HC Deb 03 June 1997 vol 295 cc279-97

FORM OF FIRST BALLOT PAPER Parliament has decided to consult people in Scotland on the Government's proposals for a Scottish Parliament. Put a cross (X) in the appropriate box:




Mr. Wallace

The amendment would adapt the Scottish referendum. It would no longer involve two separate ballot papers, one asking the electorate whether they agreed with the Government's proposals for a Scottish Parliament and the other asking whether they agreed that that Parliament should have tax-varying powers. The purpose of the amendment—[Interruption.]

The First Deputy Chairman

Order. There is too much noise in the Chamber. The hon. Gentleman is entitled to be heard.

Mr. Wallace

Thank you, Mr. Martin.

The amendment seeks to consolidate the two questions into one. The people of Scotland would be asked in a referendum whether they agreed that there should be a Scottish Parliament with tax-varying powers. Obviously, there would be only one ballot paper, but the single question would reflect the content of the two questions that the Government wish to put to the Scottish people.

On Second Reading, I explained why Scottish Liberal Democrats were not persuaded of the need for a referendum in Scotland. We have voiced our opposition to the second question. I have been asked many times by Mr. Kenny McIntyre, Mr. Brian Taylor and Ms Kirsty Wark what I would do about the second question and I have said, "If it comes to it, I shall table an amendment to delete it." I am trying to fulfil that commitment.

The origin of the second question may be linked to the origin of the referendum. It is our perception that Labour was nervous about the taxation issue. I negotiated and worked with Labour in the constitutional convention, and I do not doubt for a minute that the party is persuaded of the merits of a Scottish Parliament with taxation powers. However, it was clear in the run-up to the general election that the word "tax" was slightly frightening the party, and that effect was perceived not least in the Chancellor of the Exchequer and his Treasury team, and especially in the Minister without Portfolio, who did his utmost in the years leading up to the election to make sure that the word "tax" became neutral.

Labour said during the election campaign that there would be no increase in United Kingdom tax rates during the lifetime of this Parliament. My hon. Friends and I took the view that the strategy of not frightening the natives or the horses with the word "tax" could be undermined if Conservatives pointed north of the border and said, "There is the real Labour party because it proposes to establish a tax-raising Parliament." Labour had to try to neutralise that.

The press floated some ideas of what Labour might do. For example, it said that a Labour Government might incorporate a 75 per cent. voting threshold in a Scottish Parliament for tax powers to be implemented, or that there might be a provision in the Act to allow the taxation powers of the Parliament to be activated only in its second term. Labour came up with a referendum that made specific reference to tax powers so that the party could say to middle England, "Labour is not a taxation party at all. We have even given the Scots the choice about whether they want a Scottish Parliament to have taxation powers."

It has been said that the referendum was foisted on Labour by Islington. That is at least two miles better than the distance from which the Conservatives worked because they foisted things on Scotland from Downing street and Whitehall. The Scottish Labour party executive, which, when it comes to a head count, is a large vocal minority, strongly opposed the referendum and the tax powers. However, when faced with the reality of what it was being asked to do by London, it went one better and had a second referendum agreed with three questions. Under that, the taxation powers of the Scottish Parliament could not have been activated without a further referendum, in which the Parliament would have said, "We are about to use the tax powers. Do you want us to use them?" That is like giving turkeys the power to vote for Christmas.

Mr. Alex Salmond (Banff and Buchan)

At one stage, I think that there was a proposal for a third referendum, in which people would have been asked, "Are you absolutely sure?"

Mr. Wallace

That sounds like a Northern Ireland referendum.

Mr. Michael Ancram (Devizes)

Am I right in thinking that the second proposed referendum was described by the Prime Minister, who was at that time the Leader of the Opposition, as the mature and sensible decision of the Scottish executive committee?

Mr. Wallace

I think that I mentioned that on Second Reading. The "mature and sensible decision" that was proposed by the hon. Member for Glasgow, Pollok (Mr. Davidson) was disposed of seven days later by the now Secretary of State for Defence, who had come to his senses in the meantime.

During the election campaign, there were signs that, notwithstanding the fact that tax powers might be agreed by the Scottish people in a referendum, Labour would still be reluctant to use them in its first term. I hope that I can persuade the Minister to have second thoughts. We are not dealing with a principle; nor do I think that Labour ever sought to argue the issue on principle. It is a tactic and, to be fair, it has served Labour well. The issue of tax was neutralised and Labour successfully kicked it into touch.

As I said, our single question would refer to the tax-varying powers of the Parliament. I emphasise that, because in the context of our proposals for setting up a Scottish Parliament, we are not afraid of the tax issue. There is no need for us to apologise for the fiscal powers that we and the Government want for that Parliament. Tax establishes the nexus of accountability between those who are elected and those who elect them. People will be elected to the Scottish Parliament to make decisions about political priorities in Scotland, and they must not be allowed to hide behind a shield or to create a scapegoat by saying, "We were not allowed to raise the money for this."

In the general election, we argued for 1p on the standard rate of tax to fund education. The Liberal Democrats did extremely well in the election. We doubled our number, but we did not quite make 331, so we are not able to implement that policy. That is a pity in terms of investment in education. If the Scottish people want to vote to put a party in the Scottish Parliament that will make a greater investment in education, they should be able to do that. If Scotland wants to lead the way, as it often has, not least in education, it should be able to do so. That is why we believe in the importance of the flexibility that taxation powers will confer.

Mr. Dalyell

Perhaps we could be clear on exactly who is to be taxed. For example, should Scots who spend more than half the year working in England be taxed?

