Lord Dunlop
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Lord Dunlop
The Parliamentary Under-Secretary of State, Scotland Office (Lord Dunlop) (Con)
My Lords, Clause 44 devolves power to the Scottish Parliament for regulation of licences to search and bore for petroleum in the Scottish onshore area. Clause 45 transfers the functions of the Secretary of State to the Scottish Ministers. However, as consideration payable for such licences is to remain reserved to Westminster, Clause 45(8) retains the power of the Secretary of State to make model clauses on the consideration payable for a licence granted by the Scottish Ministers, and on matters related to the keeping of accounts and the measurement of petroleum.
Amendment 46 would revise Clause 45(8) to ensure that the Secretary of State’s enforcement ability in relation to such reserved matters is preserved for licences in onshore Scotland. This will be achieved by maintaining the Secretary of State’s current power to cancel licences in onshore Scotland, applicable only for infringements in relation to consideration payable for a licence, the keeping of accounts and the measurement of petroleum related to consideration and taxation. Nothing in this amendment changes the powers being devolved to the Scottish Parliament. A definition of “appropriate Minister” under Clause 45(5) is removed, as this is redundant in light of Clause 45(17). I therefore beg to move Amendment 45.
Lord Wallace of Tankerness (LD)
My Lords, I shall speak to Amendment 47 and others in this group which are in the name of my noble friend Lord Stephen and myself. Amendment 47 would in effect devolve legislative competence for consents for electricity generating stations and overhead lines to the Scottish Parliament. The position at the moment is that the Scottish Government have executive power to grant development consent for generating stations of 50 megawatts capacity or more and overhead lines of 20 kilovolts nominal voltage or greater. However, the Scottish Parliament does not have legislative power to reform the law in relation to such development consents. This is the only type of development that the Scottish Parliament does not have legislative power to regulate.
As I have indicated, such consents are governed by Sections 36 and 37 of the Electricity Act. This legislation, which goes back to 1989, is outdated. In fact, it is sufficiently outdated that, in the mean time, in England and Wales, it has been changed so that applications for development consent are dealt with under the Planning Act 2008, a much more suitable system. In Scotland, it has been described as effectively a legislative orphan. The Scottish Parliament has no power to reform it, and when the United Kingdom Parliament reformed it in respect of England and Wales, the opportunity was not taken to reform it in Scotland. Moreover, it is my understanding that the draft Wales Bill is devolving power to the Welsh Parliament, as it will be known, to legislate on consents for almost all energy development there. The aim of this amendment is therefore to devolve to the Scottish Parliament legislative power to reform the system of development consenting for energy infrastructure. The generation, transmission and distribution of supply of electricity is presently reserved although, as I said, the actual power to grant consents has been devolved.
This issue has some practical consequences in the context of the Energy Bill, which is currently in the other place. I was advised last week that a development in the south of Scotland, which I think is of about 65 megawatts, is therefore subject to the present regime under Section 36. However, if the same development had been just several miles further south in Northumbria, it would have been the responsibility of the local authority. If the local authority had refused it in England and Ministers had called it in, the grace period that the Government proposed for onshore wind farm consents would have kicked in. However, that does not cover the situation in Scotland given that it is already subject to ministerial fiat there, so there is a mismatch in practical terms. I apologise that this gap was drawn to my attention after Committee but I have certainly made the noble Lord, Lord Dunlop, aware of these concerns. He has had some notice and I hope that he may be able to give an encouraging reply.
The other amendments, to some extent, go over the ground that we covered in Committee. I appreciate that the Minister has met me since then and we have discussed these amendments. The Government argue that there is already adequate statutory provision for consultation, and the Minister asked why the industry was not satisfied and agreed to meet the industry to find out. My understanding is that, in the event, negotiations on the fiscal framework took over. That is perfectly understandable—there is no criticism there. However, his officials did meet the industry.
The current position is in spite of the fact that a commitment followed a request in the Smith commission for further consultation. Indeed, in the initial response to the Smith commission, the Government’s Command Paper stated:
“The UK Government will work with the Scottish Parliament and Scottish Government to devise a proportionate and workable method of consulting the Scottish Parliament on the strategic priorities set out in the Energy Strategy and Policy statement”.
However, the Government’s position now is that this is not necessary and that there is already a statutory regime there under the Energy Act 2013.
The fact that the industry remains unsatisfied is of some concern. Notwithstanding new Section 90C(4), which states,
“a ‘renewable electricity incentive scheme’ means any scheme, whether statutory or otherwise”,
people in the renewables industry have formed the impression that any consultation with Scottish Ministers is likely to be triggered only by legislative changes. It would therefore be helpful if, in responding to this debate, the Minister could indicate the overarching legal basis for the contract for difference regime being set out in primary legislation, while the main detail as to how it will operate is contained in statutory instruments and any changes to these statutory instruments would trigger the consultation in terms of this Bill and the Energy Act.
The experience of the accelerated closure of the renewables obligation for onshore wind, which went ahead with, I think, minimal consultation with Scottish Ministers, has given rise to the concerns within the industry. It would be useful if the Minister could indicate whether the position with regard to any order to remove specific technologies from the contract for different regime is something about which Scottish Ministers would be consulted. There is no obligation on the Secretary of State to consult on the budget notice issued in advance of each allocation round. However, there is a need to consult Scottish Ministers on other aspects of the contract for difference mechanisms, for example on setting the new administrative strike prices, and it would be helpful if the Minister could perhaps give some clarity on how he sees that operating in the future.
Officials seem content that the issue addressed by Amendment 55 is dealt with adequately under existing provisions, but the view is that the improved consultation mechanism would have been better if a Scottish member could have been appointed to the Gas and Electricity Markets Authority. Again, this is a matter that the Smith commission flagged up. The Bill does a similar thing for Ofcom, and perhaps the Minister could indicate how he intends to improve the consultation and whether there is any further mechanism through the GEMA board which would meet the industry’s concerns.
