Scotland Bill

Lord Wallace of Tankerness Excerpts

Tuesday 6th September 2011 Lords Chamber

Moved By

[Lord Wallace of Tankerness]

[The Advocate-General for Scotland (Lord Wallace of Tankerness)]

My Lords, as your Lordships’ House’s Constitution Committee said,

“The Scotland Bill is a measure of clear constitutional significance”.

Indeed, this Bill will strengthen Scotland’s position within the United Kingdom by further empowering the Scottish Parliament and making it more accountable to the Scottish people. I do not think that I have said anything controversial.

[Lord Foulkes of Cumnock]

The Minister had said something very important: this Bill is a matter of clear constitutional significance, not just to Scotland but to the whole of the United Kingdom. Does he not think that it is a disgrace that we are starting to discuss the Bill at 5.35 pm, and that we are only going to have half a day for the Bill, when in 1998 the Scotland Bill had two days at Second Reading? Is that not outrageous, and are the Government Whips not culpable in relation to that?

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[Lord Bassam of Brighton]

My Lords, I only venture into this to say that I think that the Government are wise at all times to be flexible in their approach. Although I am part of the usual channels, I must say I did predict at the time that this would not be an easy passage for the Bill. I go no further than that, because I do not want to undermine the effectiveness of the workings of the usual channels. However, I think that noble Lords agree that these are points that are very well made to the House, and they have validity.

[Lord Wallace of Tankerness]

My Lords, both sides of the usual channels have no doubt heard the points that have been made. I reiterate the point that this is a Bill of constitutional importance, and I think that it is important that we now make progress to debate it. Given the quality of the speakers—as is the case in of all your Lordships’ House’s debates—I think that, looking down the list of former Secretaries of State, former law officers, former Members of the Scottish Parliament, former junior Ministers in the Scottish and Scotland Offices, we are clearly going to have a well-informed debate, and one that is worthy of the importance of this Bill. I believe that the Bill will strengthen Scotland’s position in the United Kingdom, it will empower the Scottish Parliament, and it will make that Parliament more accountable to the Scottish people. It delivers on our coalition agreement to implement the recommendations of the Calman commission. It is in fact the biggest transfer of fiscal responsibility within the United Kingdom since the Act of Union in 1707, and delivers the first major change to the workings of the Scottish Parliament and Scottish Ministers since that Parliament was established in 1999.

For its first decade and more, the Scottish Parliament has been accountable to the Scottish people for the money it spends. We believe the time is now right to make it accountable for the money it raises—one of the fundamental changes that this Bill will bring about. Many noble Lords present will remember, and indeed took part in, the debates on the Scotland Bill in 1998 in one House or the other. They will recall, however, as any look at the record shows, the significant scrutiny that this House afforded to the Scotland Bill at that time. I notice the noble Lord, Lord Sewel, allowing himself a small chuckle. With all due respect to all the others who took part, he did much of the heavy lifting on that Bill and deserves credit for that. I have no doubt that those who served in scrutinising the 1998 Bill, and indeed many other noble Lords, will afford the current Bill the same level of examination to ensure that it too delivers the new powers that will benefit Scotland.

I believe that the Scottish Parliament has been a success and is here to stay. Indeed, that was the first conclusion of the Calman commission. The Scottish Constitutional Convention, of which I and other noble Lords were members, built up the case for the 1998 Act and set the country on the path towards creating a Scottish Parliament, which is now an important part of Scottish life. Decisions are now taken closer to the people they affect. Decisions on housing, education and hospitals are made in Scotland, for the good of the Scottish people by a Parliament that they have elected to serve them. Devolution in Scotland has delivered notable policy initiatives: free personal care; a Scottish Drug Enforcement Agency; long-overdue land reform; proportional representation for local government elections; a smoking ban in public places, which paved the way for a similar measure in other parts of the United Kingdom. In what seems a relatively short period, devolution has become central to the way in which we work. Many of us in this Chamber have worked either for or with devolution and the Parliament in Scotland.

The Calman commission was established to review the settlement in light of experience and to recommend changes to enable the Scottish Parliament to serve the people of Scotland better. Improving the financial accountability of the Scottish Parliament was an important part of the commission’s remit, which was agreed by the Scottish Parliament and endorsed by the then United Kingdom Government. Membership of the commission included representatives from the three main United Kingdom political parties and from local government, experts in Scots law, business, education, community organisations and the trade unions. I must tell noble Lords that when, in 2008, I agreed to sit on the commission for the Liberal Democrats I was not anticipating that, three years later, I would be the Minister charged with taking the recommendations through the House—not that it would have had any influence on recommendations that I agreed to.

We wish to thank the chair of the commission, Professor Sir Kenneth Calman, the other commissioners and Professor Anton Muscatelli and the independent expert group on finance, which supported the commission in the work that it did. It was work invaluable to the future of devolution and I particularly look forward to the contributions of my fellow commissioners today, the noble and learned Lord, Lord Boyd, the noble Lords, Lord Elder and Lord Selkirk, and the noble Earl, Lord Lindsay, who brought their wealth of experience and understanding to the commission. The Scotland Bill has enjoyed widespread support across the political spectrum. Consensus on its purpose and direction has been the order of the day. This Government are delivering the next chapter in Scottish devolution and remain committed to doing so, with the support of the three main United Kingdom-wide parties. It is on the basis of cross-party consensus that the Bill has been taken forward, alongside a commitment to consider suggestions from others, including the Scottish Government, as we proceed.

Those of us who campaigned for devolution wanted more decisions taken in Scotland by a Scottish Parliament but we also wanted to retain many of the benefits, to both Scotland and the United Kingdom, which come from remaining part of our United Kingdom. The devolution settlement was about getting that balance right. Of course, there will always be those who think that the Scottish Parliament should be responsible for everything and there are those who think that devolution has already gone too far. However, by and large, we have managed to maintain consensus while bringing forward a strong set of improvements to the original settlement. The fact that the Calman commission was not inundated with representations to make fundamental changes to the division between devolved and reserved matters is, I believe, testimony to the judgment of the architects of the 1998 Act.

