BORROWING BY THE SCOTTISH MINISTERS, ETC. (Hansard, 12 February 1998)

§ Mr. Jenkin
I beg to move amendment No. 298, in page 26, line 37, after '(1)', insert 'Subject to the approval of the Chancellor of the Exchequer,'.

§ The First Deputy Chairman of Ways and Means (Mr. Michael J. Martin)
With this, it will be convenient to discuss the following amendments: No. 299, in page 26, line 37, leave out 'Secretary of State' and insert `Treasury'.
No. 300, in page 27, line 1, leave out 'Secretary of State' and insert 'Treasury'.
No. 301, in clause 64, page 27, line 14, leave out `increased'.
No. 302, in clause 65, page 27, line 24, leave out from `sterling' to end of line 25.

§ Mr. Jenkin
In a sense, the debate on clause 61 was one of the most electrifying debates so far in the Committee because it has exposed some of the fundamental differences in the way in which different parties and hon. Members regard the Scottish Parliament and how it should relate to Westminster.
When one considers the import of the issues that have been discussed this evening, it is almost breathtaking that only a handful of Labour's gargantuan strength is present in the Chamber in what should be a momentous debate. We are discussing the issues that will determine whether the new Scottish Parliament and the new devolution settlement prove to be as stable as we heartily wish them 642 to be, or whether the unsettled will of the Scottish people and the uncertain relationship between Westminster and Edinburgh lead to disaster.

§ Mr. Salmond
Will the hon. Gentleman give way?

§ Mr. Jenkin
I have hardly started and I am sure that I shall say a great deal that will provoke the hon. Gentleman.

§ Mr. Salmond
rose—

§ Mr. Jenkin
If the hon. Gentleman really insists, I am flattered that he already feels provoked.

§ Mr. Salmond
The hon. Gentleman has made exactly the point that puzzles us. He draws attention to the lack of massed ranks on the Government Benches. He has behind him only five hon. Members in total. If the matters are as overwhelmingly important as he sets out, where are his hon. Friends to back up his argument?

§ Mr. Jenkin
I accept that this evening, the hon. Gentleman's party is represented in a higher percentage than any other, but it has more of a vested interest in the debate than any other party. A higher percentage of Conservative Members than of Labour Members are here.

§ Mr. Malcolm Savidge (Aberdeen, North)
But none of them represents Scotland.

§ Mr. Jenkin
There are no Labour Members present representing English or Welsh constituencies. As it is a United Kingdom issue, if the Conservative party had Scottish Members of Parliament, every single one of them would be here. [Laughter.] The hon. Member for Aberdeen, North (Mr. Savidge) is so easily amused. I am told that laughter is good for the health so I am delighted to have contributed to his good health. We are dealing with momentous issues. It is the legislation that Labour Members so passionately desired.

The First Deputy Chairman
Order. What the hon. Gentleman has said so far has had absolutely nothing to do with the amendment. It is important that he addresses the amendment.

§ Mr. Jenkin
I beg your pardon, Mr. Martin. I was sidetracked.
If clause 61 is the wedge, clause 62 is the crack in which the nationalists will shove the wedge. If the relationship between Westminster and the Scottish Parliament comes under strain, the consequences will bulge out in terms of the money that the Scottish Parliament wants to spend, but does not have.
We heard earlier an example of the gulf of misunderstanding between Scottish and English Members over the merits of our respective road systems. That may seem a trite point, but when English Members said that they believed that their roads were less well funded than the roads in Scotland, they were greeted with laughter and derision by Scottish Members.
We could step back and say that that misunderstanding merely represents our different perspectives. However, such differences—and, dare I say, contempt for others' 643 points of view—which have hitherto been expressed behind the closed doors of Cabinet collective responsibility, will now be exposed in all their ugliness in open party political debates in the disputes between Westminster and Edinburgh, with all the lack of tact that modern political debate and the language of politics usually lead to.
As the relationship degenerates, the Scottish Parliament will, perhaps, come under increasing political pressure to spend more money. It will come under pressure from the continuing debate in Westminster on funding and the Barnett formula, which might mean a progressive annual loss in grant—indeed, the Scottish Office has lost grant in the spending round for next year. As that process continues, the Scottish Parliament and Executive may find themselves, in a few years' time, with £1 billion or £2 billion less than they currently have.

§ Mrs. Laing
My hon. Friend referred to the relative spending on roads and infrastructure in Scotland and in England. Is he aware that a large proportion of the money that has been spent on new roads in Scotland in the past decade has come from the European Community? Once there is a Scottish Parliament, Scottish business and industry may be disadvantaged because of their inability to negotiate in the European Community as strongly as before.

§ Mr. Jenkin
I assure you, Mr. Martin, that I shall not be drawn down that path, but I give an example of the way in which money can be withdrawn from Scottish expenditure programmes. The objective 1 status of the highlands and islands is under threat. [Interruption.] That has everything to do with devolution, the clause and the borrowing powers of the Parliament. When expenditure falls short of the expectations that the Scottish Parliament believes should be fulfilled, borrowing will surge.