Finally, one of the amendments gives Ministers the power to bring forward a scheme which effectively would devolve contracts for difference to Scottish Ministers. I stress it is a scheme which UK Ministers could devolve, so the concerns that this could lead to a bigger levy on consumers across the United Kingdom would not necessarily come through. The specific point here is that there is concern in the industry that, under the next tranche or round of contracts for difference, onshore wind may not be included under the technologies, notwithstanding that onshore wind has been at £82.50 per megawatt hour for 15 years, index linked, while offshore wind has been at £114.40 per megawatt hour for 15 years and nuclear is index linked for 35 years at £92.50. There is a very strong argument that Scotland has a considerable abundance of resource in onshore wind and that it could be developed there. This is not in the Smith commission, but had it been known that the Government were going to change the rules on the renewables obligation for onshore wind when the commission was sitting, it may well have made such a recommendation, because it would have been entirely consistent.
I simply remind the Minister that in the Scotland analysis paper for energy, the then Government said:
“The UK Government is now introducing the Contracts for Difference scheme, which will provide long term support for all forms of low-carbon electricity generation. These contracts provide industry with the long-term framework to make further large scale energy investments at least cost to the consumer”.
I stress the words “all forms”, which includes onshore wind. I am sure the Minister would like to take the opportunity to say that the present Administration will stand by the commitment that the previous coalition Government presented to the Scottish people in the run-up to the referendum. I hope the Minister will be able to give us some reassurances when he comes to reply.
Lord Dunlop
My Lords, the noble and learned Lord, Lord Wallace, spoke to a number of these provisions when we considered this matter in Committee. He made some observations about the clauses and I have met him to discuss his thoughts on these areas, as he said. I am also grateful to him for withdrawing the amendments he tabled regarding heat. Again, we spoke about that issue and I was glad I was able to reassure him on the position.
In Committee, we discussed consultation on renewable heat incentive schemes, Ofgem’s Strategy and Policy Statement, and transferring executive powers related to contracts for difference and feed-in-tariffs, which the noble and learned Lord advocates. Similarly, on Ofgem’s energy strategy and policy statement, statutory arrangements are already in place. That remains my position. However, although I do not agree with the amendments, I am grateful that the noble and learned Lord has brought them before the House. As he mentioned, I know that Scottish Renewables have a particular interest in how Ofgem’s statement is produced, and therefore it is helpful to remind the House that these arrangements exist. I was due to meet Scottish Renewables recently but had to postpone the meeting. I very much hope to meet it in the near future and I commit to continuing the dialogue to see how we can improve all aspects of consultation. If the noble and learned Lord will allow me, I will write to him further following those discussions, to see what improvements can be made.
Turning to Amendment 56, I have outlined to the noble and learned Lord why I do not agree with his proposals in relation to contracts for difference and feed-in tariffs. That is not just because they go beyond the Smith agreement but because both CFDs and FITs are GB-wide schemes and do not operate in a regionally specific way. We have a GB-wide, integrated energy system. The costs of both CFDs and FITs are spread across all GB consumers, which helps to keep down the cost ultimately borne by bill payers. If the Scottish Minister were to set separate rates, or directly award CFD contracts, this would create distortions in the market as well as being a duplication of effort. That could also result in decisions taken in Scotland imposing costs on electricity consumers across Britain.
The Scottish Government have the power to set different renewables obligation bands for specific technologies, but the CFD scheme generally awards contracts through a competitive auction open to GB-wide generation. This ensures that for each particular technology grouping only the most cost-effective projects receive support. Moving to a regional allocation would be likely not only to increase the overall costs of meeting our renewables and decarbonisation targets but to lead to an increase in supplier costs being passed on to consumers across GB. I understand that the noble and learned Lord may not accept this argument, but I do not agree that this is a sensible change to make.
I hope I can be more encouraging on Amendment 47, which would introduce a new clause on “Consents for electricity generating stations and overhead lines”. I am grateful to the noble and learned Lord, Lord Wallace, for the clearly thoughtful consideration he has given to this. He expressed the issue very cogently in his remarks, but I am afraid at this stage I am not able to accept it as an amendment to the Bill. However, I commit to him that I am prepared to consider this matter further, outside of the Bill. I am sympathetic to the point he raises and therefore would like the opportunity to consider it further, including the planning points that he raised and the existing balance between executive and legislative competence in this area. Officials in the Department of Energy and Climate Change have already raised the issue with the Scottish Government. Energy consenting is a complicated area and one where any change merits detailed consideration to ensure that any agreed policy is delivered. Far be it from me to prejudge that consideration but, if the proposal were found to have serious merit, there are legislative avenues by which we can take it forward, such as a Section 30 order under the Scotland Act 1998.
Therefore, I hope that the noble and learned Lord will allow me to consider the matter further outside the Bill. I will of course be happy to update him on further discussions. On that basis, I urge him not to press his amendment.
Lord Dunlop
My Lords, it is fair to say that this has been a very wide-ranging debate and I thank all those who have taken part. I recall that at Second Reading my noble friend Lord Forsyth said that he looked forward to giving me a Glasgow handshake. As the House knows, he always makes good on his promises.
Before I address the substance of the amendments, I will try to address as many of the points that have been raised as possible, although there have been so many that I cannot guarantee to cover absolutely all of them. My noble friend mentioned Professor Jim Gallagher. Professor Gallagher, who is well known to many of us, also wrote a long article in the Daily Record, in which he described the Government’s comparable model as an ingenious compromise solution. While it is certainly the case that for a transitional period the UK Government are bearing population risk, I confirm to the noble Lord, Lord Turnbull, that, on the spending side, the population share will not be frozen at the point of devolution. However, this is a transitional period. Even my noble friend Lord Forsyth would prefer to move from the Barnett formula to a needs-based formula. Even in his thinking there is provision for transitional arrangements. Even in the transitional period that is part of this agreement, the Scottish Government bear economic risks. That means that if Scotland’s tax per head grows more slowly than in the UK as a whole, that is a risk the Scottish Government will have to manage even within the transitional period.