We will strengthen devolution by providing new powers to the Holyrood Parliament. In 1997, the Scottish public voted for a Parliament that could change the rate of tax within a limited margin. That power has never been used. In fact, the current Scottish Government who, as we know, are forever calling for new powers actually allowed this tax power to lapse last year. The United Kingdom Government do not want to see Holyrood lose its fiscal powers, rather the opposite. The financial powers contained in the Bill are, as I have indicated, the largest transfer of financial powers out of London since the United Kingdom was created. The Parliament will become accountable for raising more than a third of the money it spends.

The Bill will create a Scottish rate of income tax by cutting 10p from every income tax rate, reducing the Scottish block grant in proportion and obliging the Scottish Parliament to set a new rate to meet its spending plans. It will allow Scottish Ministers to borrow up to £500 million for current spending and up to £2.2 billion in capital spending. In the light of a request from the Scottish Parliament, we will make part of that capital investment available in pre-payments for approved projects by 2012.

[Lord Forsyth of Drumlean]

The Bill abolishes the variable rate of income tax—the 3p rate, which was approved by a referendum of the Scottish people—so it is taking away a specific power approved by referendum. Why do the Government not think it necessary to have a referendum, given that they are going to introduce a further power that goes beyond the 3p they are abolishing and which was approved by the people in a referendum?

[Lord Wallace of Tankerness]

The answer to that is that we have absolutely moved forward; the Scottish Parliament has been established and it is very clear that what we are proposing has commanded widespread consensus within Scotland. It was not only the product of a commission that took extensive evidence. It has been supported by the three UK-wide political parties and by the representatives of the Scottish people in the Scottish Parliament, as I will indicate later, by 121 votes to three. There is a broad consensus for that in Scotland and, with the honourable exception of my noble friend, I have not really heard any clamour for a referendum on the specific tax powers involved in this Bill.

As I indicated, it will also devolve landfill tax, stamp duty and the power to create new taxes. The Bill will phase in these powers up to 2016. It will provide a whole new set of policy levers that will be at the disposal of the Scottish Government elected in that year. In his David Hume Institute address last week, my colleague the Secretary of State set out some possibilities that would be open to future Scottish Ministers. With their new tax powers, the Scottish Government could stimulate the construction sector and boost the housing market by cutting stamp duty by, for example, 5 per cent at a cost of £25 million to the Scottish budget, or ensure that Scotland competes to be the greenest country in Europe by proposing innovative new green taxes, offset by other tax cuts, to ensure that Scotland moves the tax burden from people to pollution. They could use the new Scottish income tax to raise investment in public services higher than is the case in other parts of the United Kingdom, or do just the opposite—cutting the rate to attract bright and ambitious people to Scotland and reduce the brain drain from within.

Those are all options. We are providing the power; it will be up to the Scottish Parliament, elected by the people of Scotland, as to how those options are exercised. However, the Command Paper published in November alongside the Bill stated that for every penny by which one increases income tax, the yield will be around £450 million—or 1.7 per cent of the present Scottish budget. That gives a flavour of the considerable powers that this Bill provides to Scottish Ministers. This is a big shift to the financing of public services in Scotland. It will deliver real financial accountability, as more than a third of current spending will be funded by taxes determined and raised in Scotland. It will give the Scottish Parliament a real stake in Scottish economic performance, as a significant proportion of the budget for public services in Scotland will come directly from taxes set and raised in Scotland. Stability to the Scottish budget will continue to be provided by continuing block grant from the United Kingdom Government.

Delivering the Donald Dewar lecture in 2003, my noble friend Lord Steel of Aikwood said:

“No self respecting Parliament should expect to exist permanently on 100% handouts determined by another Parliament, nor should it be responsible for massive public expenditure without any responsibility for raising revenue in a manner accountable to the electorate”.

I believe that this Bill addresses that critique. The Calman commission also concluded that the original divide, as I have indicated, between devolved and reserved policy powers was broadly right. The Bill therefore does not seek radically to alter the boundary but instead updates the balance between reserved and devolved powers in specific areas, as recommended by the commission. We are devolving the power to set the national speed limit and the drink drive limit, to regulate air weapons. Recognising that this is a two-way street, where a consistent approach across the United Kingdom is required, we will legislate at a United Kingdom level, specifically over the winding up of companies and the regulation of healthcare professionals, as provided for by the Bill.

The functioning of the Scottish Parliament itself will be improved by measures in this Bill. The Parliament will be able to elect additional deputy presiding officers, it will have greater discretion to set its own Members’ interests regime, and there will be greater flexibility about the makeup of the Scottish Parliamentary Corporate Body. Closer working relationships between UK and Scottish Ministers will be required. Scottish Ministers have a role in the appointment of a Scottish member of the BBC Trust, and a Scottish Crown Estate commissioner.

The Bill also provides for some largely technical and relatively uncontroversial updates to improve the Scotland Act and help devolution to operate more effectively. Improving devolution for Scotland is an ongoing process, and while constitutional legislation is rare, the Scotland Bill provides an opportunity to make some amendments. In my role as Advocate-General, I am responsible for providing advice on Scots legal issues to the United Kingdom Government, and I therefore thought it right to take the opportunity to review the existing Scotland Act. There are a number of technical measures in the Bill.

I also took the opportunity to revisit an area of the Scotland Act which was raised with the Calman commission by the judiciary, but on which the commission made no recommendation. I established an expert group under Sir David Edward to consider the way in which acts or failures to act of the Lord Advocate that are incompatible with Community law and convention rights are dealt with. Clause 17 of the Bill implements the findings of that expert group and simplifies process, with human rights and European Union law issues being referred to the Supreme Court.