Mr. Wallace

Such issues are important, and I have no doubt that the legislation will address them in detail. I have always understood that there are clear residency rules for taxation in the United Kingdom. By simple analogy and application, the same situation could apply in Scotland. For example, I do not think that Gary McAllister lives for more than half the year in Scotland. There is no question of his not being taxed, even on the bonus that he will receive when Scotland qualifies for next year's World cup finals in France.

Mr. Garnier

Forgive me if I am being a little obtuse, but is it a prerequisite of voting in the truncated or one-question referendum ballot paper that the hon. Gentleman envisages that the voter must be a potential taxpayer, or may non-taxpayers also vote?

Mr. Wallace

Of course non-taxpayers will also vote. The fact that we have tax thresholds means that a number of people do not pay tax because their income, regrettably, is insufficient. They will be eligible to vote, as will people who are on social security and do not pay tax. As you are aware, Mr. Martin, from having sat through a large part of our earlier debate, the referendum franchise will essentially be governed by residency and, unlike that for parliamentary elections, it will include peers and European Union citizens who are in Scotland. Of course, peers and EU citizens resident in Scotland pay tax, but taxation is not the basis of the franchise; nor is it the basis of the franchise for elections to the United Kingdom Parliament.

The point I was making was that taxation powers are critical to the Scottish Parliament, to give it flexibility and accountability. Indeed, the absence of tax powers was identified by Conservatives and others as one of the weaknesses of the Scotland Act 1978. People may recall that, when the Bill was going through another place, Lord Home said that the Scottish Assembly had to have some ability to raise revenue, or we should be "asking for trouble".

Those of us who were involved in the referendum campaign may remember that the great promise to the Scottish people, at the behest of the late Lord Home, was that, if they rejected the proposals, an incoming Conservative Government might offer them something better. Of course, that never materialised. Many of us saw through that ploy at the time, but it is important to remember that the absence of tax powers was seen as a weakness. Many of my hon. Friends who were in Parliament at that time agreed with that, but thought that half a loaf was better than no loaf at all. We would certainly now take the view that tax powers are absolutely essential.

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The other argument that is put against the tax powers is that having tax rates in Scotland that varied from those in the rest of the United Kingdom would cause substantial problems. Many businesses have come to Scotland. Inward investment in Scotland has been significant over recent months and years, and that is by companies that have known that there was a distinct possibility—indeed that it was increasingly likely—that a Scottish Parliament would be established with tax powers. That has not turned them away. I suspect that fluctuating exchange rates and the pace of technological change and innovation are much more influential in determining investment decisions than the fact that Scotland may have a different tax rate, plus or minus 3p, from the rest of the UK.

Already there are significant differences, even in personal taxation, within Scotland and within the UK. Council taxes vary from local authority to local authority. The siren voices coming from the Conservative party tell us that, because Scotland might conceivably—of course this would happen only if the people of Scotland had voted for it—have a higher tax rate, perhaps by 1p in the pound, people are going to flood out of Scotland and go to work in England. By the same token, because Shetland has the lowest council tax rate in Scotland, I am surprised that there has not been a huge influx of people from all over Scotland, indeed from other parts of the UK, to live in Shetland, not only for the privilege of paying a lower council tax, but for the many other privileges that go with living in Shetland. Clearly, there are a number of reasons why people decide to invest in a particular place.

Because the council tax bands in Scotland are materially different from those in England and Wales, similarly valued houses in Carlisle and in Dumfries can have different council tax rates. Because of the banding, the council tax for a house in Dumfries can be much higher than that for a similarly priced house in Carlisle, yet there is no evidence of a drain of people from Dumfries and Galloway into Cumbria. Because I was born and brought up in those parts, I know that companies recruit from both sides of the Borders, and in recent times that has never been identified as a problem in terms of recruitment. Therefore, the case for the tax powers is considerable.

As I said, we wish to consolidate the two questions. Why not have the two questions? In many respects, although the Labour Government, perhaps anticipating the next debate, will say that they are against a multi-option referendum, with the two questions, they are offering a variation on the multi-option referendum. We shall have the status quo as one option. Another option will be the scheme proposed by the Scottish Constitutional Convention—a Scottish Parliament with taxation powers—and the third option will be a Scottish Parliament without taxation powers. The odd thing is that no serious person within the home rule movement in Scotland currently advocates a Scottish Parliament without taxation powers.

I understand that, in a recent interview, the Minister of State said that, if the outcome of the referendum were yes, no, the Government would be prepared to legislate for a Scottish Parliament without taxation powers—indeed, for a Parliament that no one is campaigning for. I have no doubt that the Government's good faith and commitment is to a Scottish Parliament with taxation powers. I am sure that they believe that that is in the best interests of Scotland. However, that raises an interesting question, which I hope that the Minister will answer when he replies to the debate. Why are the Government prepared to contemplate, at least in theory, and prepared to put into practice—they have indicated that they would—legislation that they believe would be less than in Scotland's best interests?

I know that the Conservative party believes that it is not in Scotland's best interest to have a tax-varying Parliament, but I believe that it should have a tax-varying Parliament and I know that that is what the Government believe; we must be concerned that they are prepared to legislate for something less than that. The Government must answer that question.

We are elected to exercise our judgment in the best interests of our constituents and our country. If our judgment is that Scotland should have a Parliament with the full taxation powers proposed by the Scottish Constitutional Convention, we should be wary of trying to legislate for anything less than that.

I fear that if a Parliament does not have taxation powers, that could be the recipe for the break-up of the United Kingdom and for an unstable Parliament. If, for example, the Parliament could not deliver a new hospital in Arbroath or a new school or school refurbishment in Greenock, it would be easy for a Member of the Scottish Parliament to say that there was not enough money, because Westminster would not provide it, and to complain that the Parliament did not have the power to vote any money for itself. That could lead to instability.