Lord Forsyth of Drumlean
I entirely accept the Minister’s argument that if we were to move to a needs base, or whatever, there would have to be transitional arrangements. However, what about the point that this fiscal framework has given the Scottish Government a veto on any new settlement, which means that the transitional arrangements would become permanent?
Lord Dunlop
I am coming to that point. The idea that it would be easy or straightforward to replace the Barnett formula with a needs-based one—or seek to do so—does not stand up to scrutiny. I have read, with great interest, the report of the House of Lords committee on the Barnett formula, published in 2009. John Swinney, now Deputy First Minister of Scotland, gave evidence to that committee’s review and made it absolutely clear that he did not support the move to a needs-based formula. There has been lots of talk about a veto. Another way of putting that is that if you do not have a veto then the UK Government unilaterally imposes something on Scotland. In that situation, we would have to proceed as we have done in this fiscal framework agreement—by negotiation and agreement.
The no-detriment principles have been raised several times in this debate. I have talked directly to people who sat on the Smith commission including the noble Lord, Lord Smith, himself. The commission recognised that these were high-level principles. It was always accepted that the two Governments would have to sit down and decide how those principles were applied in practice. It is not surprising that there is a greater level of detail and a lot of talk about the direct effects, which we want to capture mechanically in the agreement. However, the indirect, spillover effects are very difficult to capture, because of the causality. It is the direct effects which we are seeking to capture in this agreement. Although there is a backstop power to deal with the spillover effects, it will be used rarely. One needs to draw a distinction between the review, where we need to proceed and get an agreement, and the dispute resolution mechanism, which is very much attached to specific issues regarding how spillover effects actually work.
I turn to the review itself. It is obvious and self-evident that this is five years away. The details of the review have still to be determined. I am not going to stand here today and say otherwise, because noble Lords would not accept it. The Government would positively welcome the House of Lords Economic Affairs Committee feeding in its views about how the review should be structured. That would inform the deliberations we will have with the Scottish Government about constructing that review.
Lord McFall of Alcluith
Will the Minister take up the point I made earlier about an annual report on this issue to both Houses, and the Scottish Parliament, so that we get transparency and accountability?
Lord Dunlop
I am very happy to make that commitment. The Government intend to make an annual report to Parliament that will cover how the powers under the Smith agreement are being implemented in practice. That is fundamental to our approach. Regarding the review, I can confirm what has already been confirmed: there is no default position for it. All the evidence that will be built up over the succeeding five years will be on the basis of the Government’s comparable model.
I turn to the prospects of reaching an agreement. This review will be informed by an independent report. We will have had five years of experience of how these powers operate. Instead of seeking to negotiate in the months leading up to an election, this will be a negotiation after an election. Those conditions lead me to believe that an agreement can be reached.
Lord Wallace of Tankerness
The noble Lord has indicated—and the agreement says—that the report has to be received by the end of 2021. What will happen if we are approaching the financial year 2022-23 and there is no agreement? While he is right to say that there is not an election to focus minds, one imagines—although one does not know—that there will not be the passage of a Scotland Bill to concentrate the mind either. Given how close we are to the start of the next financial year, when there is actually a Bill that we hope to pass before the Easter Recess, what happens if that imperative does not exist? What will the position be then? Will it be the transitional arrangements or will it be the Treasury model?
Lord Dunlop
I am not sure I will be able to satisfy the noble and learned Lord on that point because I have learned not to deal in hypotheticals or to speculate about what might happen in five years’ time. As I say, I think the conditions that pertain then will be favourable to reaching an agreement and I am confident that we will reach an agreement at that time.
On the amendments relating to the fiscal framework being approved by Parliament, the Government do not believe it would be appropriate to subject the framework as a whole to approval by both Houses. Many aspects of the fiscal framework are administrative, not legislative, and the need to update these aspects requires a degree of flexibility. There is also no precedent for these non-legislative aspects to require parliamentary approval; for example, the block grant adjustment mechanism arising from the power to devolve under the Scotland Act 2012 was not subject to separate parliamentary approval.
Lord Higgins
This is a matter of enormous importance. Would it not be absurd if the central part—the heart—of the Bill were to go forward with the House of Commons not having had any opportunity at all to debate it? It is inconceivable that that should be right. It is really important that the other place should have a chance to express a view.
Lord Dunlop
My noble friend is of course quite right that the fiscal framework should receive detailed scrutiny from this Parliament. I know that this House will play a full part and I anticipate that the House of Commons will do the same. What the House is being asked to do today is to scrutinise and approve one of the most significant aspects of the framework: the capital and resource borrowing powers. The noble Lord, Lord Empey, raised this issue and we will have an opportunity to debate it in detail in the next group of amendments. Dr Angus Armstrong of NIESR told the Lords Economic Affairs Committee that the question of borrowing is,
“the most important question in the whole debate”.
In due course, this Parliament will also be asked to approve changes to tax legislation as a result of the fiscal framework and the Smith commission. That legislation will be scrutinised by Parliament in the usual way. Likewise, the legislation required in Westminster to establish the Scottish Fiscal Commission on a permanent footing by means of an order under the Scotland Act will receive scrutiny in both Houses before it is approved. As I said to the noble Lord, Lord McFall, the Government have committed to report annually to Parliament on the operation of the framework. I know that these reports will receive full scrutiny.
At the end of the day, the fiscal framework has been agreed between the two Governments. To introduce a further process at this stage would not only delay the transfer of powers, it would mean that the UK Government—
Lord Wallace of Tankerness
I understood the Minister to say that the establishment of the Scottish Fiscal Commission will require an order of the United Kingdom Parliament. I understood it to be a Bill that was going through the Scottish Parliament to establish the Scottish Fiscal Commission and put it on a statutory basis. Can he elaborate? What would be the content of an order in relation to the Scottish Fiscal Commission that would have to be passed by both Houses of the United Kingdom Parliament?
Lord Dunlop
I think I am right in saying that it does require this Parliament to establish the Scottish Fiscal Commission as a statutory body but I am happy to clarify that in more detail, perhaps in succeeding debates that will deal with this issue. That is certainly my understanding.