The Bill represents a large and historic change for Scotland, and therefore deserves proper scrutiny, which I am sure this House will give it. Alongside the scrutiny it received in the other place, the Scottish Parliament has examined and debated the Bill, and the Scottish Affairs Committee at Westminster provided a rigorous analysis of the Bill’s provisions.

Your Lordships’ House’s Constitution Committee has noted that the Bill is of clear constitutional significance, but also said that there were no issues of constitutional concern in the Bill. I noted that the Committee welcomed the extensive deliberation which preceded introduction of the Bill. Those of us who are veterans of the PVSC Bill and the Fixed-term Parliaments Bill will be very pleased with that particular commendation from the Constitution Committee. The Delegated Powers and Regulatory Reform Committee also noted no issues in the Bill.

The Government welcome all these reports, and thank those who have worked to consider this Bill. While the Calman commission’s balance and evidence process is the basis for the Bill, the Government have made it clear that we have never ruled out sensible and similarly evidenced suggestions for change. We have listened to recommendations made by the Scottish Parliament and the House of Commons Scottish Affairs Committee, and to advice from other stakeholders, and while we believe that the Scotland Bill package provides the right balance of powers for tomorrow’s Scottish Parliament, we nevertheless have made some amendments to the Bill, and the supporting non-legislative package.

These will give Scottish Ministers greater flexibility to exercise their new powers effectively; for example, by bringing forward to 2011 pre-payments—a form of cash advance to allow work on the Forth replacement crossing to begin. The Government have listened to other recommendations and tweaked the finance and non-finance aspects of the Bill and its accompanying package.

We continue to believe that the package set out in this Bill and the associated Command Paper will strengthen Scottish Devolution and Scotland’s place within the United Kingdom. It provides strong financial accountability to the Scottish Parliament, and the right balance of additional powers. It provides the Scottish Government and Scottish Parliament with new tools to deliver policies in Scotland to respond to new challenges.

The other place debated the Bill over three days in Committee on the Floor of the House. Committee days in this House subject to the Motion later, will take place as a Committee of the Whole House. It is right that legislation of such constitutional significance gains the level of scrutiny it deserves, and that no one is excluded from the process. The whole essence of the Bill has been about inclusion. All parties were invited to be involved in the Calman process, just as they were in the Constitutional Convention. Those parties and those people who accepted the offer have therefore had the biggest hand in shaping these, and therefore the future of devolution.

There is, of course, a relationship with another place, a place much affected by the provisions of this Bill, and that is the Scottish Parliament. As I have indicated, the previous Scottish Parliament overwhelmingly approved the Bill, with 121 MSPs voting for the legislative consent measure in support, three voting against, and one abstaining. The three main UK-wide parties, together with the party which currently forms the Scottish Government, voted in support of the Bill. I think we can say that the Scottish Parliament believes in the Scotland Bill.

A new Parliament with a new focus was elected on 5 May, and as we are all well aware, it represented a landmark change in Scottish politics. This new Scottish Parliament will consider the Bill again, and we will consider sensible recommendations for the Bill made in time for this House’s final amending stage. We will get the chance to consider any recommendations which come from the Scottish Parliament, and the Government will continue to work with the Scottish Parliament’s Scotland Bill Committee, which is considering amendments to the Bill. My right honourable friends the Secretary of State and the Parliamentary Under-Secretary of State will give evidence to the Committee on Thursday of this week.

The noble Lord, Lord Sewel, who is with us today, has given his name to a convention that Westminster would not normally legislate with regard to devolved matters on Scotland without the consent of the Scottish Parliament. This convention has been developed and embodies the respect that this Parliament has for the Scottish Parliament. In keeping with the spirit of the convention, the Government will continue to work closely with the Scottish Parliament Committee reviewing the Bill, and we will look to maintain the support of the Scottish Parliament for the Bill.

As is well known, the Scottish Government have expressed their desire to see additions made. We will look at these further proposals and set them against three tests: that the Scottish Government provides detailed proposals to strengthen the Bill; that the proposals maintain the cross-party consensus that has been worked up and developed; and that any such proposals are beneficial to Scotland, without being prejudicial to the rest of the United Kingdom as a whole. I will of course keep the House appropriately informed of any developments in discussions with the Scottish Government, which will operate under a banner of mutual respect.

I have no doubt that in the course of the next few hours, many noble Lords will wish to debate not only the detailed provisions of the Bill, but also wider constitutional issues of importance to which this Bill is related. Of course, as I have indicated, the political landscape has changed since the Bill was introduced into the other place. Most obviously, the Scottish Government have claimed their election success as a mandate for a referendum on independence.

The Scottish Government have still got a lot of explaining to do when it comes to their main objective of separating Scotland from the rest of the United Kingdom. They do not want to provide any detail on how or when they will conduct a referendum. Nor do they want to explain in any greater detail, to date, what they mean by independence. The people of Scotland deserve to be told, and we will keep pressure on them to provide the facts to the people of Scotland. The Government, along with other noble Lords, believe that Scotland’s future is a future within the United Kingdom.

The Scotland Bill is a vehicle for upgrading Scotland’s devolution settlement. It is a Bill founded on evidence. It is a Bill with a clear purpose and clear principles: to strengthen devolution within the United Kingdom and to make the Scottish Parliament financially accountable. It fixes some things that have not quite worked; it makes the Parliament and the Government of Scotland more responsible for money they raise; and it allows the Scottish Parliament itself to run more effectively. Crucially, it will leave the Scottish Parliament with more powers than it had before; mature powers for a maturing Parliament.

The package strengthens the United Kingdom, by providing a settlement with financial responsibility, but it maintains the key elements of risk and benefit sharing that help the United Kingdom as a whole to perform effectively on the world stage and deliver fairly for all people. Stronger devolution which works for Scotland works for the United Kingdom, and I believe strengthens the United Kingdom for years to come. I commend this Bill to the House. I beg to move.