Another possible outcome of the multi-choice option is that there could be a no, yes vote. Some people say that they do not want to risk a Scottish Parliament without taxation powers, so they will not provide a blank cheque by voting yes on the first question. However, they may want to ensure that if there is a Parliament, it will have taxation powers, so they will vote yes on the second question. I have heard some Conservative supporters say that they do not support a Scottish Parliament, but that if there is to be one, it should have the proper accountability that comes with taxation. That would give a no, yes outcome. No one has told us what will happen if we get a no, yes outcome.

Another point of concern to my hon. Friends is that there is the possibility of unstitching a key part of the Scottish Constitutional Convention scheme. I know that that is not what the Government wish, but it is what they are positing as a possibility. During the general election, the present Prime Minister said that even English parish councils have tax powers. Some people took advantage of that and said that he was comparing a Scottish Parliament to an English parish council. I understood him to mean that if an English parish council can have tax powers, a fortiori, a Scottish Parliament should have tax powers. We are being asked to accept the possibility of a Scottish Parliament without tax powers. If it is good enough for an English parish council, it must be good enough for a Scottish Parliament.

Mr. Andrew Stunell (Hazel Grove)

Will my hon. Friend confirm that parish councils in England are not subject to a limitation on the amount of taxation that they can raise within the tax area that they are granted? In fact, if we take the Prime Minister's analogy a little further, it would be appropriate to remove the upper and lower ceiling on the variation of revenue-raising powers which it is now proposed to give to the Scottish Parliament.

Mr. Wallace

That was a helpful intervention. I bow to my hon. Friend's knowledge of English parish councils. I thought that the powers were more limited, but I am interested to hear those points. It strengthens the case. If English parish councils have that degree of flexibility and the accountability that goes with it, it is even more worrying that the Government would be prepared to countenance the possibility of losing the more modest and limited powers proposed for a Scottish Parliament.

Mr. Richard Livsey (Brecon and Radnorshire)

Is not it even more extraordinary that the Government are not even prepared to consider such options for Wales?

Mr. Wallace

I know that my hon. Friend is concerned about the absence of tax-varying powers from the Welsh proposals. I am sure that some of my Welsh colleagues will wish to make that point.

I want to make it clear that if we were to lose the amendment in a vote tonight, my party would enthusiastically support the campaign for a yes, yes outcome. We want a Scottish Parliament. That has been Liberal policy for the best part of a century and we want it delivered. There is a real expectation in Scotland that, this time, it will be delivered.

I ask the Minister to consider, even at this late stage, the merits of consolidating the two questions. In many respects, that would honour the commitment that the Labour party made in its manifesto, as it would be a question on the Scottish Parliament itself, with the clear highlighting of the fact that that Parliament would have tax-raising powers. By consolidating the questions, we would not run the risk of causing some of the problems that I mentioned.

One reason for the opposition in Scotland to a referendum when the Labour party announced its proposal last June was that people identified it in their minds with the 1978–79 wrecking tactic, especially the 40 per cent. rule. I do not believe that the Government want to wreck the process. It is clear from what has been said and from the passion with which the Secretary of State put the case this afternoon that that is far from the Government's intention. However, as those who know the history of home rule in Scotland are well aware, there has been many a slip in thinking that a full-blooded Scottish Parliament is in our grasp and then letting it slip away through some fault of our own. We do not want that to happen now.

We believe that by asking the single question that we have proposed, all concerns can be embraced. I have every confidence that we would get an overwhelming yes vote, and then we could get on with the real business of creating Scottish and Welsh Parliaments for the next millennium.

Mr. Ancram

I want to deal with some of the amendments grouped with amendment No. 87, and thereby broaden our debate.

I congratulate the hon. Member for Orkney and Shetland (Mr. Wallace) on his courage. After four weeks of total adulation of the Labour Government, he has at last been brave enough to be mildly critical of their proposals. We hope that it is the forerunner of many other occasions when the new Liberal Democrat party will behave more as a part of the Opposition than as an adjunct to the Government.

The aim of the amendment is to consolidate the proposed two questions into a single question on a single ballot paper. Although I cannot support the wording, which would create something inimical to the Opposition's views, it may avoid certain distortions and anomalies that could arise from having two papers. I understand that some people—I hope that I do not do the hon. Member for Linlithgow (Mr. Dalyell) an injustice in including him—take the view that they might say no to a Scottish Parliament, but that if there were to be one anyway they would wish it to have tax-raising powers. Under the Bill, there could be a no vote on the first question of a simple Scottish Parliament and a yes vote to one with tax-raising powers. If that is a broad response, it could produce the most extraordinarily distorted result. I hope that the Government will consider that point carefully. If they are trying to assess the opinion of the Scottish and, indeed, the Welsh through a referendum, the last thing they want is a result that makes no sense.

I want to broaden the debate because it goes to the heart of one of our objections to the way in which the Bill is framed and is being taken through the House. The Bill attempts to lull the electorates in Scotland and Wales by asking the questions that Ministers think will be the least likely to create fear in the hearts of those electorates and, therefore, the least likely to be rejected.

The achievement of that objective was why we saw such an extraordinary parade of proposals. The Labour party first proposed one referendum, then one referendum with two questions, then two referendums, and then, once again, one referendum with two questions. It was Labour's attempt to present the formula that it believed would create the least offence and fear in the minds of the people of Scotland. Conversely, the Opposition have forcefully argued that a referendum should take place only after all the information is available to the people of Scotland, so that they can make a valid judgment on whether to say yes or no to the proposals.