Lord Forsyth of Drumlean
Presumably my noble friend is anticipating using the Henry VIII clause for that purpose. Can he just explain to me how it can be right that the Scottish Parliament—in my view, quite rightly—and the Scottish Government have insisted that the fiscal framework should be available to the Scottish Parliament before it gives approval to this legislation but he is maintaining that that should not apply to the House of Commons?
Lord Dunlop
I am not sure that is what I am maintaining. The fiscal framework is available to this House and to Parliament and we are having a debate about it now.
Lord Cormack
My noble friend’s answer to the noble Lord, Lord Forsyth of Drumlean, beggars belief. The House of Commons has dealt with this Bill. The only part of this Bill that would go back to the House of Commons would be any amendment passed by your Lordships’ House. That is unlikely, for all sorts of reasons. Surely this most important, central element of the Bill, which the other place has not had a chance to look at, should be sent to it so that it can look at it?
Lord Dunlop
My Lords, perhaps I can deal with the point that in some way the Scottish Parliament and the UK Parliament are being treated differently. As the House knows, if the Bill is to reach the statute book before the Holyrood elections, the Scottish Parliament needs time to consider and pass a legislative consent Motion. But to be clear, this is not consent for the fiscal framework itself but consent for the Bill, having seen what the fiscal framework is. This Parliament is in exactly the same position: it is being asked to approve this Bill informed by the publication of the fiscal framework, which we have now done.
Baroness McIntosh of Pickering
Did I understand my noble friend to say that this House and the other place will be able to debate the annual reports on the fiscal framework, which will have been adopted by the Scottish Parliament, but will not be allowed to debate the fiscal framework itself now? That seems rather bizarre.
Lord Dunlop
I think that we are debating the fiscal framework at this moment. As to whether there will be debates on the annual reports, it will up to each House to decide what debates it wants to have on them and what scrutiny it wants to give. Given the interest in the subject, I anticipate that there will be detailed scrutiny.
Lord Forsyth of Drumlean
I am sorry, but my point to my noble friend is this. The Scottish Parliament will decide whether it is going to give legislative consent to this Bill, which will have the effect of making the Bill reach the statute book. It has the opportunity of discussing the fiscal framework because we now have one.
Lord Forsyth of Drumlean
Yes, it has the opportunity of approving it, whereas the House of Commons has not had the opportunity to do that. What possible justification can there be for not giving the elected Members of the House of Commons the opportunity to consider the fiscal framework, which has implications for the whole of the United Kingdom, when the Scottish Government have quite rightly insisted that they would not give legislative consent without the Members of the Scottish Parliament having an opportunity to consider it? I honestly think that my noble friend has to concede that there has to be an opportunity for the House of Commons to be treated in exactly the same way as the Scottish Parliament.
Lord Dunlop
That is a matter for the House of Commons; it is not a matter for the House of Lords. The House of Commons has decided to pass the Bill through its stages, in full knowledge of what the state of play was on the fiscal framework.
Lord Higgins
It had absolutely no knowledge of what the state of play was on the fiscal framework and it ought to have an opportunity to debate it.
Lord Dunlop
That really is a matter for the House of Commons, and not for this House of Lords. That House has to decide how it wants to deal with these matters and has done so.
Lord Dunlop
I will give way one more time but throughout the passage of the Bill, I think that I have taken every intervention and I really need to make progress.
Lord Forsyth of Drumlean
We are all extremely grateful to my noble friend and very sympathetic to the position in which he finds himself. However, he says that it is a matter for the House of Commons. If we were to pass my amendment then it would go back to the House of Commons, so it is a matter for the House of Lords whether the House of Commons will get the chance to consider it.
Lord Dunlop
For the reasons that I have explained, the Scottish Parliament is giving its legislative consent to the Bill and this House is being asked to approve the provisions of the Bill, so we are absolutely on the same footing.
Turning to the review of the fiscal framework, this is an agreement between Governments and it will be operated by Governments. Ultimately, therefore, the formal review should be conducted by Governments. However, as I have said, there is plenty of room for independent contributions. We have built an independent report into the review process for the first time for Scotland’s fiscal framework and, as I have said, I hope that the House of Lords Economic Affairs Committee will contribute its views on how this report should be structured. In addition, there is nothing to prevent other independent voices giving their views to either Government at any stage.
Let me reassure the House on one final aspect of Amendment 57AA. It is already our stated intention to have an independent report for the end of 2021. My expectation is that report will be published, although it will be for the Government of the day to determine that.
Finally, I turn to Amendment 57AC, tabled by my noble friend Lord Forsyth. I fully support the principle behind this amendment, as Governments should be accountable for all the public money that is spent, in whatever context. However, the Scottish Parliament already has an important scrutiny role over more than £30 billion-worth of spending. I therefore think it is primarily for the Scottish Parliament to monitor how the Scottish Government use the funds they will have to implement devolution following the Smith commission. I hope and expect that it will fulfil this role vigorously.
To reassure the House, I point to the scrutiny afforded to implementation of the Scottish rate of income tax following the Scotland Act 2012. The Scottish Parliament has taken on a significant role here, holding the Scottish Government to account. However, this does not mean that the UK Government and this Parliament are without a role. As I have said, we have committed to report annually to Parliament on the operation of the framework. I know those reports will receive full scrutiny. I therefore ask my noble friend to withdraw his amendment.
Lord Dunlop
“(17) Regulations under this section must be made by statutory instrument.”
Lord Dunlop
My Lords, I shall speak also to Amendments 56K, 56L, 71AB and 71AC which are tabled in my name. Amendments 71B and 71C have been replaced by Amendments 71AB and 71AC.
Amendments 56K and 71AB set out clearly, consistent with the existing legal framework, new borrowing powers for the Scottish Government. In line with the Smith agreement, the fiscal framework sets out agreement to change the powers available to the Scottish Government for both resource and capital borrowing.
For resource borrowing, a new power will be granted in this amendment to enable the Scottish Government to borrow should their tax revenues decline as a result of an economic shock which adversely or solely affects Scotland. The Scottish Government will be able to borrow up to £600 million per year. To ensure sustainable public finances, the total aggregate amount of resource borrowing debt will be set at £1.75 billion. In addition, the administrative limit on borrowing for forecast error will be increased to £300 million to reflect the volatility of the taxes as well as the welfare responsibilities that are being devolved.
