that have been made are on a very large scale and the revenue that can be raised from the income tax provisions is very limited. Despite that, the damage that will be done will be considerable.

Earlier in our proceedings, people said that I seemed to think that politicians were just going to keep putting up taxes, even though they have to get elected. However, it is not just about tax but about preserving our public services: our schools and so on. It is a fact that spending per head on health and education is very much higher in Scotland than in England and in Wales, but that spending has not produced the same levels of productivity. The noble Lord is absolutely right that despite all the bluster, the Brigadoon economics and the Braveheart talk, the nationalist Administration have singularly failed to deliver on any of the outputs that they promised. Among the real concerns are the rising levels of unemployment and youth unemployment. The noble Lord may be surprised that I agree with him on this. I personally would take this Bill, put it on the shelf and get on with deciding whether Scotland wishes to remain part of the United Kingdom—and then have a proper look at the consequences that follow from the Bill.

This Bill is from another time. Its genesis or midwife was an attempt by the unionist parties to avoid the nationalists getting a majority. It failed, and the world has moved on; the senior civil servant in the Scottish Office writes blog posts to his colleagues saying that it is lost in the mists of time and is irrelevant. No one who spent even a quarter of an hour listening to our proceedings this afternoon—whichever side of the argument they were on—could say that the Bill is not a huge constitutional change. It is taken for granted and people do not know what is happening. If we are going to go down this track—and I certainly would not want to—and if the idea is to make the Scottish Parliament accountable, the basis on which it is funded from Westminster should be one that is fair and is seen to be fair by the rest of the United Kingdom.

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[Lord Maclennan of Rogart]

My Lords, I have listened to this debate with fascination and I agree with the basic view of the noble Lord, Lord Barnett, and my noble friend Lord Forsyth about the injustice and unfairness of the Barnett formula. The aspect of the amendment that I appreciate and support most is the notion of establishing a commission, but it should go wider than one that is charged with the task of looking at only Scottish needs—it should look at the needs of the United Kingdom as a whole. The amendment, in so far as it suggests that the first report should be completed by April 2015, is also sensible.

The general view is that the Barnett formula is unjust. This is becoming the backdrop to consideration of devolution in other parts of the United Kingdom. There is a serious risk that this will turn a large part of our population into a very angry opposition to devolution or any advance in self-government or self-taxation. This is not the right time to decide precisely how far these matters should go. Since the Calman commission reported, there has been a considerable widening of the debate due to the success of the Scottish National Party in the previous Scottish election. It may well be that many who would not have taken seriously what is now called devo-max will now take it more seriously. However these things need to be looked at in the round and I would not go down that line at this time.

What is given out by public funds to all parts of the United Kingdom is a matter for the United Kingdom Government, and they do not need specifically to be empowered in the Bill to base their decisions on a needs assessment. As I understand it, the Barnett formula is not based in statute, and it would be perfectly possible for the Government of the day to advance a change. I say yes to a commission to enable us to make a decision, if appropriate, at the right time. When I say that the decision should be made by us, I mean the Government of the United Kingdom. The postponement of consideration of ways and means—the process for changing the allocation of public funds—has been delayed for too long. We have had all kinds of academic input into this discussion. The committee on which my noble friend Lord Forsyth served was absolutely clear on this, and there has been too much delay in taking this issue seriously and getting down to the small print. Only when we have that nexus of information are we going to be able to make a judgment—against the backdrop of what has been decided about tax—as to what would be the appropriate way to deal with the Scottish question.

[Lord O'Neill of Clackmannan]

My Lords, I am opposed to the amendment on the basis of the rather feeble argument of the doctrine of unripe time, which is always a favourite for people to hide behind. I say so because, as I said in my intervention on the noble Lord, Lord Forsyth, I do not think that the Scottish economy is sufficiently robust at the moment to have a dramatic ground shift in financing. We have to be far sharper and more accurate in our criticisms and attacks on the Salmond Administration and the consequences of their failure to protect Scotland from the worst aspects of the economic crisis that we are going through.

