Scotland Bill

Lord Turnbull Excerpts

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.

Scotland Bill

Lord Turnbull Excerpts

Monday 22nd February 2016 Lords Chamber

Finally, I ask the Minister: what is the tearing hurry? All the parties to the Smith agreement have been treating it as a matter of utmost good faith that they will get to an agreement. For those involved it is an instance of that British maxim, dictum meum pactum. During the Committee stage so far—and I have been present for almost every minute—all the amendments and the debate, from all sides of the House, have been entirely consistent with the Smith commission agreement. Indeed, the only bit in the Bill that seems to be potentially inconsistent is the Henry VIII clause which we will debate later today. We will learn more about that, I am sure. There is a great certainty in this House that the Bill will be enacted, and enacted on a basis that is consistent with the Smith commission agreement. I therefore believe it would be far better in the long term for the citizens of Scotland and the United Kingdom to afford the Bill proper scrutiny, both here and in Holyrood. If that means that it passes into law in May, not March, then so be it.

[Lord Turnbull (CB)]

My Lords, I, too, share many of the concerns raised by the noble Lord, Lord Forsyth. We have reached a point where the House is being asked to approve that certain taxes and welfare measures should be devolved, but nothing is being said about the framework in which they are to be operated. I do not accept the proposition put forward by the noble Lord, Lord Hope, that we can divorce the two, nor do I accept that the precedent of the previous Scotland Act of leaving certain details to be settled after this stage is appropriate. What is at stake are billions and billions of pounds and the distribution of those between the different parts of the United Kingdom.

We have been told nothing about two vitally important elements of the fiscal agreement: the method for adjusting the Barnett formula to take account of the new distribution of taxes and the regime for borrowing and debt. We know that there is a dispute over two different methods of adjusting the block grant. Noble Lords will be pleased to know that I am not going to attempt to explain those now, but no Minister in this House or the other place has attempted to explain what the two approaches are and the merits of each. Despite that, and contrary to the assurances given, the completion of Committee stage has been scheduled to proceed. It is extraordinary that a major change in constitutional arrangements, both political and financial, is being sought without either House having a chance to see the detail of what is proposed or, importantly, to take a view on its effectiveness or fairness. It has been pointed out that this is not simply a bilateral matter between Scottish and UK Ministers: it has implications for the whole country.

The other place may be content to allow all this to glide by unremarked, but I believe that this House has higher standards. It has always prided itself on ensuring that matters of constitutional significance are properly scrutinised. At the moment, that is not happening.

If an agreement is reached in the next few days, even though it has been a case of “Mañana, mañana” so far, the Government need quickly to come up with a process that allows the Bill to be scrutinised before final assent is given to it. For example, if this is effectively delayed until Report, will the rules of Report be modified to adopt the rules of Committee—for example, with noble Lords being able to speak a second time? That has been done before, I think in the case of a financial services Bill. Alternatively, a separate consent Motion could be provided, which is something that the Holyrood Parliament itself intends. Something needs to be done because it is not acceptable to allow the Bill to be finalised and matters of this importance to be sorted out thereafter.

[Lord Selkirk of Douglas (Con)]

My Lords, I should mention first that I was an MSP for the first eight years of the Scottish Parliament. I want to make a series of small points. The first is that an agreement between the Government and the devolved Scots Administration should not be beyond the wit of humankind, even in difficult circumstances. I hope that the Minister will keep negotiating and that his efforts will be rewarded with success.

I thought that the noble Lord, Lord Forsyth of Drumlean, not only made a persuasive case but made a particularly important point when he suggested that an amendment could be made saying that the Act must not commence until the fiscal framework was in place. My understanding is that the Bill cannot be implemented in the absence of an agreement as it requires a consent Motion in the Scottish Parliament. Without an agreement, no consent Motion will be passed. I hope that the Minister will look very carefully at my noble friend’s proposal.

Scotland Bill

Lord Turnbull Excerpts

Monday 22nd February 2016 Lords Chamber

[Lord Bruce of Bennachie]

I certainly do not repudiate that point, but it is still worth acknowledging the fact because it is often presented in a glib way—by saying that there are not legitimate reasons why some expenditure in Scotland is significantly higher. I have represented a rural constituency and seen the rural schools which people want to keep open, for example. The unit costs for those are much higher than for urban schools, and such examples need to be taken into account.