For capital borrowing, we have agreed an increase in the maximum capital borrowing that Scottish Ministers can make. The limit will be increased to £3 billion. Additionally, the annual limit will also be increased. Scottish Ministers will be able to borrow up to 15% of the maximum limit—that is, £450 million a year.
Taken together, the borrowing powers that are increased by this amendment will boost the capacity of the Scottish Government to manage the additional risks to their budget from devolution and to expand their capacity to invest in Scotland.
Amendments 56L and 71AC address independent fiscal scrutiny in Scotland and the UK. Section 96 of the Scotland Act 1998 requires Scottish Ministers to provide information to the Treasury on the forecast when requested. However, since 2010, the OBR produces the UK’s official economic and fiscal forecasts. To produce comprehensive and detailed economic and fiscal forecasts for the UK, the OBR needs to produce forecasts for the taxes and spending measures devolved to Scotland. Access to Scottish government information is necessary to produce the Scottish forecasts that feed into the wider UK forecasts.
To date, the OBR has worked closely with the Scotland Office and the Scottish Fiscal Commission to ensure that all relevant information is brought to bear in producing its forecasts for devolved taxes. However, the OECD recommends that independent fiscal institutions have a legislative guarantee that they will be able to access all government information relevant to their forecasts. Adhering to this principle contributes to the institution being able to remain fully independent from Governments.
The recent Ramsden review of the OBR responded to this by recommending that the Government should use opportunities to amend relevant devolving legislation to ensure that the OBR has appropriate access to information, explanation and assistance to carry out its functions. The passage of the Scotland Bill provides an excellent opportunity to amend the Scotland Act 1998 and secure in statute the mutually beneficial information-sharing relationship between the Scottish Government, public bodies and the OBR.
Clause 13 contains the provisions extending further income tax powers to the Scottish Parliament and those relating to the manner and timing of the commencement of those powers. As currently drafted, the Bill allows for the commencement of the powers by way of a Treasury order but does not, as would be usual and was the case in the 2012 Act, stipulate that the order itself must be made by way of a statutory instrument. Amendment 56A adds the stipulation that the order be made by way of a statutory instrument. Making the order by way of such an instrument ensures that the order is a public document, numbered, printed and published by the Treasury Solicitor’s Department and laid before Parliament in a manner that facilitates anyone who is interested being able to find it relatively easily.
It was never the Government’s intention that the order be made other than by way of a statutory instrument. The Government have tried wherever possible to use the 2012 Act as a template for the current Bill. The clause draws on the wording of the 2012 Act income tax clause. However, while the 2012 Act included a general provision stipulating that all orders be made by way of a statutory instrument, the current Bill does not, so it has been identified that this specific provision is required. The oversight was brought to parliamentary counsel’s attention by the House of Lords Delegated Powers Committee, and the committee’s report and our response to it set that out in more detail. Both are available to noble Lords. I beg to move.
Lord Sanderson of Bowden (Con)
My Lords, I strongly support Amendment 56L, produced by my noble friend. I consider the work of an independent fiscal commission to be vital for the future not just of the Scottish Parliament but of the whole United Kingdom in this new arrangement where so many powers are being devolved. I said at Second Reading that I believed the OBR was a great initiative of the coalition Government, and it was. I am pleased to see in Amendment 56L that, if the amendment is passed, the OBR will have access to the sort of information that it needs to help the Scottish Fiscal Commission come to the right conclusions. I am still smarting from the reports that came out from the SNP just before the referendum that oil was going to be $112 a barrel. If a Government in Scotland are to do their own forecasting and that is the sort of answer that we will receive, no one, but no one, will believe them.
The amendment moves the OBR and the Scottish Fiscal Commission closer together. I have seen a very useful letter from the Chief Secretary to the Treasury to, I think, the committee in the other place. This is what he said about what the committee had said:
“There is a clear consensus”—
that is, a consensus in the Scottish Parliament—
“that forecasting should be done by a body independent of government. We agree with the conclusions of the Finance Committee of the Scottish Parliament and recommend that an enhanced Scottish Fiscal Commission be made responsible for forecasting in Scotland”.
My question for the Minister is: how far has the Scottish Parliament gone in legislating in this matter? May I have an assurance that those words will come true and we will have a proper Scottish Fiscal Commission? A commission, of course, is only as good as its membership. Let us hope that its membership is very understanding and knowledgeable, because I believe this to be crucial to the future success of the new arrangements.
Lord McAvoy (Lab)
I shall speak to Amendment 57A which seeks to create a new clause to ensure that the process leading to the annual settlement between the Treasury and Scottish Ministers of the block grant to the Scottish Consolidated Fund is both transparent and accountable. It could have related to some of the earlier amendments which sought more transparency.
After eight months of negotiations behind closed doors of the Joint Exchequer Committee, the Scottish and UK Governments have now reached agreement on the revised fiscal framework. We gave the Scottish Government our full support in their efforts to get a fair deal for Scotland and we are glad that an agreement has been reached, albeit belatedly. It may not be perfect and the timing may not be perfect but it is essential that this Bill meets the requirements of the Scottish Parliament in terms of consideration, in terms of the calling of the election and in terms of leaving this House. We wanted an agreement on the fiscal framework and both the UK and Scottish Governments have done their best to achieve one.
However, we now need clarity on when the new powers will be available and what the SNP Government and the other major parties in Scotland plan to do with them. The Secretary of State for Scotland has said that the new powers over income tax will be available by April 2017. We want as many new powers as possible, including those over airport duty, 50% of VAT revenues and social security, to be available by the same date in time for the first budget of the new Scottish Parliament.
The Labour Party moved this amendment in the House of Commons and since that time it has continued to advocate that a more open and transparent means of communication should have taken place. Documents have not been disclosed because we were told that this would constitute providing a running commentary. We understand that of necessity the process had to be carried out to achieve success, but it was marred on some occasions by negotiating positions being leaked to the press.