Secondly, on the suggestion in the amendment that we set up a commission, a considerable part of the speech of the noble Lord, Lord Forsyth, if not half, was certainly taken up by a paean of praise not only for the noble Lord, Lord Barnett, but for the Select Committee which the noble Lord set up here. I am not sure whether the commission will come up with anything very much different by way of information regarding the Barnett issue. In the first instance, to start talking about ending the Barnett formula is a bit premature; in the second instance, I do not really see that a commission is going to do much more than the Select Committee of which the noble Lord was a distinguished member.

The Barnett formula is not set in stone. Some of us are old enough to remember the Goschen formula, which was the predecessor of Barnett and which was a lot simpler to understand. As I recall, 11-80ths was the ratio and there was a needs resources element. The formula of the noble Lord, Lord Barnett, was probably too clever by half at the time and it certainly requires review 30-odd years on from its conception.

Even allowing for that, I think it is foolhardy at this stage to lay out a stall for devo-max. Discussion of devo-max is something that happens after a referendum on the question of separatism. Once the separatist cause has been defeated in a referendum, we can look the options and what Scotland actually wants. At the moment, there is an assumption that if we do not move quickly we will get hammered in a referendum and that the result could be anything up to 65:35. Personally, I think that if we had a referendum, we would have a very close run thing one way or the other. I would desperately hope that the unity of the kingdom was sustained, and would hope to play a small part in achieving that result. Let us not forget that less than half of the Scottish electorate voted in the elections last year, and 45 per cent of them voted nationalist. So we are talking about a separatist party enjoying 23 to 24 per cent of the votes of the Scottish electorate as a whole. I know that Governments get elected on low turnouts and less than 50 per cent shares, but for us to start developing a complete political construct to accommodate what might be a negotiating position once the fundamental question has been resolved one way or the other is a bit of a waste of time.

In a number of respects, the noble Lord, Lord Forsyth, and I are not that far away, but the implication of his remarks is that the commission would transform Barnett fairly quickly. I think that we must focus our attention on the inadequacies of the Salmond Administration and make sure that the money currently available to the Scottish Government is used more effectively for the Scottish people. Therefore, I do not think that we need to look at the formula in the way that he is suggesting, and we certainly do not need another talking shop. We have had one already and, no matter how distinguished the personnel involved in it were and no matter how good the information and evidence they produced, it did not have a great deal of effect. At present, it would be far more sensible for us to carry on with this muddled legislation—which nobody really likes but not many folk want to get rid of—and try to get it finished, not necessarily this evening but in the fullness of time.

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[Lord Sassoon]

My Lords, I do not know whether it was an Augustinian argument but I was going to start by saying that the pace is not right rather than that the time is not right. However, we might come on to the time as well. I appreciate that the two things are much of a muchness. Let me continue with the reasoning.

First, as my noble friend knows full well, the current formula is an administrative procedure. It does not appear in legislation so it is not itself something that requires to be dealt with in legislation. More importantly —something that has been alluded to by one or two noble Lords—we need to have in the centre of our thinking that it is not specific to Scotland; it is a mechanism for allocating funding across all four countries of the UK. It would not be appropriate to legislate to alter the formula—a formula that is not in legislation anyway. If we were to legislate for something else, we could not do it in isolation for Scotland.

To reiterate, the Government understand the concerns that have been expressed in both Houses about the devolved funding arrangements. I say that loud and clear, I hope, to my noble friend Lord Lyell in particular. He gave examples of how other countries do it and sought reassurance that we have the matter under consideration. I certainly believe that it is a matter that will not and should not go away. My noble friend Lord Maclennan of Rogart also stressed the importance of this. Unlike some other noble Lords, he made the point that this is a United Kingdom and four-country matter. I agree with the noble Lord, Lord O’Neill of Clackmannan, that while we recognise the difficulties, the Government’s position—Augustinian or otherwise—is that at this time the priority has to be to reduce the deficit. I hear my noble friend loud and clear, and he would not expect to hear anything else from me. Any change to the current system and to the formula must await the stabilisation of the public finances.

