Scotland Bill

Viscount Younger of Leckie Excerpts

Tuesday 6th September 2011 Lords Chamber

[Viscount Younger of Leckie]

My Lords, my lowly position in the batting order is mitigated by the pleasure I have in following the first lady Secretary of State for Scotland and indeed the questions she has raised.

I give my broad support to this Bill, with some key reservations, as I believe it presents a firm platform from which devolution for the Scottish people can be extended and enhanced but with some practical limitations. Its strength derives from two main sources. First, the detailed and well researched Calman report, with recommendations that underpin this Bill, has been approved and broadly acknowledged across the professional and academic diaspora in Scotland, in addition to the three main UK political parties. Secondly, the report and the Bill are clear cut as much for their recommendations for exclusion and for further devolution as for inclusion, following the debate in another place.

Further devolvement is both an expression of faith in, and hope for, the Scottish people in extending self-determination. However it remains an experiment because, as my noble and learned friend has said, the new powers represent the largest transfer of financial responsibility to Scotland since the union, but as yet there is no clear financial plan. With a reduction of part of the block grant as a quid pro quo for increased tax-raising powers to cover 35 per cent of the spending budget, there will have to be either a reduction in public services in Scotland, the major sector, or increased taxes, bearing in mind there are already free prescriptions, free elderly care and no tuition fees north of the border. However the experiment has some monitoring in place. The introduction of regular OBR forecasting for the first time in Scotland means there will be some transparency in observing progress on how receipts from revenues from all taxes match expenditure, or indeed not, and the reasons for this.

Transitional arrangements have considerable merit. The new borrowing powers proposed from 2015 for the Scottish Government at £2.7 billion are in excess of Calman’s recommendations of £400 million more than the Scottish Government’s total capital budget for the current spending review period. The decision to delay until 2015 the point at which the new tax powers can be exercised is pragmatic as the UK continues to tackle its enormous deficit—a protection required to manage tax volatility, but a hedge against a potential Scottish reduction in income tax, without the credible quid pro quo of corresponding public spending cuts or other tax rises. Other measures of interim support are welcomed and exceed the Calman proposals, such as the provision for payments into the Scottish cash reserve, the offer of cash pre-payments from this year to progress work on the new Forth crossing and the facility to borrow money by issuing bonds without the need for primary legislation.

The items that were included in the Calman report but rejected as unworkable have caused considerable debate in the other place. As the noble Baroness, Lady Ramsay of Cartvale, has mentioned, it has to be recognised that the devolvement of corporation tax-raising powers would likely create instability for Scotland. Assuming the Scottish Government lowered taxes, there is no convincing evidence to support the case that there would be a corresponding financial growth in businesses, particularly as those benefiting would be the banks and other major corporations and not the myriad small businesses, many of which pay no corporation tax. A reduction would cause a draw of businesses to north of the border, but over time this would likely be counteracted by market forces and a reduction of the English rate with a spiral downwards of the UK corporation tax rate as a whole. Sharp practices, including arbitrage and tax avoidance, would be encouraged to the detriment of the Exchequer. A further knock-on effect could be a rise in income tax in Scotland to counteract a decrease in corporation tax to balance the books, which would harm small businesses—surely from where one might expect economic growth to emerge.

On the question of excise duty, which has hardly been covered this evening, I agree with those who state that the issues surrounding the purchase and consumption of alcohol are complex and cannot be simplified to the basic principle whereby a rise in duty leads to reduced consumption.

On the assumption that a Scottish Government, given powers, would raise excise duty post-2015, as has proved the case with the land border between the Irish Republic and Northern Ireland, Scottish citizens would surely flock south of their border to purchase alcohol and other goods at the same time for convenience, thereby hurting Scottish outlets. It is widely recognised that complex social problems lie at the core of excessive drinking, not the unit price.

The Calman commission and the Bill have excluded from their deliberations the matter of the UK block grant, not revisited since the Callaghan years. However, we are at risk of creating in England a sourness—a word coined by the honourable Member for Birkenhead in the other place in relation to the Barnett formula—if we do not tackle now the unfairness of the Scots receiving 19 per cent more public money per head than the English. First, the block grant is inextricably linked to the Scottish fiscal and financial budget in aggregate and by department, and therefore a plan for reform should be included in this Bill. We should commence the lengthy process of analysis, research and renegotiation now and not delay to 2015 simply because of deficit distractions. I am convinced that Barnett 2 must be needs-based and take account of complex regional differences in addition to national variations. Although a costly process, the benefits will be seen in the longer term, not least to restore fairness and trust in the grant allocation process.

The Calman commission report was balanced, professional and non-political. However, there are important underlying political ramifications resulting from the contents of this Bill. This Bill is not a step towards full independence. The Scottish nationalists are unwise to push for further demands as reflected in their six main amendments moved in another place, not least because these demonstrate a degree of financial recklessness over prudence.

The Bill is a giant leap of faith, but the experiment does, crucially, still preserve the union. It is now critical that we advance and consolidate the arguments in favour of a continued union and, as my noble friend Lord Forsyth and the noble Lord, Lord McConnell, have highlighted this evening, be fully prepared legally and logistically should a referendum be called.

Those who through blind emotion seek full independence for Scotland should not forget the experience of Czechoslovakia, which has been raised this evening, which fought long and hard to gain independence from its Austrian rulers in 1918, only to find that there were too many differing nationalistic and ethnic factions, post-independence, for it to have a chance of working. It was rapidly an abject failure.

As the noble Lord, Lord Maxton, has pointed out already this evening, ultimately perhaps James VI of Scotland, later James I of England, a well-educated king, is to blame for raising Scottish hopes so high for self-determination and then abruptly abandoning the Scottish cause, with his court, when he succeeded to the English throne in 1603. This enduring Scottish national insecurity remains potentially financially dangerous for a country whose sum populace totals barely 8 per cent of the UK total, and indeed for Great Britain.