The amendment has taken on new significance since the publication of the fiscal framework, which suggests that the calculation of the block grant adjustment will take place on a transitional basis over the next five years and that at the end of the transitional period an independent review will take place. We believe in the discipline of transparency. Making the discussions and results of meetings transparent will help the Scottish and UK Governments. There is nothing like the discipline of public opinion and it will help both Governments to come to satisfactory conclusions.
Lord Dunlop
My Lords, again a number of points have been raised and I shall try to address each in turn. If I do not address them now I will be happy to write to noble Lords.
The noble Lord, Lord Kerr, said that his amendment sought to include annual limits on the borrowing and debt that can be undertaken by the Scottish Government. As he acknowledged, the Governments have now agreed the fiscal framework and, as a result, the Government are now bringing forward amendments to the Bill which will put the new borrowing arrangements into effect. I am grateful to the noble Lord for his view that the Government’s amendment addresses the intent of his own amendment. The noble Lord also raised a number of specific questions, and if I may I will write to him about them.
The amendments spoken to by the noble Earl, Lord Kinnoull, raise a number of specific points that I shall seek to address. On the need for separate limits for capital and resource borrowing, the agreement already sets separate limits and the UK Government are therefore proposing to amend the Scotland Bill accordingly. As is clear, the Scottish Government’s aggregate borrowing limit for capital spending is being increased from £2.2 billion to £3 billion, while the aggregate borrowing limit for resource spending is being increased from £500 million to £1.75 billion, reflecting the additional risks that the Scottish Government will take on. On the definition of how these limits are calculated, I can confirm that they are based on the principal, with interest payments not included.
On the issue of currency, the amendments proposed to the Scotland Bill by the Government require the Scottish Government to borrow in sterling to fund additional capital spending. As the Scottish Government can only borrow from the National Loans Fund for current spending, this will also therefore be in sterling.
On the issue of responsibility, I reiterate that the Scottish Government are responsible for all of their borrowing. But while the UK Government do not explicitly stand behind Scottish Government borrowing, the borrowing limits have been set at a level that the Scottish Government should be able to manage. I would like to remind the House of what the Chancellor of the Exchequer said when giving evidence to the Treasury Select Committee last Session:
“the UK stands behind its citizens wherever they live. The fiscal credibility of the UK is one of our most precious assets and we have had lots of debates in this Parliament about how we preserve that credibility. Of course we would not allow Scotland to go bust, but in order for that situation not to arise we will have to agree fiscal rules, independently verified, that make sure that that does not happen, so that we never reach that situation where the sovereign backstop has to be deployed”.
Again the noble Earl raised a number of specific points on which I will write to him.
The noble and learned Lord, Lord McCluskey, did not move his amendment but a number of points were raised. My noble friend Lord Sanderson asked about independent forecasts. I can confirm that as part of the fiscal framework agreement, amendments will be made to the Scottish Fiscal Commission Bill that is currently going through the Scottish Parliament, and there is no reason to think that the Scottish Government will not act with anything other than good faith in that regard. The noble and learned Lord, Lord McCluskey, also raised a specific point about the OBR’s right of access and asked whether there is any uncertainty in that. I think that there is a good understanding between the Governments about the information exchange that is required and I do not anticipate this being an area of great dispute between the two Governments. The provisions in this Bill will be underpinned by a memorandum of understanding as to how in operational terms this will work in practice.
I turn now to the amendments tabled by my noble friend Lord Higgins. Smith set out that extensive new tax powers should be devolved to the Scottish Parliament and Part 2 of this Bill does exactly that. Amendment 56B deals with whether we need two consequential powers in the Bill with regard to the income tax clauses. As has been referred to, this was covered in the Government’s response to the Delegated Powers Committee report which is now available online.
Perhaps I may explain the Government’s approach in this regard. The powers are separate and different, and both are required. Clause 15(8) allows the Treasury to make consequential amendments that arise in connection with changes made to the Scotland Act 1998 and the Income Tax Act 2007 by Clauses 13 and 14. The power in Clause 13, amending Section 80G of the Scotland Act 2012, allows the Treasury to make consequential amendments that are needed in consequence of or in connection with the exercise of the new income tax powers by the Scottish Parliament through a Scottish rate resolution. Income tax powers within this Bill are more extensive than those in the 2012 Act, so it is entirely natural that the changes made by Clauses 13 and 14 to the structure and terminology of the Income Tax Act 2007 that facilitate this devolution may give rise to the need for consequential amendments elsewhere in the taxes Acts.
I now turn to Amendments 56D, 56E, 56H and 56J, which deal with whether all SIs should be via the affirmative procedure. This is not an issue unique to the Scotland Bill; the approach is common across legislation. The Government agree that substantial changes to primary legislation should be made using the affirmative procedure. However, non-textual and minor technical changes should be possible under the negative resolution procedure. This minimises the burden on the House and also on government resources.
On Amendments 56C and 56G, which would deny the Treasury the power to amend by order the Scotland Bill, or Act itself, there will be a length of time between the Bill receiving Royal Assent and the Scottish Parliament exercising the new powers conferred by this Bill for the first time. The gap will be longer in some cases than in others. Income tax will be the shortest. We expect this to come into effect in 2017, then APD in 2018 and finally the aggregates levy. In the case of the aggregates levy, the length of time is uncertain as it will depend on resolution of the levy’s legal challenges.
There may be circumstances where changes are made to the UK structure of those taxes in the intervening period which would require amendment to the Bill in the period between Royal Assent and the commencement of devolved powers. For example, given the outstanding litigation on the aggregates levy, we must have flexibility to respond to future judgments to ensure the levy and the powers that we are devolving remain fully lawful. Similarly, there may be future enactments relating to the taxes which would need amendment. Any amendments to an enactment will be subject to the affirmative resolution procedure. On that basis, the Government cannot accept the amendments tabled by my noble friend.