Let us remember that the Bill does nothing to rule out or rule in reform of the formula in future, so we are doing nothing through this Bill to make it any more difficult to do it. I understand the logic of much of what my noble friend says but, as he would expect, I conclude that the Barnett formula is not the purpose of this Bill. It would not be appropriate to legislate for it in this more targeted piece of legislation, so I ask my noble friend to withdraw the amendment in his name and that of the noble Lord, Lord Barnett.

[Lord O'Neill of Clackmannan]

I am a wee bit suspicious of Conservative government Ministers when they tell me that they agree with me. I want to make it perfectly clear that I do not criticise the Barnett formula in respect of any aspect of deficit reduction, because I consider that we have reduced too much too fast. I would be in favour of the reallocation of resource within the United Kingdom and the reallocation of resource within Scotland, because the priorities of the Scottish Government are wrong at this time. I may agree with the Minister on this Augustinian position, but not on any other aspect of his analysis of the economic situation.

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[Lord Sewel]

My Lords, normal service has roughly been resumed. Having spoken against the proposition put by my noble friend on the last amendment, I am now right with him. His contribution touches on two issues. One is the actual behaviour of civil servants in aligning themselves with a particular political agenda, and the other is the more nuanced issue of how civil servants should behave in a devolved structure. They are slightly different. On the first one, I would have thought it preferable that a civil servant, certainly a senior civil servant, should say nothing in public on any contentious political issue at all. They should say and do nothing that would make it impossible for that person to work with an incoming Administration. If we get that polarisation of politicians and civil servants divided on one side or the other, we would be moving towards an American system, which I think is to be avoided at all costs.

I want to say more about the role of civil servants in a devolved system. Of course one says immediately that their role is to support Ministers, engage in policy development and do all those things that, on the whole, we know they do extremely well. But devolution brings a unique and arcane issue to the fore. We have not faced it before because we have had a United Kingdom Government, but now with devolution the issue that comes into play is that of vires. The question is this: to what extent and how should any civil servant advise a Minister on a policy area that is outwith the vires that he enjoys? That is an important and sensitive issue to try to tease out.

I do not think that the amendment as it stands can work because the 1998 Act clearly indicates that there is a mechanism by which reserved powers can be devolved to the Scottish Parliament, and in that circumstance there would have to be discussions between Scottish Ministers and civil servants on a devolved matter, so it is not quite as simple as I and my noble friend thought initially. However, in Schedule 5 to the 1998 Act we find that the constitution is a reserved matter, as is,

“the Union of the Kingdoms of Scotland and England”.

It would seem that the senior civil servant in Scotland is giving policy advice and dealing with policy development in that area. So if it is good for that, is it good for other areas of the devolved agenda? I turn to just one, that of defence. The Act states:

“The following are reserved matters … international headquarters and defence organisations”.

One of the defence organisations is NATO. Would it be right and proper for a civil servant in Scotland to advise SNP Scottish Ministers on how they could secure their policy objective of Scotland no longer being a member of NATO? That is a question which I think ought to be asked, and for a whole number of other major issues in the reserved areas it has to be asked whether it is proper in any sense for a civil servant to give advice on how the policy of the Government and the Parliament that properly have responsibility in that area should be thwarted. Just think of what would happen the other way around. If it became known that civil servants in Whitehall departments were advising their Ministers on how they could undermine Ministers in Scotland, it would be a constitutional outrage.

I recognise that this is a difficult and sensitive subject, but it is one that we will have to face up to and, it is hoped, we will be able to secure a resolution that proper discussion should take place, but not something that is aimed at absolutely undermining the devolution settlement itself.