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[Lord Forsyth of Drumlean]

My Lords, it is a pleasure to follow the noble and learned Lord. I very much agree with what he said about the intemperate nature of the attacks that were made on the judges by the First Minister of Scotland. All I can say is that when I was Secretary of State, I made the odd intemperate attack—on the noble and learned Lord, actually—but had I done what the First Minister did, I am sure I would have been sacked the next day. I hope that lessons have been learnt from that.

I hope I shall not damage the position of the noble and learned Lord, Lord Davidson, by saying that his speech was absolutely excellent and that I agreed with many of his points. I shall come to that. However, because of the ridiculous position in which we find ourselves, I shall concentrate, for reasons of time, on Part 3 of the Bill, which is concerned with taxation. My noble and learned friend has said that this will bring accountability to the Scottish Parliament.

I am sorry that the noble Lord, Lord Robertson of Port Ellen, is not here. I have great affection for the debates that we had about devolution. I was opposed to it; he was in favour. He told me that devolution would kill nationalism stone dead. I have to say that the Bill looks curiously out of time. The world has moved on. We all know what the genesis of the Calman commission was. Wendy Alexander quite sensibly suggested that we should cut the Gordian knot and have a referendum on independence once and for all—that we should take the nationalists at their word. Unfortunately, she was not supported by the Prime Minister, so the three unionist parties got together and set up Calman in the hope that it would halt the nationalist bandwagon. That has not quite worked out. We now have a nationalist Administration without, it seems, any check or balance on it. The architecture of the electoral system under the Scotland Act, which was to prevent any party gaining dominance, has failed. We now have a nationalist Administration determined to use all the resources of the Scottish Office to break up the United Kingdom and pretending that it is in favour of an immediate referendum.

When my noble and learned friend says that the income tax powers will bring accountability, I very much doubt it. I give noble Lords a tale of woe as an example: the poll tax. We introduced the poll tax; it did not work out terribly well for us. The argument was that it would bring accountability to local government. The problem was that the proportion of the revenue that was raised, as with the rating system, was small. Therefore, to get a relatively small increase in resources there had to be a huge increase in the level of poll tax. That was the fundamental flaw. The idea of accountability is the same as the case that the Minister makes for income tax. I noticed that in his speech he said that a penny on income tax would raise £450 million.

Let us be clear about this: we are not talking here about the 3p variable rate on the basic rate of income tax. The Bill abolishes that, even though it was agreed by the Scottish people in a referendum, as I indicated earlier. We are talking about introducing, for the first time, a Scottish income tax that will apply at the basic, intermediate and top levels. The Minister said that £450 million was 1.7 per cent of the Scottish Budget. On my calculations, if we take £450 million as the product of that, a 5p increase in the Scottish income tax rate would give you an 8.5 per cent increase in the Budget, so to get 8.5 per cent more money you would have to increase the basic rate of income tax by a quarter.

The stoppages in most people’s pay packets would go up by a quarter in order to increase the Budget by less than 10 per cent. That is disastrous in an environment that has changed, where there is a huge deficit and where the Scottish Parliament was given a year off by the Chancellor and it did not make the necessary deficit reductions. To bring this measure in now seems extraordinary because the income tax proposals suffer from the same gearing problems that applied to the poll tax, the rating system and now to the council tax.

Here, the Government and those who support these proposals have a problem. On the council tax, I think our policy is to freeze it. On the one hand we argue that the Scottish Parliament must have the right to put up taxes in order to have accountability, but in local government this does not apply. We have a new policy that where the council tax is to be increased by more than the rate of inflation, there has to be a referendum of the local people to approve it. I ask my noble and learned friend why that does not apply to the local income tax. Why is there not going to be a referendum first of all on the principle of having this? My noble and learned friend says that there is a consensus in Scotland and that everyone agrees with this. I wager that if you stop three people in the streets of Edinburgh and tell them that a Bill is going through Parliament that could put their income tax up by a quarter in order to increase expenditure by less than 10 per cent—or, in this case, maintain expenditure—

[Lord Wallace of Tankerness]

First, I point out to my noble friend that it was in the manifestos of three parties at the last UK general election and endorsed. It is not intended that these powers will be made available next year in the midst of a recession. My noble friend must remember that the power to put tax up is also the power to bring tax down. Therefore, the question he is putting to the three people in Edinburgh is wrong on so many points.

[Lord Forsyth of Drumlean]

My noble and learned friend has been here too long if he thinks that the electorate reads the manifestos of the political parties and bases its votes on that. As for the point that the power could be used to bring tax down, the Government are asking the Scottish Parliament to find deficit reduction expenditure of about £3 billion. On my calculations based on his figures, that would amount to a 7p increase in the rate of tax just on deficit reduction. While we are on the subject of Calman, my noble and learned friend says that it is not being implemented now, so that is all right because it will be not in his term of office but in 2016; someone else will have to explain the consequences of this policy.

My noble and learned friend says that the deficit will have been dealt with by then. He cannot have it both ways. He has told us that there is a great consensus for Calman. Calman says that we should move to a needs-based system of funding for the Scottish Budget. Furthermore, from the work of Professor Bell and others we know that that would result now in a reduction of £4.5 billion in the Scottish Budget, which is a lot to find in income tax. That is the Government’s policy for the longer term, so we are going to have to have a higher rate of income tax in order to stay exactly where we are. I do not think that this has been thought through.

There are very few things that I agree on with the First Minister, Alex Salmond, but when he says that you cannot run an economy on a narrow tax base like income tax and that you need to have wider tax powers, he is correct. I am against having wider tax powers for the reasons that I will give shortly. I say to my noble and learned friend—and I will table some amendments in Committee—that he should consider whether it might not be right to have a referendum before these proposals on income tax can be implemented and, certainly in line with our policy on local government, to have a referendum if the Scottish Parliament chooses to set a rate of income tax that is higher than it is for the rest of the United Kingdom.