Turning to the amendment moved by the noble Lord, Lord McAvoy, the Government have listened very carefully to concerns, such as those raised in the context of Amendment 57A, on the transparency of how we operate the Barnett formula. In our response to the Lords Economic Affairs Committee’s valuable report on this Bill, the Government committed to look into what more we could do. We are currently doing that and I hope to be able to report progress to the House in due course. This is not an issue just for Scotland; it impacts across the UK, so we have not tied this work to the Scotland Bill alone.
In the mean time, I reassure noble Lords that the Government have already set out changes to the devolved Administrations’ Barnett-calculated block grant allocations at every spending review, as well as twice a year—at Budgets and Autumn Statements, as required. In November, at the spending review and Autumn Statement, tables were included setting out the overall impact on the block grant of that important event. Alongside this, the Treasury has also recently published an updated version of its Statement of Funding Policy, copies of which have been placed in the House Library. This document outlines the principles underlying the calculation of the block grant. On that basis, I ask noble Lords not to press their amendments.
Lord Forsyth of Drumlean
My Lords, I will speak briefly in support of Amendment 60, tabled by the noble Lord, Lord Kirkwood of Kirkhope. I am sure the Minister will be advised that it is not necessary to include this in the Bill but it would be excellent if he were to give an undertaking at least to produce a draft Bill. I am not a lawyer, but I have certainly found it extremely difficult to cope with the piecemeal changes that have been made over the years and to follow the cross-references back to the 1998 Act. The noble Lord has made probably the most sensible suggestion of the evening.
I presume the noble Lord, Lord McAvoy, will not press his amendment to a Division or anything of that kind. The Labour Party is in its debating society mode at present. When the Minister responds to the amendment, which is about setting up this welfare monitoring joint committee, will he answer a question I asked earlier, arising from the fiscal framework? Paragraphs 16 and 17 appear to contradict each other. Paragraph 16 says:
“For welfare, and all other spending unless stated otherwise in this agreement, the chosen method will be the Barnett formula”.
However, paragraph 17 says that,
“whilst achieving the outcome delivered by the Indexed Per Capita (IPC) method for tax and welfare”.
This is very important, because it makes a considerable difference to the amount of money that is available for welfare purposes in Scotland. Will the Minister indicate which I am to believe: paragraph 16, which would involve a substantial cut in the current budget, or paragraph 17, which appears to contradict it?
Lord Dunlop
My Lords, I thank the noble Lords, Lord McAvoy and Lord Kirkwood, for their amendments. I turn to Amendments 56F and 57B, moved and spoken to, respectively, by the noble Lord, Lord McAvoy. We had a good debate in Committee on similar amendments and I hope I was able to provide much detail on the joint working and scrutiny that will govern the transition and implementation of the new welfare powers. The Government are clearly sympathetic to the intent behind the amendments and the importance of a seamless transition that makes sure that the ultimate clients for welfare services are not in any way disadvantaged.
At the heart of the UK and Scottish Government scrutiny and implementation of these welfare powers is the Joint Ministerial Working Group on Welfare, which, as I said in Committee, has met four times since February 2015 and will meet again soon after the Scottish parliamentary elections. I have also given the assurance that I will explore how we can make the work of the Joint Ministerial Working Group on Welfare more visible in this place. I am already acting on that promise. Scottish and UK government officials will discuss the issue tomorrow at the next meeting of the joint senior officials group before it is then raised at the next joint ministerial group, which will take place after the Scottish parliamentary elections.
Beyond the range of work I have already outlined, there are other committees, both in the UK and the Scottish Parliament, which will have a role in the scrutiny of the new powers being devolved. For example, the Minister for Employment will be appearing in front of the UK Parliament’s Scottish Affairs Committee on 9 March to give evidence on the welfare and employment powers that are being devolved through the Bill. Ministers also often appear before committees in the Scottish Parliament to aid the scrutiny of Scottish Government proposals. Most recently, the Secretary of State for Scotland appeared before the Scottish Parliament’s Devolution (Further Powers) Committee just seven days ago to discuss issues such as the fiscal framework and the role of the Joint Ministerial Committee on welfare.
Lord McAvoy
Just in the interests of having all the information, is the Minister in a position to name some of the organisations?
Lord Dunlop
For example, we have worked to build a strong relationship with the Convention of Scottish Local Authorities to ensure that universal credit is implemented and delivered in a way that best reflects the views of Scottish local authorities. Citizens Advice Scotland is another organisation that we have engaged with. This has been a genuinely joint approach to improve delivery in Scotland and is just one example of many.
As I said in Committee, I am sympathetic to the noble Lord’s intention in what his amendment proposes to achieve but we believe that robust, strong and effective mechanisms are already in place. We will absolutely put the customer at the heart of any change and will work with the Scottish Government to ensure that the transition and implementation of powers is simple, clear and effective. This will protect the delivery of existing benefits and customer interests, and ensure a great future for all the people in the UK, including those in Scotland.
Turning to Amendments 58 and 59, spoken to by the noble Lord, Lord Kirkwood, Clause 29 gives the Scottish Parliament legislative competence to establish employment programmes to support disabled people and those at risk of long-term unemployment. It devolves power over support for unemployed people through employment programmes currently centrally contracted by the DWP; this is mainly but not exclusively the Work Programme and Work Choice. These two programmes represent virtually all funding across these contracted employment programmes and therefore, in our view, provide the Scottish Government with a significant policy space within which to operate.
The powers are very broad in scope and concurrent with the UK Government’s powers. Any claimant on a reserved benefit at risk of long-term unemployment can be addressed in this way, so the Scottish Government have the ability to create schemes, programmes or grants in this space as the UK Government can. It gives the Scottish Government the ability to better align with the employment support they already provide through the devolved skills system. That is a very substantial package of powers which the Scottish Government can already use. I think the estimated annual spend in this area is some £600 million.
Support for those at risk of long-term unemployment must last for at least a year. The three restrictions seek to define the space which Smith said that the Scottish Government should have in designing new programmes. This creates clear lines of accountability between what the Scottish Government are able to do and what Jobcentre Plus is required to do. It is also important for there to be a clear handover point, so that Jobcentre Plus and Scottish Government programmes do not try to deliver different support to the same claimant at the same time. Jobcentre Plus will continue to deliver smaller-scale support, with the Scottish Government delivering more significant interventions.