9.15 pm

The question that is currently proposed is anodyne. It states: I agree that there should be a Scottish Parliament", but does not even suggest whether a Scottish Parliament will be established as specified in a White Paper or in legislation. The prelude to the questions on the ballot paper, in schedule 1, mentions. the Government's proposals for a Scottish Parliament", but it does not state what those proposals will be or mention a Command Paper. The real questions are left hanging in the air. As I said in a previous speech, a question such as, "I agree that there should be a Scottish Parliament", would not even necessarily mean establishing a devolved Parliament within the United Kingdom, because it could mean establishing a Scottish Parliament within an independent Scotland. The second question states: I agree that a Scottish Parliament should have tax-varying powers". "Varying" is a wonderful word of comfort. In amendment No. 87, the hon. Member for Orkney and Shetland included the words "tax-raising", and he was right and honest to do so. Like all hon. Members, he knows that, if we establish a Scottish Parliament and provide it with all sorts of powers to do all sorts of things, it will be looking for the resources with which to do them. If we provide a Scottish Parliament with tax-raising powers, the almost inevitable consequence will be that those tax-raising powers will be used and that the Scottish people will consequently be financially disadvantaged.

Sir Robert Smith

I wonder what the hon. Gentleman thinks would happen to his party's fortunes in an election to a Scottish Parliament. I have contested local elections in which the Conservative candidate has stood on a platform of cutting expenditure and tax. Does he not believe that, in elections to a Scottish Parliament, the people of Scotland might vote for Conservative candidates who stand on such a platform?

Mr. Ancram

If that hypothesis were correct, a very interesting question would arise. As we know, Scotland is financed by a formula block, which is provided by the UK Parliament and Government. If there were to be a tax reduction, we would need to know, before a referendum, whether it would be paid for by the English taxpayer through taxation that is paid into the Scottish block, or deducted from the Scottish block, with a consequent reduction in services for people in Scotland. I do not know the answer to that question, because I am not making the proposals. If there is to be a genuine and valid referendum in which people can make a judgment, that is precisely the type of question that will have to be answered.

Mr. Fallon

Has it occurred to my right hon. Friend that the Government do not know the answer to that question? This is the first referendum Bill that does not bear the name of any Treasury Minister—neither the Chancellor of the Exchequer nor the Chief Secretary to the Treasury has signed it—among its list of supporters. Is that perhaps because, as we read two weeks ago, the Chancellor of the Exchequer has gone very cool on devolution"?

Mr. Ancram

That is a very interesting question, which we can include on the list of questions that we should like the Minister to answer. Given our experience to date, however, we are unlikely to receive answers to any of those questions. Nevertheless, I am grateful to my hon. Friend for asking his question.

A referendum is being proposed on questions that are so anodyne and so ambiguous that the people of Scotland will not be able to make a valid judgment. They will not, therefore, be able to provide an answer on which we can proceed with confidence.

There are a vast number of unanswered questions, such as that asked by the hon. Member for Linlithgow about who will pay the tax because, presumably, the rate at which it is set will depend on who pays it? Will a higher tax in Scotland lead to an increase in overheads in Scotland and therefore a loss of competitiveness because people ask for higher wages to make up for the fact that they pay higher taxes? Will that be a disincentive to people working in Scotland? I come originally from the borders where it would not be difficult for people to move across into England to work if they thought they would pay lower taxes. That would greatly disadvantage those who live in the borders and the economy of the area.

We are asked to decide on the Bill and on the referendum but we do not know the details of the proposals. We are told that we shall see the White Paper before the House rises for the summer. We are told that we shall have a debate on it but not how long that debate will be or how detailed the White Paper will be.

The Minister for Home Affairs and Devolution said in the debate on the previous group of amendments that we would be able to consider the proposals in depth. If that is correct, and if the Minister is referring not only to the White Paper but to the proposals in the form of legislation, does it mean that we shall be able to have a debate on the Floor of the House? The Minister went on to say that such a debate would be the opportunity for people from all parts of the United Kingdom, through their elected representatives, to examine the proposals. Is he therefore saying that the proposals will not be sent to a Scottish Standing Committee but that Members from all parts of the United Kingdom will be able to participate in the Committee stage? We need to know the answers. It is not enough for the Minister of State to shake his head and say that he cannot provide those answers. If we are to allow the Bill to proceed, answers to such questions are germane to the decision that we must take.

We are debating whether taxes will go up or down, so we need to know what the Scottish Parliament is likely to be able to do. We need to know the answer to questions such as what will be the remuneration of members of the Scottish Parliament? How many staff will be required to run it, and what will be the costs involved? How will the Scottish Parliament be funded—out of the Scottish block or, more widely. from United Kingdom funds? What effect will the Scottish Parliament have on the Scottish block grant? Will the Scottish Parliament have powers of spending over education, the national health service or agriculture in Scotland? What powers will it be able to exercise in relation to the police, transport and planning in Scotland? Whether taxes are likely to go up or down depends on the answers to those questions. If the people of Scotland are to make a reasonable judgment, they need to know the answers before they vote in a referendum.

What powers will the Scottish Parliament have to provide housing in Scotland? Who will be liable for the taxes levied by the Scottish Parliament? Such questions must at least form part of a White Paper, and if they do they will have to be debated at length and in depth so that no question mark is left in the minds of the people of Scotland when they vote.