[Lord O'Neill of Clackmannan]

My Lords, I congratulate my noble friend on his amendment. Even if it is defective, it is important that this issue gets raised. I do not have experience of ministerial office, but for 10 years—and some years before that, even—I chaired a Select Committee in which we had civil servants being asked leading questions, difficult questions and sometimes very uncomfortable ones. By and large, however, we never had any attempt to hide behind some kind of political obfuscation. We at no time felt that they had assumed a role which involved the defence of their Minister beyond reasonable bounds or with a degree of loyalty that, frankly, the individual politicians did not merit.

Equally importantly, they were able to make quite clear that they represented continuity in government, which the viscidities of political change left in a number of respects unaltered. By that, I do not mean that they were standing in the way of change, but in the period after a Government are elected, when Minsters are finding their feet, or when new Ministers are appointed, it is to the decency and honesty of the Civil Service that you look for that degree of party-free continuity. If that is going to be endangered at a time of political uncertainty in Scotland, then, to my mind, it has to be spoken about.

We tend in this country not to hang civil servants out to dry in the way that my noble friend has done this evening, or repeat the stories which have appeared in the press. While I would not always necessarily regard the sources which my noble friend relied upon this evening as the most accurate, the fact is that there are remedies if misrepresentation is taking place. None of these remedies would appear to have been exercised, so we have to say that, to all intents and purposes, what has been said here this evening is true. Therefore, it raises quite serious problems. At the moment in Scotland, there is a sense in which we have a Civil Service which is apparently almost craven at the top, at least in part, in its willingness to assist the separatists in their enterprise. Not only that, but I am very sad that the composition of the Select Committees in the Scottish Parliament, which reflects the distribution of votes and seats—as is perfectly correct—seems to regard loyalty to the Government as more important than loyalty to the facts. So we are getting a succession of reports which reflect the political bias of the individuals rather than the weight of evidence which the committees have had presented before them. You get a degree of difficulty with the positions being adopted by senior civil servants, and at the same time a lack of effective criticism from the organs of Parliament which are supposed to be keeping them in line.

In the other place, we have a reasonably effective Parliamentary Question system. It has to be said that there is a lot of grandstanding and theatre about it. If you want to rigorously interrogate Ministers or anybody else involved in the political system of our country, the Select Committee is far and away the most effective means of doing so.

In Scotland at the moment, we have a transition from a unified system of public service to one which is, to an extent at least, split off from the rest of the UK. I am not saying that, in technical terms, the wages, the conditions and the career opportunities are not still there, but it is fair to say that, prior to devolution, there were career development avenues which individual civil servants could take advantage of. They could have periods in the Treasury or in English, or sometimes British, departments where they were able to compare and contrast the manner of working. I am not certain that that is given quite the weight in the Scottish Executive that it once enjoyed in the old-style Civil Service. If it is not, as I suspect, it is creating a mood within Scotland whereby it does not need to think outside the Scottish box, either for solutions or for Civil Service priorities.

This debate is an opportunity to issue a wake-up call to the Scottish Civil Service and say, “You are still part of a United Kingdom. The leadership of your organisation should be thinking not just about what is happening within Scotland and the areas of responsibility”. There are areas of overlap, but that does not necessarily mean that the Scottish Civil Service has to say that what happens outside of Scotland does not matter. We have to give some weight to the degree of overlap, but no less weight to those areas of sensitivity. I have spoken previously about the apparent contradiction of having an energy policy for the United Kingdom which in Scotland precludes the prospect of nuclear power. If a Minister was to refuse a planning application, I presume that it would be on the basis of Civil Service advice—or perhaps it would not; we do not know. At the moment, I would be a wee bit worried about the balance of the evidence presented before the Minister if Scotland was so hell-bent on preventing nuclear weapons. Equally, on the further stages of the independent deterrent, if we are to have within the United Kingdom the capacity for the nuclear submarines to be docked in the west of Scotland, these facilities will need upgrading, planning changes and the like. If that is going to happen, can we be sure that the message that gets through is that the planning applications stand up quite clearly? That is if they do—if they do not, it is equally the obligation of the civil servant to be straight about it. But if we were to have the frustration of areas of national defence on the basis of spurious advice relating to planning applications and the like, we would have serious grounds for concern.