There is another aspect of taxation in this Bill that absolutely terrifies me; it gives the Scottish Parliament the power to invent new taxes altogether with no reference to anyone—not to the voters or to anything else. My noble and learned friend is shaking his head. Am I wrong about that? If they decide to introduce a local income tax, which is their declared policy, as I thought on these Benches—I am not sure what the coalition Government’s position is on local income tax, but the Conservative Party has always been opposed to local income tax because we would have all the problems that we have just been hearing—we could be faced not only with having the highest rate of income tax in the United Kingdom but with having a local income tax on top of that. I see that my noble and learned friend is reading the Bill. I hope he realises that the Bill actually provides for the creation of new taxes. It specifies particular taxes in respect of land and landfill.

On top of all that, we have powers of borrowing, which are described as positive—and here I did disagree with the noble and learned Lord, Lord Davidson. I think that the Scottish Government must be the only Government legislating on the planet that thinks that now, with a huge financial crisis and huge economic problems, is the moment to have higher taxes and higher borrowing. That is what this Bill provides for. When my noble and learned friend says that the powers might be used to cut taxes and cut borrowing, what planet is he living on? I do not know a single serious politician looking at the Scottish Budget, at the problems and at all these goodies that the nationalists have provided—such as free prescriptions, free healthcare and free transport, all of which are desirable but none of which are affordable—who could believe that the result of these powers would not be that Scotland would become the most highly taxed part of the United Kingdom. As the noble and learned Lord said, at the moment Scotland is suffering the worst rate of growth and the biggest threat to employment in the public sector because of the size of the public sector. It just seems plain daft to do this.

Having dealt with taxation, I turn to the issue of referenda. I see that the Bill has sections on elections, on presiding officers, on deputies, on the Supreme Court, on Members’ interests and even on Antarctica. I am delighted to see that Antarctica is not going to be in the province of the Scottish Parliament, having spent my Christmas there. Every corner of the world is covered except vires on referenda, which is the central issue in politics today in Scotland.

Why have the Government not taken the opportunity to clarify the point made by the noble and learned Lord, Lord Davidson? It is perfectly clear to me, from reading the previous Scotland Bill, and as the noble and learned Lord pointed out, that the Scottish Parliament does not have the power to run a binding referendum on the issue of independence for Scotland. The Scottish Parliament now has a majority of Members who are committed to doing so. We know that there is going to be a referendum. How can it be in anyone’s interests not to ensure that that referendum is held on a proper basis with a proper campaign and with proper notice? Why on earth are the Government dealing with every other issue, including the name of the Government, but not dealing with the central issue, in my view, and providing the machinery for a referendum on independence? Of course, I am a bit of an extremist on some of these subjects, so I would prefer the Bill to say that the referendum is to be in October next year, because I think that it is deeply damaging to have this uncertainty.

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[Lord Wallace of Tankerness]

My Lords, first I welcome and congratulate the noble Lord, Lord Browne of Ladyton, on his maiden speech from the Dispatch Box. He has had a very distinguished ministerial career in the other place and I am sure that the House looks forward to hearing him further from the Dispatch Box, not least in the many hours in Committee that have been clearly flagged up during our deliberations—and quite properly. As I indicated in my opening remarks, a number of contributors to this debate have said that this Bill should be properly scrutinised, as was the original Scotland Bill back in 1998.

I believe that we have had a very well informed, worthwhile debate. Noble Lords have contributed with great passion but with great knowledge, bringing to bear expertise in many different ways, having been informed by their experience of civic life in Scotland and, in the case of the noble Lords, Lord Wigley, Lord Morgan and Lord Soley, in Wales and England. They have all made a contribution as part of the United Kingdom and Members of this Parliament in the United Kingdom and have brought their experience to bear.

The general tenor has been one of welcome for the Bill, albeit with varying degrees of enthusiasm. My noble friend Lord Mar and Kellie described it as a mild measure. The noble Lord, Lord Elder, said that he fundamentally and enthusiastically embraced it. In between those views there has been qualified welcome, and, I think quite properly, people have put down markers as to where they wish to examine these provisions further. Like the noble Lord, Lord Browne, I find it impossible to pick up all the points that have been made. I think there will be time in Committee to develop some of them if I do not get the opportunity this evening.

However, I disagree with my noble friend Lord Lang, who saw this Bill as an admission of failure, following on from the failure of the 1998 Act, as he alleged. The findings of the Calman commission, as I think my noble friend Lord Selkirk of Douglas indicated, was that the Scottish Parliament was overwhelmingly judged a success. Clearly some people would not have wished us to go down that road. We do not have a parallel universe so we cannot work out what would have happened if the Labour Government, having come to power in 1997, had said, “We are not actually going to do any of the things that we have done, and we are not going to have a Scottish Parliament”. For my view, I suspect that it would have hastened the day when we would have had an even greater upsurge of the SNP if the promises made prior to 1997 had been broken. We do not know; we have a Parliament in Scotland. As has been said, it is part of the scene. It has been generally supported by the people of Scotland. In the Bill, we have set out to build on the foundations laid and improve our Parliament.

I turn to some of the specific points raised. The noble Lord, Lord Sewel, and my noble friend the Duke of Montrose raised the question of the Sewel convention. The passage of the Bill through your Lordships' House may be interesting if we have the noble Lord, Lord Sewel, talking about whether the Sewel convention should apply and in Committee the noble Lord, Lord Barnett, discussing whether the Barnett formula should apply. That would be novel.