As we have heard, in previous referendums of this sort it has always been the practice to have the legislation in place before the referendum, precisely so that the people who vote know the answers to their questions and can make an appropriate judgment. I know, and I am sure my colleagues know, that the reason why the Government are fudging the issue is that at the last referendum, despite the fact that for years the opinion polls appeared to show great demand for devolution in Scotland, when the relevant legislation was introduced and examined and its implications for Scotland became known, support for devolution dropped dramatically and opposition to it increased dramatically. It is to avoid that danger—[Interruption.]The Secretary of State for Scotland arrives at precisely the right moment—

The First Deputy Chairman

Order. The right hon. Gentleman should resume his seat while I am talking. He should direct his remarks to the amendment. I am reluctant to interrupt his speech but it is going wide of the amendment.

Mr. Ancram

I thought that I was addressing the amendment. Our amendment No. 145 requires the leaving out of the word "varying" and the insertion of the word, "raising".

The First Deputy Chairman

The amendments, including the right hon. Gentleman's, are about tax-raising powers. That is what he must discuss. The wider issue of devolution is not up for debate. It is not my fault that the amendments are so restrictive, but he must stick to them.

Mr. Ancram

I accept your ruling, Mr. Martin. My difficulty, which I am sure that you share, is whether tax-raising powers are likely to be used. That will be in the minds of voters at a referendum. For them to be able to make a judgment they will need to know what powers a Scottish Parliament is to have. My point—I hope that I am not transgressing—is that if that question is to be posed in that way and is to make any sense to voters at a referendum, they will require that extra information. I am suggesting—within the limits of the amendments, I hope—that the Government have approached the issue as they have because they know that providing that information in detail, or even accepting the substitution of "tax-raising" for "tax-varying", suggested by the hon. Member for Orkney and Shetland, would damage their chances of getting their proposals accepted in a referendum.

Sir Teddy Taylor (Rochford and Southend, East)

Does my right hon. Friend accept that the least that the people of Scotland need is a clear undertaking that the favourable grant formula, which is very beneficial to Scotland, would not be affected by the tax-raising powers? Is it not vital that there should be a yes or no from the new Secretary of State on that point before any referendum?

Mr. Ancram

I am grateful to my hon. Friend for providing another question to add to my list of important questions that need to be addressed if people are to make a reasonable choice in the referendum. The Secretary of State arrived a few minutes ago and raised his eyebrows, but he had not heard the debate. I think that he and I were in the same studio in 1979 when the results of the referendum came through. He arrived in the morning triumphant, expecting an overwhelming vote in favour of devolution. At the end of the day, I think that the figures were 33 per cent. for and 31 per cent. against, with the rest not bothering to vote. That was because the people of Scotland had the information on which to make the judgment. If we are to take seriously his assertion that the referendum is a democratic exercise, we need the information that I have asked for. If the amendments are passed, we shall be able to get it.

Mr. Dalyell

I wonder whether we could have some clarification, perhaps tonight, on who is to pay the tax. Is it to be anyone domiciled in Scotland? Some of us want an early statement on that, because, as I said during the debate on the Queen's Speech, part of the difficulty is that in international taxation, state borders provide the touchstone for separating the taxing rights of one fiscal regime from those of another. Where the border is not real, the imposition of tax by reference to the familiar tests of residence, domicile, source of income and location of trading operations is likely to be complex and expensive at best and unfair and a major brake on business in Scotland at worst.

We must face up to the issue. I listened with great care to the hon. Member for Orkney and Shetland (Mr. Wallace). If we are not careful, England will be, de facto, a tax haven, given that the border is not real in the way that federal states have real borders.

The hon. Gentleman could say that the Liberal Democrat solution is a federal one, but that would be different. If the argument is that there should be a federal state, my difficulty might arise less strongly because in a federal state the border would be far more real. However, given the Government's proposals, I say to my right hon. and hon. Friends that we must face up to the question of the border because of the creation of a de facto tax haven. If my right hon. Friend the Secretary of State is looking for a warning of this point, it was made at column 292 on 16 May.

9.30 pm
Mr. Wallace

The hon. Gentleman is raising an important point which, when we come to the White Paper and the devolution Bill, will rightly be dealt with in considerable detail. I am interested in what he says about the border and the advantages of federalism. I believe ultimately in a federal solution for the United Kingdom. What we are debating—the subject matter of the referendum—is a step towards that. I do not understand one point, however.

At the moment, we have a border that is a legal border because there are important differences between living in Carlisle and living in Dumfries in terms of criminal law and juvenile justice. At the moment, we have a meaningful border. Although there are many advantages in federalism, the border issue will not necessarily be any more clear cut with a federal state than under the proposals that we are debating.

Mr. Dalyell

These are complicated matters. I reply partly in terms of a problem that the hon. Gentleman raised—the problem of Scots who may spend a considerable time, possibly more than half the year, working outside Scotland. That point is not just an Aunt Sally; it is the problem of those who have rotating jobs. The matter was raised in acute form the other day by one of the major employers, Mr. Stewart of Scottish and Newcastle, who said that it was a real problem for the company's many executives and middle-rank employees. There should be early clarification of the matter because the more information we have the better and the healthier the debate will be.

We must get clear the residency rule. What about those who are on temporary secondment? That is a very real issue because there are lots of people on temporary secondment, which operates in both directions. It is no good saying that this is an arcane issue. For my sins—I do not know whether the Secretary of State has had the same experience—I was a member of nine Finance Bill Committees. One learns that one is legislating not for people of good will or for the mass of people who want to do the right thing, but for those who want to exploit the law to the fullest extent in order to get maximum benefit for themselves. That is part of the reason why laws have to be so tight in this case.

Mr. Fallon

Is it, therefore, the hon. Gentleman's position that we cannot finalise the details of either clause 1 or the shape of the ballot paper until we receive answers to those questions?