We are all frustrated by the fact that we are asked to enact the Bill without the fiscal framework being in place. In the earlier debate the noble Lord, Lord Hain, made the point that some 40% of the UK’s wealth is concentrated in the south-east. In the run-up to the referendum, when the oil price was very high, the SNP was keen to say how much oil had sustained the United Kingdom, but it conveniently forgot the extent to which the United Kingdom had had to bail out the Royal Bank of Scotland and the Bank of Scotland, which an independent Scotland simply could not have done. The SNP’s response was that they were of course no longer Scottish banks, but it would have found some difficulty in arguing that case, had Scotland been independent and those banks been headquartered within their system. There are inequalities of argument in that context.

There is another point that needs to be made absolutely clear. If, in future, taxes fund a significant proportion of what was previously provided by the block grant, and if there is a divergence and different circumstances arise, the reality is that a Scottish Government can do only one of two things: put up taxes or cut services. In fact, they could do both those things. It is right that the people of Scotland should recognise that if they vote for independence, they will find it difficult to maintain what they have at the moment, never mind what the Scottish nationalists promise them, on the basis of the current tax-and-spend regime, and I suspect that that is why the majority voted no. The implications of that are significant.

There is one argument that I find really confusing. I am in favour of the European Union and of the United Kingdom, which I find a very consistent argument, and I am puzzled by people who are in favour of the European Union and against the United Kingdom, or vice versa. At least I and my party have a fairly consistent view on these things: they both involve compromise and negotiation, and both require some form of treaty agreement or contract to settle them. The Minister has to acknowledge that we are getting very close to voting through an Act of Parliament literally in the dark—one that has serious implications for the people of Scotland and is not being properly debated in Scotland. I completely understand the position taken by Labour Front-Benchers—I would not have supported the amendment of the noble Lord, Lord Forsyth, for the same reason—but we are in danger of allowing the argument to be run by one side; we need to hear a balanced argument. We need to hear generosity from the United Kingdom, because the people of Scotland have said that they want to be part of the United Kingdom. I think the UK will say to the people of Scotland, “We want you to stay; we want to find a settlement that works for both of us”. It is not good enough simply to say, “You are going to get that tax. It is up to you what you do with it. If it falls short, that is your problem”. That is why I support Amendment 76, and the other amendments in the group have a similar intention. Never mind no detriment: we have to recognise that we need a basic, practical, working arrangement that says, if there is clearly an unsustainable disadvantage to the people of Scotland from a formula that has been openly and honestly agreed, we are prepared to revisit it. Amendment 76 gives a framework for doing that.

It is essential that the Minister address two issues. First, he must explain how we can enact this legislation without having formally acknowledged the formula written in both Houses of Parliament and the Scottish Parliament. Secondly, and more to the point, if we are not able to deal with the matter here and these amendments are not accepted, that leaves the Scottish Parliament as the only arbiter of whether this goes ahead. We all know that it is likely to say, “We couldn’t get a deal so you have to vote for us, because nobody else will give you a decent deal”. However, the truth is that it was offered a pretty generous deal that would have protected Scotland’s position in the United Kingdom and given it more powers and control, which it rejected for the simple reason that it was terrified of the responsibility of having to take these issues up with the people of Scotland and explain the reality of the resources it had and how it was going to balance them out. That is the everyday debate of politics everywhere—except, at the moment, Scotland. We are debating this issue in a vacuum, without facing the fundamental reality that Scotland benefits from being part of the United Kingdom. Scotland wants more control over its own affairs. We have an agreement in principle to deliver that, but we do not have a fiscal framework. Whatever framework is introduced, we need to make sure that we have a mechanism for reviewing it genuinely to reassure the people of Scotland and ensure that it will be fairly and independently assessed, and that if there is a clearly unacceptable and unsustainable disadvantage, as determined by independent commissioners, action will be taken to put that right. If we can get that right, we can win the argument.

[Lord Turnbull (CB)]

My Lords, I support Amendment 75A moved by the noble Lord, Lord Kerr, on debt and borrowing. The amendment is founded on the principle that the UK is a union, constitutionally and financially. There is a common currency, single monetary policy, single exchange rate and a banking union. We have some banks that pretend their headquarters are in Scotland, but they are not really. The public finances of Scotland and the rest of the UK are inextricably intertwined. A large part of public services has been financed—even under the new arrangements, when they are unveiled—by grants from the UK or assignment of revenues. Departments of Her Majesty’s Government have large budgets that they spend directly in Scotland.