The devolution guidance note established by the previous Government and adhered to since 1999 has been supported and endorsed by the present Government. It states that legislative consent Motions apply in three cases: where we are legislating on devolved matters; to amend powers of the Scottish Parliament; or to amend the powers of Scottish Ministers. I would be more than happy to make available devolution guidance note 10, which sets all that out. No doubt the noble Lord, Lord Sewel, will be more than familiar with the various provisions in the Scotland Act that allow powers to be transferred. In a number of those circumstances, that would have to be approved by the Scottish Parliament as well as by both Houses of this Parliament. Where that is done by other primary legislation, it seems right, and it was thought right in 1999, in the spirit of the convention, that if there is no order—if it is being done by primary legislation—there should be a legislative consent Motion.

[Lord Sewel]

Do I take it from that that if, ultimately, the Scottish Parliament decides that it does not accept the proposals, the Government would not proceed with them?

[Lord Wallace of Tankerness]

That is a highly hypothetical question. The Scottish Parliament has already approved the proposals by 121 votes to three. It remains to be seen what the committee of the new Parliament will do with any amendments, but the Scottish Parliament has already approved the proposals.

With regard to the specific powers on the boundary between devolved and reserved matters, I know that there has been comment that the Bill does not contain a substantial number of powers. As I said earlier, that is probably a reflection of the fact that the balance struck and judgments made in the initial Scotland Act were basically right, but we should not belittle or minimise the changes being made. They have been well thought through. In the case of Antarctica, there was clearly an oversight, but that is not an academic argument—well, in some respects it is an academic argument because if anyone wishes to undertake research in Antarctica, they require a permit or licence, and I am sure that Scottish academic institutions will wish to do so. It is only right that we ensure that the proper regime is in place for them to do so with certainty.

My noble friend Lord Shrewsbury asked about air weapons. The question here is not so much about the devolution of the power; some of his points reflected the fact that the Calman commission did not go beyond air weapons because the advantage of having a common system for other firearms throughout Great Britain was well understood. Many of the issues he raised are not so much about the devolution of the power but how the power might be used by the Scottish Parliament. Clearly, we will come back to that in Committee, and I look forward to looking at that in greater detail.

My noble friend Lord Forsyth suggested that we should not get too excited about a change to drink-driving. He might want to note the evidence provided by the Association of Chief Police Officers in Scotland to the Scotland Bill Committee of the Scottish Parliament. It stated that ACPOS welcomes the proposals contained in the Bill relating to drink-drive limits, which it would consider a step towards helping save lives and preventing serious injury on Scotland's roads. That is not a trivial matter at all. It is an important point. If, by exercising the power, the Scottish Parliament is able to pass legislation that would have that positive effect, then we welcome it.

[Lord Forsyth of Drumlean]

Is that not rather anticipating that the Scottish Parliament would choose to reduce the level rather than to increase it? Is that not a gross assumption?

[Lord Wallace of Tankerness]

The indications that have been given to us by those pressing the case for the change are that, to address the serious problems of alcohol misuse in Scotland, it was more likely that the level would be reduced rather than increased. I take the point that that could be a presumption but it is one that is fairly well based.

The noble and learned Lords, Lord McCluskey and Lord Boyd of Duncansby, and the noble Baroness, Lady Kennedy, all mentioned Clause 17 and the role of the Lord Advocate. Whatever differences there might be in terms of the detail of that particular clause, there was a general agreement that issues relating to convention rights and European Union law should ultimately be litigated in the Supreme Court. That is certainly the conclusion of the expert group, which was set up under Sir David Edward’s chairmanship. Clearly, there will be an opportunity to go into the detail of how that will work in Committee.

The noble and learned Lord, Lord Davidson of Glen Clova, also raised the important point about whether the roles of the Lord Advocate should be split. As was said, this issue has been around for some time. I was rather surprised for it to be raised from the Front Bench at this stage of the proceedings. No doubt, we will again have an opportunity to debate that. As I indicated, the position of the Secretary of State—and the Government—is that, if novel proposals are to come forward at this stage, the tests are that they should be very detailed in their presentation, command a consensus and not only be for the benefit of Scotland but not prejudice other parts of the United Kingdom.

My noble friend Lord Caithness asked what other powers there might be. The noble Lord, Lord Wigley, raised the issues that the Scottish Government have raised. Again, those tests will apply. We hear a lot of rhetoric from the Scottish Government but we await with some interest more detailed proposals. We are still awaiting any submission from them on excise duty. I certainly found the points made by the noble Lord, Lord Gordon of Strathblane, and my noble friend Lord Younger of Leckie very persuasive in the context of the Calman commission, which did not recommend any devolution of excise duties. The tests that I have already outlined will apply to any of these proposals coming forward from the Scottish Parliament, including for example on corporation tax.

In the Government’s mind, the only other taxes which could be devolved are the two which were recommended by Calman but are not in the Bill: aggregates tax, which we did not proceed with because of litigation that is currently in place, and air passenger duty—on the basis that the whole question of aviation taxation was being looked at. Did it make sense to devolve something which was under a much wider consideration?

The noble Lords, Lord Morgan and Lord Wigley, asked about the position in Wales. It was announced back in July that an independent commission will be established in the autumn to look at the financial accountability of the Welsh Government and the National Assembly for Wales. It will examine the issues of fiscal devolution and accountability, and take into consideration the work of the Holtham commission, mentioned by a number of contributors including my noble friend Lord Maclennan of Rogart. The Government are currently discussing the terms of reference and the commission members with the Welsh Government.

Important points were made by my noble friends Lady Linklater of Butterstone and Lord Lindsay about the recommendations within the Calman commission relating to non-legislative but important matters regarding links between parliaments and governments in Scotland and at Westminster. I can assure your Lordships that we take this matter seriously. Since the Government came to office in May 2010, we have committed ourselves to upholding an agenda of mutual respect and engagement with all the devolved Administrations.