Mr. Dalyell

I have always taken the view—I have to be totally candid about this—that the meaningful referendum is on the question, "Do you approve of the 1997–98 Scotland Act as passed by Parliament?" Incidentally, throughout the election, that was the answer I made crystal clear to anyone who cared to ask. I am saying nothing in June that I did not say in March and April. I make that quite clear.

The Secretary of State courteously gave me a response in our previous debate on the Barnett formula—on the key question of whether the Barnett formula is to be preserved. I looked carefully at the response and I wish to ask the Minister who will wind up whether he is in a position to add anything to the answer that I was given the last time I asked the question.

Mr. Salmond

I was interested, as always, in the speech made by the hon. Member for Linlithgow (Mr. Dalyell). I suppose that he had some reason to speak on the issue; he was once described as a lonely and isolated figure—because he supported a referendum—by the previous spokesman for the Labour party in Scotland. Things have moved on; the hon. Gentleman may still be lonely and isolated, but not because of his support for a referendum.

Mr. Dalyell

It never occurred to me in my wildest dreams that it would be a pre-legislative referendum. My constituent in Linlithgow, if I may so refer to the hon. Member for Banff and Buchan (Mr. Salmond), is right to say that I was described as lonely and isolated. Various other comments were made at the same time, but we will stick at lonely and isolated. Never did I dream of anything other than a post-legislative referendum on the final outcome of the parliamentary discussions.

Mr. Salmond

I happily accept the designation as the hon. Member 's constituent. I did not vote for him—after much reflection, I decided to vote in Banff and Buchan—none the less, I am well represented in the House by the hon. Gentleman's efforts, and if I ever have a problem I will beat a path to his door.

I accept that if we are to have a referendum on the proposals, it is more logical to have a post-legislative referendum. That is a reasonable point to make. I would like an assurance from the Minister that, if he has his way in the pre-legislative referendum, we will not also have a post-legislative referendum.

Mr. McLeish

indicated dissent.

Mr. Salmond

I see a helpful shake of the head from the Minister. Given the litany we heard from the hon. Member for Orkney and Shetland (Mr. Wallace) of the permutations that the policy has gone through in the past year, I am sure that the Minister will accept that we need his firm assurance on that point, much to the disappointment of the hon. Member for Linlithgow and the Conservatives but to the great relief of the rest of us.

Mr. Edward Leigh (Gainsborough)

What happens if the referendum vote is yes and, as a result of our debates, major changes are made to the legislation, so we end up with something very different from the White Paper that the Scottish people will consider this summer? Is not that possibility one reason for having a post-legislative referendum?

Mr. Salmond

If the House were to decide that independence for Scotland was a much better way forward, as I have always argued, that would be a substantive change and I would argue for an independence referendum. The hon. Gentleman does not seriously believe that there will be such a radical change, but if he has hopes that I can nourish I would be pleased to hear them. We cannot anticipate both a pre-legislative and a post-legislative referendum, because that would try the patience of this Scottish electorate beyond reasonable endurance.

I make a diametrically opposed interpretation of the Bill to the right hon. Member for Devizes (Mr. Ancram). He argued that the Government's intention in suggesting a two-question referendum was to buttress the referendum and devolution proposals. I reached the opposite conclusion. I think that the reason for the referendum, without going through the full route march of the explanation, was to buttress the Government's prospects in the general election. The intention was to remove aspects of the constitutional proposals from the general election campaign.

The former right hon. Member for Stirling is but a distant memory, and has been replaced by the much more amenable hon. Member for Stirling (Mrs. McGuire), who is in her place as I would expect. Some people in Scottish politics felt a year or so ago that the tartan tax campaign being waged by the then Secretary of State for Scotland was successful. I never shared that opinion: the previous Secretary of State for Scotland, who was replaced by my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Morgan), had a much better tactical campaign in the 1992 election. He kept his major arguments until the immediate onset of the campaign. It struck many of us that the former right hon. Member for Stirling fired too many of his bullets on the tartan tax far too early.

I have no doubt that the decision to go for a two-question referendum was a direct result of fears about what the tartan tax campaign was doing to Labour's prospects not on the devolution proposals but in the general election. Those fears were misplaced, as we all probably agree in the comfortable aftermath of the general election. Unfortunately, they have left the House and the Scottish people with a proposal that does not make serious sense when it is analysed.

Such analysis has been extremely well conducted by the hon. Member for Orkney and Shetland, who pointed out that, in effect, one referendum, two questions produces a multi-option referendum. It gives us not the multi-option referendum that has been generally supported at one time or another across Scotland by many Labour Members, but one that offers a choice between the status quo, which was soundly rejected—it came third in most of the constitutional polls over the past few years—and a Parliament without tax-raising powers, which is not supported by any serious body of opinion in Scotland or, indeed, through the proposals of the Government or the Liberal Democrats. How can it be right to offer people a multi-option referendum through the device of two questions but not offer a proper, serious multi-option referendum of a choice between independence, devolution and the status quo?

Isolating the tax-varying power as part of a referendum is the worst possible thing to do if one is serious about a devolution proposal going through. In the 1992 general election, the campaign for which the Secretary of State for Scotland and I remember extremely well, the issue of a tartan tax was not raised to nearly the same extent—because it was then part of the convention proposal for what was called assigned revenues. The tax-varying power was part of a wider taxation remit. There was not the same isolation of part of the proposal, which is extremely weak and vulnerable to attack and criticism.