We might have seen fit this evening—or tonight, because we are nearly at 10 pm and there seems no enthusiasm to finish the proceedings, so I will continue for a minute or two more—to have counted the House, and the Government might have lost everything that they have got so far. While some of us have been talking and responding in dialogue with people on other sides of the Chamber, the power was in our hands if we had wanted to use it to have screwed up the whole proceedings. People seem to forget that in the rather cavalier manner in which they have allowed this evening’s proceedings to go on beyond reasonable bounds.

I return to the point that I want finally to make. The strength of our Civil Service has been in its independence and its continuity. Its independence from political interference on the one side and its reluctance to get involved in politics on the other have meant that, in times of political and constitutional uncertainty, the Civil Service, by and large, has been able to sustain continuity. Nearly two years ago, when we had that brief interregnum between the previous Labour Government and the coalition, it was to the civil servants that people looked for advice; it was to the Executive that the politicians looked for guidance and support. In a constitutional crisis of the kind that could arise in Scotland, either as a consequence of a referendum or a change of Government, I am not sure that there would necessarily be a seamless transition from one set of conditions to another that political change of a radical kind might bring about. Many of us are uncertain about that and about the quality of the advice that would be made available to politicians of all political parties in Scotland given the present irresponsible attitude that is being adopted by people who should know better and whose training should have provided them with an understanding of the sensitivities that they sadly seem to have ignored at this stage.

--- Later in debate ---

[Lord Foulkes of Cumnock]

My Lords, what a very helpful suggestion indeed. I will immediately investigate it. I agree with the noble Lord, Lord Forsyth, absolutely: when I was a Minister in both DfID and the Scotland Office, he will not be surprised that from time to time my civil servants came to me and said, “Minister, I think you are being a little political in what you are suggesting here. I cannot put out a statement on your behalf saying this. You will have to get your party to put it out”. They are absolutely right to do that and we all respected it. That is why it is deeply disappointing that that is not what seems to be happening in the Scottish Government.

I say to my noble friend Lord O’Neill that I did not want to hang civil servants out to dry. In fact, both of the civil servants who I mentioned had really hung themselves out to dry in what they said and put on record. Although I do not normally quote the Daily Mail, the Telegraph and the Daily Express—I take everything I read in those newspapers with a pinch of salt—they were quoting directly from some of the things that Sir Peter Housden had said and put into his blog, so it was something that you could believe.

I take again the advice of my noble friend Lord Browne of Ladyton in relation to this, as I did with my noble and learned friend Lord Boyd on a previous amendment. The wording of the amendment is defective, as the Minister pointed out.

[Lord O'Neill of Clackmannan]

It is an order.

[Lord Foulkes of Cumnock]

It is an order, and I accept the fact that it should be looked at again. The noble Lord, Lord Forsyth, suggested that we might take another look at it, and it might be that we could think about what the noble Lord Maclennan said. If some kind of objective look at serious complaints about the Civil Service’s lack of impartiality could be undertaken, Scotland might be a good place to start. That was a very good suggestion.

The only thing in the Minister’s reply that I was a little worried about—most of what he said was very good—was when he said, referring to the head of the Civil Service in Scotland, that it was okay for civil servants in Scotland to advise the devolved Government on different policy areas where the two Governments have different objectives. That needs to be looked at more carefully. In a reserved area such as the constitution, it raises some very serious issues if there are policy objectives that are not just different but totally contradictory and conflicting.

Before I withdraw the amendment, which I will, I just ask the Minister to consider taking the initiative to draw this debate directly to the attention of Sir Jeremy Heywood, who is now the Cabinet Secretary. I have the highest regard for him and think he might carefully consider some of the points that have been made and what action might be appropriate. I beg leave to withdraw the amendment.