The SNP may not like the fact that the union exists, but it does, and certain consequences follow. When the Economic Affairs Committee took evidence on post-referendum arrangements, there was little appetite by then for full fiscal autonomy. It was always an illusion, but it was thoroughly punctured by the gaps in the oil price. Some witnesses argued that, in addition to sensible arrangements to deal with short-term fluctuations, Scotland could operate a separate borrowing regime, financed by borrowing in its own name. In effect, that would be policed by financial markets and underpinned by a no bail-out rule. As noble Lords have mentioned, debt issued by the Scottish Government would have its own credit rating with its own risk assessment, and if debt issuance was thought to be excessive its cost would rise and the Scottish Government would be forced to respond. However, most witnesses did not believe this model, given the extent to which the two economies are interlinked, and no one really thought that a no bail-out clause was plausible. Most notably, the noble Lord, Lord Darling, told the Committee that the eurozone has a no bail-out rule that we can see “works very well”. I think he was being ironic, but I cannot be absolutely sure. He thought that a no bail-out rule would be,

“unnecessary and downright provocative and actually sound very patronising … I am part of the UK as well; do not tell me I cannot be bailed out by a country that I happen to be a citizen of”.

That was strongly endorsed by the Committee.

During the course of the referendum, there was some loose talk that said, in effect, “Vote for us and we will put an end to austerity”, but even now in Holyrood there is a recognition that although borrowing policy does not have to be identical to that of the UK, it nevertheless has to be consistent with it and supportive of policy for the UK as a whole. Two things follow from that. First, the amount of borrowing year by year cannot be such as to undermine the Government’s overall borrowing objective. Secondly, the stock of debt, relative to some measure of capacity to repay, cannot be such as to raise the spectre that the UK Government might have to intervene. As the noble Lord, Lord Kerr, stated, this amendment does not seek to specify what those various ratios should be. They should rightly be in secondary legislation. Why, then, is the amendment needed? It is needed to entrench the principle that Scottish fiscal and debt policy cannot be decided unilaterally in Scotland. It has to be related to the policy of the UK as a whole and the limits must be set by the Treasury, after consulting the Scottish Government, and should be approved by Parliament. In that way, the amendment fills one of the holes in the Bill, although many are left.

The noble Lord, Lord McFall, mentioned an article, “Sleight of Hand”, by Jim Gallagher, who, as many noble Lords will know, is a former Scottish civil servant and is now a professor. However, the noble Lord did not read the last paragraph:

“So I wonder if this is less about fiscal formulae and more about nationalist politics. It’s becoming pretty clear that the SNP won’t promise another referendum after the next Holyrood election. They think they’d lose. But without it they’ll have nothing to talk about. So maybe their aim is to reject the fiscal framework, whatever is offered and so derail the new powers in the Scotland Bill. Then they can spend the next five years arguing about power, not exercising it”.

[Lord Thomas of Gresford (LD)]

My Lords, I feel obliged to intervene for Wales for a moment, because there is a very solid Welsh dimension in this. I also feel that I can do so because I was married for 39 years to a lass from West Lothian and I have always known the answer to the question—which is, “Yes, of course, dear”. The point that really concerns me is that a deal is being done in secret in Scotland, involving the fiscal framework, which will have implications in Wales. As the noble Lord, Lord Forsyth, said, the Welsh deal on the Barnett formula is rubbish. Every political party in Wales recognises that. The Welsh Labour Government refuse to exercise their tax-raising powers until that formula, or some formula, is revised. I fear that this secret formula or framework that is being arrived at in Scotland will be used as a precedent in Wales when we come to deal with tax-raising powers under the draft Wales Bill, and that we will be stuck with the same sort of system, arrangements and mechanisms as there are in Scotland—but it will be entirely different.

Therefore, I urge Ministers, as my noble friends have done, to allow transparency, so that we may actually have some input. Many speakers in this debate have said that it is unfair on other parts of the United Kingdom. Certainly, it may very well be unfair on Wales: the impact of this fiscal framework in Scotland could devastate Welsh funding for the future. I hope that your Lordships will excuse me for putting in a Welsh voice.