I cannot conceive of how anyone who is serious, optimistic and genuine about a devolution commitment thinks that extracting the weakest part of the devolution scheme and subjecting it to a second question, as opposed to doing so with, for example, a more popular aspect of it such as proportional representation, is in the interests of constitutional change. That is an extremely dangerous, gambler's move on devolution. I nourish the deep suspicion that some of those who thought that that was a good idea—I excuse the Ministers sitting on the Treasury Bench of this entirely—did not sincerely wish the second question to be endorsed.

As the hon. Member for Orkney and Shetland said, what would happen if we got a yes, no result? The Liberal Democrats have been long-standing supporters of Scottish self government, yet in such circumstances, as they signalled in interviews, they would find themselves perhaps voting against a self-government proposal. What logic is there to a proposal that probably or possibly risks losing the votes of part of the coalition in favour of devolution as a result of a two-question referendum?

My party's main interest in the proceedings is to secure a genuine multi-option referendum to allow real free choice between the concepts of independence, devolution and the status quo—the referendum which is overwhelmingly supported in Scotland and which has been supported on both sides of the House. It was, incidentally, first a Liberal idea in the 1960s, proposed by the soon-to-be Lord Steel, so it has been supported by all parties and is still the right referendum to have, if we are to go through a referendum process.

It would be an improvement to subtract the second question. It would be in the interests of not confusing the electorate and of those of us who want constitutional progress in Scotland. In tomorrow's debate I intend to force the issue of a multi-option referendum; in the present debate I am inclined to support the amendment.

9.45 pm
Mr. Dennis Canavan (Falkirk, West)

I listened with interest to the right hon. Member for Devizes (Mr. Ancram), because I recall that, more than 20 years ago, my right hon. Friend the Chancellor of the Exchequer was a rector of Edinburgh university and invited the right hon. Gentleman and me to become members of a commission to consider the workings of the university and, among other things, the repercussions on the university and on higher education in Scotland in general of the then Labour Government's proposal to set up a Scottish Parliament. My recollection is that the right hon. Gentleman was a keen supporter of the principle of a Scottish Assembly at that time and that he wanted to extend the powers proposed by the then Government to include the power to legislate on Scottish higher education.

Mr. Ancram

I am sure that the hon. Gentleman is not setting out intentionally to mislead. I was a supporter of devolution in 1968 and until about 1972, when I suddenly realised the cost of it to the Scottish people. Certainly, by the time I served on that commission with him, I had seen the light.

Mr. Canavan

The right hon. Gentleman is trying to rewrite history. He should read the manifesto on which he stood in Berwick and East Lothian at the general election in 1974, when the Scottish Tory party had a clear commitment to set up a Scottish Parliament, or Assembly, as it was called at the time. No wonder the voters of Berwick and East Lothian turfed him out; he then sought refuge in Edinburgh, South, and the people there turfed him out, after which he sought refuge in Devizes and in Belfast—he has been all over the place, trying to get power and a safe seat in his precious United Kingdom.

I listened with more respect to what the hon. Member for Orkney and Shetland (Mr. Wallace) said on behalf of the Scottish Liberal Democrats, who were, and still are, our partners in the Scottish Constitutional Convention. I am not an enthusiastic supporter of the Bill, because I would far rather we spent our time on legislation to set up a Scottish Parliament instead of pussyfooting around and wasting time with this legislation.

The Government are clearly determined to hold a referendum, but I fail to understand the need for two propositions to be put to the people of Scotland—one on the principle of a Scottish Parliament and another on whether that Parliament should have revenue-raising powers.

There is no meaningful Parliament in the world that does not have revenue-raising powers. Even the smallest authority in Britain—if we do not want to talk about English parish councils we could mention the smallest local authority in Scotland, Clackmannanshire council—has revenue-raising powers, of which the last Tory Government approved. Of course, the Scottish Parliament will be far more powerful than any local authority.

Mr. Salmond

But not in terms of control over its own revenue. Clackmannanshire council controls approximately 10 per cent. of its revenue. With the tax-varying powers, the maximum that a Scottish Parliament can control will be 3 per cent.

Mr. Canavan

I take that point. Some of us argued within the convention that there should be more revenue-raising powers, including a case, perhaps, for all the revenue-raising within Scotland to be the responsibility of the Scottish Parliament. It is a pity that the hon. Gentleman and his party boycotted the Scottish Constitutional Convention. Had he not done so, he might have been there to lend his support to that argument, which was advanced by others as well as by me.

Mr. Garnier

To follow through his argument, could the hon. Gentleman tell the Committee what the Welsh people have done to offend the Labour party, that they are not allowed a revenue-raising Assembly?

Mr. Canavan

I shall leave it to hon. Members who represent Welsh constituencies to put the case on behalf of their people.

I was saying that the Scottish Parliament will be far more powerful—

Mr. Stunell


Mr. Canavan

I think that we are running out of time.

The Scottish Parliament will be far more powerful than any local authority because it will have a budget of about £1 4 billion per annum. It will also have the power to legislate on matters such as housing and the national health service in Scotland, as well as education, tourism, and aspects of industry and the economy.

If the people of Scotland want to spend an extra 1p or 2p on income tax for a better national health service, or for better educational opportunities for their children, surely that should be their basic democratic right.

If the Scottish Parliament had no revenue-raising powers, it would be completely dependent on the revenue-raising powers and votes of this Parliament. It would have no fiscal autonomy or responsibility. So it is not very clever to separate the Parliament from its revenue-raising powers by asking two separate questions on, as I understand it, two separate ballot papers.

I still see no need for a referendum, especially after the mandate that we got from the people of Scotland and Wales at the general election. Even so, a single-question referendum is better than a two-question referendum, so even on the principle of the lesser of two evils, the amendment proposed by the hon. Member for Orkney and Shetland has considerable merit. It does not exclude specific reference to tax-varying powers, but puts the matter in a single simple proposition, to be determined by the people of Scotland.

