Scotland Bill

Lord Kerr of Kinlochard Excerpts

Tuesday 24th November 2015 Lords Chamber

[Lord Kerr of Kinlochard (CB)]

The noble Viscount was good enough to tell me that he was about to make that announcement and that it was not directed only at me.

It is a privilege to take part in a debate which has included a remarkable maiden speech from the noble Lord, Lord Campbell of Pittenweem, whose international performances I have been admiring for about 55 years, and a wonderful maiden speech from the noble Baroness, Lady McIntosh of Pickering, whom I first remember admiring as an extraordinarily active Member of the European Parliament.

It is a privilege for me, too, to serve on the Economic Affairs Committee chaired by the noble Lord, Lord Hollick. I got to realise quite how big a privilege that was when the committee went to Edinburgh to take evidence in the Scottish Parliament. As we drove in from the airport, the streets were lined with cheering crowds, which is not normally how a Glasgow man like me is received in Edinburgh. It even brought a wintry smile to the patrician features of the noble Lord, Lord Lamont. But then our driver explained that the reason for the crowds was that we happened to be in Edinburgh on the day that the Queen became our longest serving monarch ever, that the streets were blocked and that we would now walk to the Scottish Parliament.

I agree with everything that the noble Lord, Lord Hollick, said. I cannot see how we can do our proper scrutiny job without seeing the fiscal framework, and I support the amendment in the noble Lord’s name. Of course we must pass the Bill, but we need to see this crucial part of its underpinning, which will explain how the system that we are about to legislate for will work.

For me, there are three unknowns—I hope the Minister will be able to throw light on them—that have to be made clear before we complete our scrutiny of the Bill. The first is the mechanism for the adjustment to the block grant, year by year, when Scotland is retaining virtually all its income tax paid in Scotland. How will that be done in a way that can be shown to be fair not only to Scotland but to the rest of the United Kingdom? The second is the limits on Scottish borrowing powers. The Economic Affairs Committee report rejects, in my view absolutely correctly, the idea that there should be a no-bailout rule. For so long as Scotland remains part of the union, in extremis, Scotland would be bailed out—of course it would. But that means that there have to be very clear, very strict limits on borrowing, and the House is entitled to know what they are. The third is that we need to know what arrangements are envisaged for future transparency. If the current negotiation on the fiscal framework, behind closed doors, is to be a precedent for the future, we will not see an enduring settlement but enduring dispute. There has to be an open, transparent, principles-based way of proceeding in future.

I want briefly to touch on two aspects of the Smith commission report that I personally regret. One is reflected very clearly in the Bill and we need to work on it, and the other is accepted by all parties and regretted by me. First, I am uneasy about the choice of personal income tax to provide the bulk of devolved revenue raising. As the noble Lord, Lord Campbell of Pittenweem, reminded us, the union is responsible and will remain responsible for the individual’s safety—security, defence, development aid, foreign affairs and so on. Would that truth not be more readily perceived by the individual if he believed that he paid his share of the cost of that safety through his income tax? Think of an analogy with council tax: could he not receive a statement indicating where the money was going and how it would be spent? It seems to me, in principle, wrong. I am not arguing against the quantum of devolved revenue raising; I am arguing against the choice of this particular tax. But that pass is sold, and I am sad about that.

Secondly, the other pass that is sold and that I am also sad about is our old friend Barnett. I do not need to rehearse the arguments because we all know how unsatisfactory the Barnett formula is: introduced in 1979 as a temporary expedient, it was always intended to be replaced quite soon. Its financial effects now were explained to the House this afternoon by the noble Lord, Lord Hollick, and its deficiencies were explored in detail in the Select Committee report of 2009 under the chairmanship of the noble Lord, Lord Wakeham. On looking at the Barnett formula, everybody has always agreed that it should be replaced by a needs-based formula. Sadly, that is not going to happen because the vow decreed that the Barnett formula should continue and the Smith commission felt bound by that.

The Economic Affairs Committee report correctly states that the committee unanimously thought that that decision was wrong. The report recommends that the Government consider the case for,

“introducing a needs based approach to funding devolved administrations”.

Last week, all guns blazing and shooting from the hip, the Scottish Government came out against that recommendation. That is unworthy and short-sighted.

Barnett is not demonstrably fair, and is seen as unfair by many in Wales and some in England. An enduring settlement cannot be based on perceived unfairness. Of course, I do not believe that fair allocation necessarily means equal allocation. The cost of providing services such as health, education, transport and social services to an agreed UK standard is plainly higher in Sutherland than it is in Surrey. Peripherality, sparsity of population, population age structures, dependency ratios, incidence of chronic ill health and life expectancy all differ across the kingdom. It should not be impossible—the Australians do it now—to devise a system for fairly assessing relative costs, and so needs, on a continuing basis. Of course there will be disputes about the weighting of the various factors, but these disputes would be containable if clearly based in a framework of principle.

I do not think it follows that any change to the Barnett formula would be a change for the worse for the Scots. I believe that under any fair system, the Welsh would certainly gain compared with the status quo now, and England would undoubtedly receive less per capita. I do not know where the Scots would end up, but I do not agree with their assumption that what we have, we hold—that there must be no change to the Barnett formula because it is bound to be for the worse.

The real gain would actually be stability. It would be possible to explain inequalities, how they arise and why they are fair. Current inequalities are the product of a 1979 back-of the-envelope formula that really needs replacing. But that pass is sold, and I am sad about that too.

The difficulty we are in is the result of piecemeal devolution driven by pragmatism, not principles. The underlying principles have not been clearly enunciated. Devo-max was not an option on the referendum ballot paper, and that was a mistake. But that is what we are now getting—devo-max defined on the hoof in the heat of a referendum campaign.

Of course we must pass this Bill—we are where we are—but once we have done that, I hope we can sit back and think. I hope we can think about the proposal from the noble Lord, Lord Campbell of Pittenweem, for a new Act of Union. I hope we can think about the advice we get from our Constitutional Committee, as quoted by the noble Lord, Lord Lang of Monkton, this afternoon:

“The UK Government and the major UK-wide political parties need urgently to devise and articulate a coherent vision for the shape and structure of the United Kingdom, without which there cannot be constitutional stability”.

I strongly agree with that.

I also agree with the noble Baroness, Lady Quin, that the case for a constitutional convention grows stronger every day. The essence of that convention would be that it meet in public, in total transparency. That way, if any participant or group of participants in a convention show themselves unwilling to subscribe to sensible principles and genuinely to seek an enduring settlement, that would be evident to all.