--- Later in debate ---

[Lord Dunlop]

If there is faster population growth in the rest of the UK, that obviously will not just increase tax revenues. It will also increase demand for public services. This negotiation is all about a fair allocation of risk. As I said, at this delicate time of the negotiations I do not want to comment in detail about particular aspects. We will publish this agreement if and when we can get it and I will be very happy at that point to discuss and debate with my noble friend on these matters.

I have great sympathy with what the amendment tabled by the noble Lords, Lord Kerr and Lord Turnbull, seeks to achieve. It is centred on the Scottish Government’s resource and capital borrowing powers and this is an important part of the negotiations. The noble Lord, Lord Kerr, asked whether this is a matter of great controversy. I do not anticipate—if we can reach agreement soon—that this issue will cause great controversy. In detail on resource borrowing, Smith talks about sufficient and additional powers to,

“ensure budgetary stability and provide safeguards to smooth … public spending in the event of economic shocks”.

The current powers of the Scottish Government are that they can borrow up to a total cap of £500 million for this purpose and an annual limit of £200 million for cash management and forecasting error in devolved tax revenues. The rationale for more in this area is the increased risk and volatility from a greater scale of tax devolution, although I again stress that this is a marginal Scotland-specific risk. This needs to be proportionate. Mindful of the need to deliver sustainable UK public finances, as the noble Lord, Lord Turnbull, said, Scottish borrowing is included in UK borrowing.

When we look at these borrowing powers, we need to look at the other tools that are available to help manage the risks—the possibility of building up a rainy-day fund and the block grant adjustment mechanism itself. We also need to cater for Scotland-specific shocks if the Scottish economy is in recession while the UK economy continues to grow. That is a relatively rare event—I think it has happened three times in the last 20 years. We need to do this to protect against relative underperformance leading to worse economic outcomes through higher taxes or lower spending during recession. I pick up on a point that the noble Lord, Lord Darling, made: it is explicitly not a facility for the Scottish Government to borrow to fund current spending in normal times. That would absolutely undermine fiscal responsibility and accountability.

On capital borrowing, Smith talks about sufficient borrowing powers to support capital investment. He asked the two Governments to look at a similar prudential borrowing regime used by local authorities. The current powers involve a total cap of £2.2 billion and an annual limit of 10% of the capital grant, which is currently about £3 billion, so we are talking about £300 million per annum. All borrowing needs to be complemented by fiscal rules to ensure consistency with the overall UK fiscal framework.

The noble Lord, Lord Kerr, specifically asked about legislation. The Scottish Government’s existing borrowing powers are provided for in the Scotland Act 1998 as amended by the Scotland Act 2012. Any changes to the purposes and circumstances for which the Scottish Government have permission to borrow to reflect the transferred risks may require amendments to primary legislation. I assure noble Lords that we will review further what primary and secondary legislative changes may be needed in the light of a fiscal framework agreement, including additional independent scrutiny of the Scottish Government’s public finances, to which the noble and learned Lord, Lord McCluskey, referred. Both Houses of the UK Parliament will have an important scrutiny role.

[Lord Turnbull]

Will the Minister clarify a matter for me? When he talks about additional primary legislation, is he talking about bringing forward an amendment to this Bill or about a new Bill to be brought forward on some other occasion? It really belongs in this Bill.

[Lord Dunlop]

As I said, it depends on the timing of an agreement. Obviously it would be preferable, if possible, to provide amendments for this Bill, but that depends on our reaching an agreement and the timing of that agreement.

Scotland Bill

Lord Turnbull Excerpts

Tuesday 24th November 2015 Lords Chamber

[Lord Turnbull (CB)]

My Lords, I join others in welcoming the noble Baroness, Lady McIntosh of Pickering, and the noble Lord, Lord Campbell of Pittenweem, to this House. Their arrival could not have been better timed.

As a member of the Economic Affairs Committee, ably chaired by the noble Lord, Lord Hollick, I naturally endorse the criticisms that he made of the process for scrutinising the Bill. The Bill is full of holes; for example, Part 2 lists the taxes to be devolved or assigned but tells us nothing about how they will interact with other parts of the settlement—for example, the highly complex but vital indexation mechanism for uprating revenues and for calculating the abatement of a block grant. That sounds a mouthful and it is very complicated, but I predict that it will be the single most powerful mechanism in this new settlement. We will have to find some way in which to understand it.