We have successfully resolved some disputes under the new dispute resolution procedure that had been put in place by the previous Government: there have been two joint ministerial committees in plenary session since May 2010; the joint ministerial committee on Europe continues to meet regularly; the joint ministerial committee (domestic) has met twice; and, consistent with the Calman commission recommendations, we have issued communiqués after plenary meetings and made an annual report on the work of the JMC. I will be happy to give further information to my noble friends, but one other thing which I remember the Calman commission was keen on was attendance of Ministers at respective parliaments. We support the attendance of Ministers before committees of the Scottish Parliament. I think I am right in saying that the Chief Secretary to the Treasury has given evidence; I certainly gave evidence, along with the Secretary of State and Parliamentary Under-Secretary of State, to the previous Scotland Bill Committee in the Scottish Parliament, and I intend to do so again with regard to the new committee.

The electoral system was mentioned by the noble Lord, Lord Foulkes. When the Calman commission looked at this, it noted that the Arbuthnott committee said it should be looked at again after the 2011 elections. Therefore, we did not think it appropriate as Calman commissioners to make a recommendation on that. There is an acceptance, following the Arbuthnott committee report and the Calman commission report, that some form of review of the electoral system for the Scottish Parliament is required. The matter is under consideration, and the Government will confirm our intentions at a later stage.

It is clear that the key provisions in this Bill relate to finance. I rather thought when I heard my noble friend Lord Forsyth mounting his arguments against the tax-varying powers, as usual with great gusto, that they were very similar to the arguments we had in 1997 against tax-varying powers, so I will not rehearse all of these now. What the commission was faced with was trying to get a proper balance between the efficiency of the tax system and proper accountability. At the core, a number of noble Lords who have contributed to this debate have pointed out the importance of trying to ensure that there is a link between spending money and raising money. I think it was the noble Lord, Lord Morgan, who talked not only about “no taxation without representation” but also about “no representation without taxation”. That link is very important.

What we did within the Calman commission, and which the Government accept, was to look at different international systems. I do not agree with my noble friend Lord Forsyth, who compared income tax to the poll tax. As the noble Lord, Lord McConnell, pointed out, the thing about the poll tax was that it had no link to income at all, which was one of its problems and its criticisms. Income tax, however, we were advised, was one of the taxes, perhaps more than any other, which actually impacted not only in reality but in perception upon individuals. We thought that in terms of identifying a tax which was most likely to accentuate accountability, income tax was the appropriate tax.

My noble friend Lord Caithness asked, “Why the 10p?”. Clearly we are trying to achieve a balance between the Scottish Parliament having responsibility, while recognising that Scottish taxpayers contribute to the United Kingdom as well to a whole range of services which are provided at a United Kingdom level.

The question of the Scottish taxpayer was put very graphically by my noble friend Lord Lyell, with tributes to Andy Stewart. There is a different test from that which applied to the Scottish variable rate, and indeed Clause 32 of this Bill, for such time as the Scottish variable rate will continue, is brought into line with what is proposed in future.

For most people, determining whether or not they are a Scottish taxpayer will be a straightforward matter: it will be whether their sole or main place of residence is in Scotland. If it is in Scotland, they will be Scottish taxpayers. It is not an unusual thing to use a sole or main place of residence for capital gains tax purposes. I think it is also used for when we have to register as Members of this House as to where our transport links will be. So it is not a novel concept. One of those individuals who are UK resident but do not have a close connection with any part of the United Kingdom will need to establish the number of days they have spent in Scotland. Again, I suspect that this is a matter that we will look at in great detail in Committee.

[Lord Forsyth of Drumlean]

I know that the hour is late but that is not what the Bill says, unless I have misread it. It says that if you have more than one residence you count the number of days that you have spent in those residences.

[Lord Wallace of Tankerness]

I do not think that my noble friend has that right. The principal point will be whether it is your sole or main residence. As I have just indicated, it is only if you are an individual who does not have a close connection with any part of the United Kingdom that the number of days spent in Scotland will be relevant. We can clearly debate that, as we no doubt will, in greater detail when we come to Committee, but I seek to reassure my noble friend on that. He also said that the SNP would take the power to have new taxes and would implement them willy-nilly. However, the provisions in the Bill make it very clear that the power to have any new taxes will have to be passed not only by the Scottish Government but by both Houses of this Parliament. An order would not be brought forward to this Parliament unless it had the agreement of the UK Government. Therefore, there would have to be negotiation between the UK Government and the Scottish Government before such an order could be brought forward, and it would be subject to an affirmative resolution of both Houses of Parliament.

The noble and learned Lord, Lord Davidson, wished the borrowing powers to be accelerated. My noble friend Lord Younger put his finger on the matter: there is a pragmatic reason for delaying such powers in the context of the current spending review period. The borrowing of the Scottish Parliament would be aggregated with UK borrowing and, given that the borrowing limits have been clearly identified in the current spending review period, we do not think it right to move at this stage to extend the borrowing powers to the Scottish Parliament before 2015. The exception to that—it is perhaps not a proper exception although it is an important point—is that, in response to representations from the Scottish Parliament and the Scottish Government, we have made prepayments, or a sort of cash advance, in terms of the money required to do the preliminary work for the building of the new Forth road crossing. That has been widely welcomed and it is a pragmatic response to the situation.

The noble and learned Lord, Lord Davidson, asked about the administrative burden and cost of income tax powers. Employers and software providers have already made changes to payroll software so that they can operate the existing Scottish variable rate of income tax. Therefore, the existing payroll software provides for a different rate to operate. Additional compliance costs and burdens may arise if the Scottish Government seek to adapt the existing process—for example, to introduce a greater degree of transparency—by requiring the Scottish rate to be separately identified on payslips and P60s. Further costs and burdens could also arise in relation to the treatment of certain tax reliefs.

The noble Lord, Lord Browne, asked about the working group. There is a high-level implementation group, which involves a number of bodies and organisations with an interest in the detailed implementation of the tax reliefs. It has already met three times and is due to meet again in the autumn. There is also a joint Exchequer group involving Ministers in the Scottish Government, the Secretary of State and the Parliamentary Under-Secretary of State. The group will look at the negotiation of the detailed implementation of these plans. I think that it is due to meet again shortly in the autumn. In addition, separate groups have been looking at issues such as tax on charitable giving and other such detailed issues. These groups have already met, and I assure the House and the noble Lord, Lord Browne, that those meetings will continue.