The amendment of the noble Lord, Lord Kirkwood, would remove the limitations that assistance should be for persons claiming reserved benefits and be for at least a year. These limitations are necessary safeguards to ensure that those who need support over and above that provided by the enhanced Jobcentre Plus offer receive assistance for an intense period. Smith was clear that Jobcentre Plus and the conditionality regime “will remain reserved”. As I have said, there needs to be a clear handover point so that Jobcentre Plus and the Scottish Government’s programmes are not overlapping in that sense.
It is vital that the Jobcentre Plus work coaches have the right tools to support claimants into work and smaller-scale employment programmes at their disposal, such as mandatory work activity or locally commissioned support via the flexible support fund. If responsibility is split, the result could be people spending longer on benefits and employment support, and if we remove these restrictions, it will in the Government’s view create a confused, muddled system of support which claimants and third sector organisations would struggle to understand or navigate. That would be a much worse system and have unintended consequences. We have sought to strike the right balance: enabling the Scottish Government to provide employment support for people who are at risk of long-term unemployment, and giving the Scottish Government the opportunity to take clear responsibility over a substantial portion of the claimant journey.
Finally, I turn to Amendment 60, which concerns “Consolidation of the Scotland Act 1998”. We addressed points in Committee about the scope of the powers in the Bill related to welfare. Once the Bill is passed, it will be available on legislation.gov.uk, alongside the Scotland Act 1998 and the Scotland Act 2012. In the Government’s view, it would not be a good use of Parliament’s time to bring forward another Bill simply to repeat what is included in previous Scotland Acts. The dynamic nature of the devolution settlement means that the two Governments work together on Section 30 orders, which adjust the terms of Schedule 5 from time to time, so any consolidated version would quickly be out of date. That is no bad thing; it is testimony to the devolution settlement working responsively.
However, the points made by the noble Lord, Lord Kirkwood, raise an interesting question about knowledge of the devolution settlement more generally. I think that the noble Lord, Lord Smith, referred to it in his personal recommendations. The Government very much support the objective and have taken steps to improve the knowledge in UK government departments and beyond. For example, in March 2015 the UK Government published a leaflet explaining the changes to devolution in Scotland. The Secretary of State has also undertaken visits to local authorities and is keen to ensure that they know what powers are coming to the Scottish Parliament. The Scotland Office communications directorate’s work will also seek to make clear the Scottish Government’s existing powers—powers coming into force from the Scotland Act 2012 and those being delivered by the Scotland Bill. Its work raises awareness not just of the debate on what powers may or may not be devolved in future but on where the existing powers are today. With that, I ask the noble Lord to withdraw his amendment.
Lord Forsyth of Drumlean
Before my noble friend sits down, could he possibly answer the question I asked him about the welfare funding and the two paragraphs in the fiscal framework? If he does not have that information now, perhaps he could write to me.
Lord Dunlop
We have agreed that welfare will be funded through the Barnett formula and that tax deductions will be calculated through the comparable model. However, during the transition period, we will reconcile both to index per capita.
Lord Forsyth of Drumlean
Perhaps my noble friend could help me. Does that mean that if the Barnett formula model resulted in a shortfall in the resources available in Scotland for welfare, it would be topped up?
Lord Dunlop
It means that if you look across the total Scottish budget, it would deliver the outcome that we discussed earlier. It is up to the Scottish Government to decide how to use the resources within that: it is not ring-fenced within that total figure.
Lord McAvoy
We welcome the further response about involving the principles that we have included in previous Bills around transparency, involving people and all the rest of it. We are reasonably happy with that and I beg leave to withdraw the amendment.
Lord Dunlop
“Borrowing
(1) The Scotland Act 1998 is amended as follows.
(2) Section 66(1) (borrowing by the Scottish Ministers from the Secretary of State) is amended as follows.
(3) At the end of paragraph (b) omit “and”.
(4) In paragraph (c)—
(a) after “devolved taxes,” omit “or”;(b) after “Scottish rate resolution,” insert “or from amounts payable under section 64A,”.(5) After paragraph (c) insert—
“(d) any sums which in accordance with rules determined by the Treasury are required by them to meet current expenditure because of an excess of welfare payments over forecast welfare payments, and(e) any sums which in accordance with rules made by the Treasury are required by them to meet current expenditure because of a Scotland-specific negative economic shock.”(6) After that subsection insert—
“(1ZA) In subsection (1)(d) “welfare payments” means—
(a) payments under any provision relating to matters within exceptions 1 to 10 in Section F1 of Part 2 of Schedule 5 or exception 1 in Section H3 of that Part, and(b) payments attributable to regulations made by the Scottish Ministers by virtue of section 27 or 28 of the Scotland Act 2016 (powers in relation to universal credit).”(7) In section 67(2) and (3A) (lending under section 66(1)) for “£500 million” substitute “£1.75 billion”.
(8) In section 67A (lending for capital expenditure) in subsections (1) and (3) for “£2.2 billion” substitute “£3 billion”.
(9) The Treasury may by regulations make transitional or saving provision in connection with the coming into force of the amendments made by this section.
(10) Regulations under subsection (9) must be made by statutory instrument.
(11) A statutory instrument containing regulations under subsection (9), if made without a draft having been approved by a resolution of the House of Commons, is subject to annulment in pursuance of a resolution of the House of Commons.”
Lord Dunlop
Lord Dunlop
“( ) For the purposes of making provision in connection with, or with the coming into force of, a provision of Part 3, subsection (2) applies to an enactment, instrument or document whenever passed or made.
“( ) Otherwise, subsection (2) applies to—
(a) an Act of Parliament passed before or in the same session as this Act;(b) an Act of the Scottish Parliament passed, or an instrument or document made, before the end of the session in which this Act is passed.”
Lord Dunlop
Lord Dunlop
“( ) sections 3 to 12;”
Lord Dunlop