The Bill also tells us nothing about the borrowing and debt regime. The UK Government have an objective to eliminate the budget deficit by the end of this Parliament. In a country with a single currency, exchange rate and monetary policy and a unified public debt market, the fiscal policy of the devolved Administrations must be consistent with the national policy. The argument that Scotland should be free to set its own borrowing, subject to a no-bailout rule if it gets it wrong, is simply not plausible. There must be clear statutory limits to debt. So this Bill is like buying an Ikea flat-pack with no instructions on how the pieces fit together, or a mobile phone with no operating manual.

I therefore welcome the Minister’s assurances, as far as they go, that it is the Government’s firm intention that the fiscal framework should be made available to Parliament before the passage of the Bill is completed. But that does not tell us what happens if negotiations drag on. In my view, the Bill is of such importance that its proper scrutiny should not be sacrificed to the timetable. Like the noble Lord, Lord Gordon of Strathblane, I think that the answer is not to delay the Bill but to start work right now on accelerating work on the framework.

This is a very important Bill, which seeks a major advance in the degree of devolution in Scotland, taking it from a very low level by international standards to among the highest in the world. The settlement transfers responsibility for revenues approaching £16 billion and should give Scotland the incentive to develop its revenues and spend them wisely, rather than simply moaning about the inadequacy of the block grant. It is also trying to establish a settlement that lasts. The Smith commission used the word “durable”, while the White Paper seeks an “enduring settlement” and the Bill uses the term “permanent”. The success of the Bill is important for the union but if the settlement is poorly designed and collapses in confusion and acrimony, the union will be put in peril.

As well as serious flaws in process, the Economic Affairs Committee has highlighted a number of concerns of substance. A key feature of the proposal is the retention of the Barnett formula by assertion rather than detailed justification. I am grateful to the noble Lord, Lord Thomas of Gresford, for pointing out the rather oblique way in which the Barnett formula appears as obiter dicta in a Statement which appears to be about health funding. Does the Smith commission really believe that every jot and tittle—every parameter—of the Barnett formula should be immutable for all time? By adopting the stance of “What we have, we hold”, Scotland seems to think so.

The defects in the Barnett formula are well known to this House. It was thoroughly reviewed by a Select Committee in 2009, and its report set out some principles for a new system: it should consider both the baseline and any increment to funding; it should be fair, and be seen to be fair; and it should take account of relative need. None of these conditions is being satisfied. The current allocations are grossly and, as they might say in Wales, grotesquely unfair. Scotland has a gross value added—that is what we used to call GDP—per head 29% higher than that of Wales. That is a significant gap in its prosperity. It has the highest GVA per head of any region of the UK after London and the south-east, and identifiable spending per head 4.5% higher than Wales.

There is nothing in the Barnett formula which has regard to the baseline and nothing to promote any convergence towards a fairer reference point. A settlement whose starting point is so unfair cannot prove to be durable, permanent or enduring. It will embed a festering grievance which will lead to the breakdown of the settlement and, in this way, imperil the union. An enduring settlement will, over time, have to adopt needs funding as its reference point, even if it takes many years to get there. Some witnesses argued that calculation of needs would be too complex, even though, ironically, need is one of the factors by which the devolved Administrations divide up the direct grant once they have it.

I have two further observations to make. First, the House of Commons has just amended its procedure to provide for English votes for English laws. Study of the finances of the devolved Administrations, even after the changes now proposed, tells us that their finances and those of the national Government are closely intertwined. The pure English law which has no consequences for tax or spending beyond England will turn out to be a rare beast indeed. Secondly, the work of the Economic Affairs Committee has demonstrated that there is little transparency in the current arrangements and a poor public understanding of them. We need mechanisms and organisations—maybe the OBR or something like it—not to make decisions, as in the Australian grants commission, but to keep the numbers honest and document the methodology.

I include one final point on this famous second no detriment. Let us suppose that health spending in England increases by 4% this year and the Government plan to increase it by 3% next year. Is that a 3% increase —or is it a 1% cut, which has to be compensated for? I do not think you would get agreement on that and if you cannot get agreement on something so simple, I do not see how you can make this thing work. We are therefore drifting into dangerous waters. We should heed the warnings of the Constitution Committee about piecemeal change, inadequately scrutinised by Parliament.