Sir Teddy Taylor

For the first time in my parliamentary career, I agree with the hon. Member for Falkirk, West (Mr. Canavan). I hope that, on reflection, hon. Members will vote for the amendment, because if we do not have that wording, it would be outrageous to propose to the people of Scotland an Assembly without tax-raising powers.

For reasons that hon. Members well know, I oppose the principle of a Scottish Assembly, or Parliament, altogether. However, we can be sure of one thing—that a Parliament without tax-raising powers would be a disaster for Scotland and its people, and for the rest of the United Kingdom.

Bearing in mind the fact that Scotland is a nation in which people are conscious of their aims and objectives, if everything were going wrong in Scotland—all the hospitals and schools did not have enough resources, the road programme was not working, and so on—it would be blamed on the British Parliament in London, despite the fact that the Scottish Parliament would be sitting there. That would simply stoke up the demand for independence and help to break up of the United Kingdom.

I hope that the Government will avoid putting before the people of Scotland what might appear a nice option—a Parliament that will not cost them anything. The second advantage of specifying tax-raising powers would be to remind people that a Scottish Parliament would cost them a great deal of money.

Before the previous referendum, I found that one of the reasons for the move against devolution during the campaign was that people had not previously been aware of the full cost of the operation. It would have included not only the cost of all the new Members of Parliament and their offices, with all the expenses involved, but the substantial additional bureaucracy.

The third advantage of mentioning tax-raising powers is that it would allow a debate on how we support Scotland. I had the privilege many years ago—probably before most hon. Members were born—of being a Minister in the Scottish Office before I had to resign when the Prime Minister signed the treaty of Rome. Every year we had to negotiate a formula or grant whereby we got cash for Scotland. There was then a differential by comparison with England of about 14 per cent.— a substantial amount. People in Scotland are not fully aware of the substantial additional funding they receive.

Mr. Andrew Welsh (Angus)


Sir Teddy Taylor

It is not rubbish. I negotiated the figures. I assure the hon. Gentleman that although the nationalists have different views, the plain fact is that there is substantial additional funding.

Mr. Salmond

Will the hon. Gentleman give way?

Sir Teddy Taylor

My final point will answer the hon. Gentleman's question; I know what it will be. As he was about to propose, the best question for the referendum would be to ask the people of Scotland whether they want to be fully independent. A referendum on devolution could lead to over-government, extra spending and huge waste and uncertainty.

There is no middle way between independence for Scotland and the present situation. Precious few powers are left in the assembly in Westminster. Hon. Members know well that we constantly make speeches about things over which we have no control. Hon. Members shout about the fishing industry when, effectively, all the power has gone. They complain about the cruelty involved in the export of live animals, but their power has gone. If we set up a new, separate Parliament in Scotland, in addition to the county and district councils and this Parliament, it will create a mess of over-government. It would be infinitely better for the people of Scotland if they were not misguided by misleading questions and made up their minds about whether Scotland as a separate nation should be independent. I therefore hope that the House will consider the amendment because it is more realistic, truthful and sensible. Irrespective of the question, I hope that the people of Scotland will have the common sense once again to reject this costly nonsense, which will do no good to them, to Scotland or to the United Kingdom. For the first time in many years, I support the Liberal Democrat amendment.

Mr. Thomas Graham (West Renfrewshire)

Does the hon. Gentleman realise that, under the Tories, 4,500 quango members ran Scotland at a cost of nearly £15 billion? Surely it is time for democratic control by elected members.

Sir Teddy Taylor

I will form a popular front with the hon. Gentleman to get rid of quangos and get back to democracy. Sadly, if he looks at the Labour manifesto, he will find that the new Government will create lots of new quangos that will cost more and employ a great deal more bureaucracy. If he and I can work together to fight quangos and support democracy, I will be glad to form a new popular front with him and the Liberal Democrats.

Mr. Garnier

Several questions must be asked about this part of the Bill. The questions raised by the hon. Members for Falkirk, West (Mr. Canavan) and for Banff and Buchan (Mr. Salmond), and by my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) are pertinent. It is a pity that the Government have ignored them.

The Government propose to impose pre-legislative referendums on the people of Scotland and Wales. People will be invited to discuss before the referendums many questions to which they will not be provided with answers. What will be the remit of the Scottish Parliament? What will be the constituencies? If it is to be elected by proportional representation, will it use a list system, a partial list system or the additional member system? What will be the pay, conditions and allowances of its Members? My hon. Friend the Member for Rochford and Southend, East asked what it would cost. When and how often will it sit? What will be its hours? Will it sit one month out of 12 or will it be a full-time body? Will it be a condition of membership that Members of the Scottish Parliament should not also be Members of the United Kingdom Parliament? Will they also be allowed to be Members of the European Parliament? May they be members of district, regional or island councils? Will the tax raised by the Scottish Parliament go to the United Kingdom Treasury? Will it go to some new Scottish Treasury? Or will it go into some other basin into which to pour the largesse of the people of Scotland? Who will pay the tax, as the hon. Member for Linlithgow (Mr. Dalyell) asked? What will happen to the Scottish grant that we have heard so much about? It is not good enough for those on the Treasury Bench to talk about the residence tax for the taxation system; it is a far more complicated matter than that. Will it be examined at any stage during the debate on the referendum?

The only sensible referendum question is that proposed by the hon. Member for Banff and Buchan, the leader of the Scottish National party, and that is to offer the Scottish people full independence or nothing. If they vote for—

To report progress and ask leave to sit again.—[Mr. Jon Owen Jones.]

Committee report progress; to sit again tomorrow.