Finally on finance, the noble Lord, Lord Hughes, asked about the workings of the Scottish rate. He asked, as with chicken or egg, which would come first—the reduction or the block grant. Unlike the Scottish variable rate, the Scottish rate of income tax will require an annual decision from the Scottish Parliament. The proportionate amount will be deducted from the block grant and, if the Scottish Parliament does not set a rate, it will not get the money. It will be obliged to set the rate and to do so in good time before the start of the tax year—again, giving proper notice in terms of collection and to businesses which will have to administer the system.

Related to that, the question of bond issuing was raised by the noble Baroness, Lady Liddell. Although the Bill makes provision for that to be implemented—not by having further recourse to primary legislation but by secondary legislation—it will be dependent on the outcome of a consultation, which is either under way or is about to get under way, regarding the merits of going down that road, taking into account some of the points which the noble Baroness raised.

Linked to this is the question of the Barnett formula, raised by a number of noble Lords, including my noble friends Lord Maclennan, Lord Forsyth, Lord Caithness and Lord Younger, and the noble Baroness, Lady Ramsay. Under the proposals in the Bill, as I have indicated, the Scottish rate of income tax will be reduced by 10p. It will then be for the Scottish Government to decide to levy in Scotland. I am sure a number of noble Lords will wish to debate this further. The Government have made clear in the coalition agreement that we recognise the concerns about devolution funding, but the priority has to be to reduce the deficit and to stabilise the public finances.

The noble Lord, Lord Sewel, said that something should be in the Bill about the formula. The position is that the Scotland Act contains nothing about it and that the Bill, if implemented, is neutral about its future. There will be a block grant but the formula to determine it can be done externally to the provisions in the Bill. We have been duly warned by at least one if not two noble Lords that we will have amendments on this. I note that the noble Lord, Lord Foulkes, and others are liable to bring forward amendments on the question of a referendum. A number of noble Lords have pressed a case for the United Kingdom Government holding a referendum on independence. Their argument is that it is in Scotland’s interests to end the constant constitutional uncertainty and that a clear-cut question will produce a clear-cut endorsement of Scotland’s place in the United Kingdom.

I understand the motivation of those who have argued that case. Many, including the Government, would like nothing more than to see an end to the manoeuvring of separation, which for so long has distracted Scotland from the many other opportunities and challenges on which we might more fruitfully and productively focus. As this debate broadens out beyond this Chamber to the political classes, more questions will be put to the SNP Government, as we saw last week, with important speeches by representatives of the CBI. The dangers of continued uncertainty will become more obvious to people across Scotland if the SNP—“rather coy”, was how the noble Lord, Lord Hughes, described it— carries on ducking questions. It will need to be clear about its plans and its timings.

Perhaps it is too ambitious to hope that tomorrow, when he announces his programme for government, the First Minister will start to say something about that. As noble Lords have indicated, there are crucial questions about the euro or the pound, and about whether it would be the European Central Bank or the Bank of England that would have responsibility. My right honourable friends the Secretary of State and the Chief Secretary to the Treasury raised these questions last week. We will continue to press the Scottish Government on these issues. I take the point made by the noble Lord, Lord McConnell of Glenscorrodale, about the importance of all us waking up to the challenges and positively making the case for the United Kingdom, and for Scotland being part of that.

[Lord Soley]

Will the Minister say what his thinking is about the Electoral Commission’s involvement in any referendum?

[Lord Wallace of Tankerness]

That is an important issue. Under present legislation, the Electoral Commission could be involved in a limited way only if the Scottish Government wished to proceed on their own. The commission is building up an expertise in referendums and has much to contribute, not least in helping to frame questions. In making the case for the union, as the noble Baroness, Lady Liddell of Coatdyke, said, we must challenge the independence case, because you cannot be a little bit pregnant and cannot be a little independent—the independence-lite or devo-max, which seems to be somewhat undefined. The noble Lord, Lord Soley, made an important point, saying that in the United Kingdom we have the most effective political and economic union that the world has ever seen. If we had not had it, today’s debate would be about creating it. When you have peoples bound by a common language in one island or closely proximate islands, why would you not want to come together and be a union, certainly when you look around the world and see other islands or peninsulas that are divided? The thoughtful speech by the noble and learned Lord, Lord Boyd of Duncansby, set out the economic, social and cultural cases for union, which are, indeed, set out in the first volume of the first report by the Calman commission. It was a very good exposition of the positive reasons why Scotland should remain part of the United Kingdom, and I entirely endorse what he said: that we cannot frighten people into supporting the United Kingdom and have to give people an aspirational and inspirational reason for why we believe that this valuable union has served Scotland well over the past 300 years and will serve us well into the future.

I conclude by saying that the genesis of this was in co-operation among parties. I believe and hope that that will continue. I have every confidence that it can continue into the future. My noble friend Lord Sanderson said that the test of this Bill would be whether its passing would help or hinder the cause of the United Kingdom. He is absolutely right. That reflects the terms of reference of the Calman commission. They were referred to by the noble Lord, Lord Browne, and were:

“To review the provisions of the Scotland Act 1998 in the light of experience and to recommend any changes to the present constitutional arrangements that would enable the Scottish Parliament to serve the people of Scotland better, improve the financial accountability of the Scottish Parliament, and continue to secure the position of Scotland within the United Kingdom”.

Those were not only the guiding lights of the Calman commission but are the guiding lights of this Government and, I believe, of this House as we approach this Bill. I believe the Bill delivers on that and that in our deliberations in Committee, we can ensure that it does. I commend the Bill to the House.

Bill read a second time and committed to a Committee of the Whole House.