§ Mr. Alasdair Morgan
At the risk of creating a precedent and addressing the amendments, may I ask the hon. Gentleman how the alleged wedge and crack will be cured by substituting "Treasury" for "Secretary of State" in the clause, as suggested in amendments Nos. 299 and300?

§ Mr. Jenkin
I am happy to explain that the amendments are probing—the hon. Gentleman should give me credit for saying that with a straight face. We tabled them because we wanted to explore the nature and implications of the Parliament's borrowing powers.
As the relationship between London and Edinburgh degenerates—unlike the Scottish National party, Conservative Members do not want that to happen; we want a good relationship—what is likely to occur? The structural funds for building roads may be withdrawn. [Interruption.] The hon. Member for Perth (Ms Cunningham) may scoff, but that was reported in the newspapers this morning.
When the United Kingdom Parliament considers health service expenditure in Scotland—it is 24 per cent. higher per person in Scotland than in England—it will argue for a fairer distribution of health resources. As the hon. Member for Banff and Buchan (Mr. Salmond) pointed 644 out, the money that was awarded last year to deal with waiting lists was not fully distributed in Scotland in accordance with the Barnett formula.

§ Mr. Alasdair Morgan
indicated assent.

§ Mr. Jenkin
I see the hon. Member for Galloway and Upper Nithsdale (Mr. Morgan) nodding. That was because those moneys were distributed to address a particular issue—waiting lists. Waiting lists were shorter in Scotland, so more money was given to England—that was not in line with the Barnett formula. That is the way in which this issue will fester.

§ Mr. Swayne
Does my hon. Friend agree that the key point is that the social problems, such as unemployment, in Scotland are in many respects more acute than they are in England? It is all very well for the Westminster Government to talk about tough decisions, but Members of the Scottish Parliament will find themselves up against the rough end of those decisions, and will be keener to take inappropriate action to deal with the problems.

The First Deputy Chairman
I hope that the hon. Member for North Essex (Mr. Jenkin) will discuss the amendment rather than respond to that intervention.

§ Mr. Jenkin
My point—it is relevant to the amendments—concerns how the Executive in Scotland would deal with what they regarded as a shortfall of payments. That brings me to amendment No. 301, and the £500 million borrowing limit, which we do not believe should be increased. As the explanatory note explains, the provisions in clause 63 are for short-term borrowing requirements. Towards the end of the financial year, public sector bodies very often find that they have overspent; if they have a borrowing limit, they will use it to the full or extend their borrowing by delaying payment to their creditors, and so start the following financial year with a further deficit.
One can imagine the Scottish Parliament using its short-term borrowing facility to continue paying for programmes that were not funded by the Secretary of State, and to tide it over until the beginning of the following financial year.

§ Mr. McLeish
indicated dissent.

§ Mr. Jenkin
I see the Minister shaking his head. If he can clarify that point, the amendment is serving its purpose.

§ Mr. Swinney
The hon. Gentleman made a point about public corporations and other bodies increasing their borrowing towards the end of the financial year. My experience has been almost the opposite, with public organisations trying to spend budgets towards the end of the financial year. Can he give us any evidence to support his claim?

§ Mr. Jenkin
Yes. It is a well-known fact that—[Laughter.] I do not know why the hon. Member for Perth is scoffing in that way. It is a well-known fact that when hospital boards are struggling to treat as many patients as 645 possible, they delay payments to keep beds open. That has been one of the complaints. Year after year, hospital trusts in England and health authorities, whether in Scotland or England, finish the year with debts that they should not have, which they carry forward into the next financial year and then have to pay off as well as managing their budgets. That is a common problem. There is no reason to believe that the Scottish Parliament will not have similar problems as it will be dealing not merely with hospitals, but with schools and everything else. The Scottish Parliament will need to raise more revenue. Even if it raises the tartan tax, the United Kingdom debate about the Barnett formula could well carry on whittling away the Scottish Executive's budget.

§ Mr. McLeish
We are not doing that.

§ Mr. Jenkin
In that case, why was the waiting list money for the national health service—it is called the national health service—not distributed according to the Barnett formula? The Department of Health and the Treasury thought up a different pretext for distributing it, so that they could distribute more to England, where the waiting list problem was, than to Scotland. If the Minister disputes that, he also disputes the evidence that other hon. Members have put to the House in the past.
I am describing a degenerating scenario. On many occasions, the Secretary of State has invited us to consider the worst case scenario. I invite the Committee to look at the very worst case scenario—a Liverpool scenario. In that case, a local authority wilfully set an illegal budget, borrowed illegally and carried out expenditure programmes for which it had no funding, which put the authorities in an extremely difficult situation. That was only a local authority.
Under those circumstances, the borrowing limits set in the clause would be likely to be ignored. There is no guarantee that the borrowing limits in clause 64 would be respected. In such circumstances, what powers would this Parliament have? The Minister may well tell us that we would legislate to stabilise the situation, but as we would be dealing not with a local authority, but with a Scottish Parliament, of which a substantial proportion perhaps regarded itself as autonomous, we could be on the way to a serious conflict.
I shall ask the Minister a few questions about the reasons for the borrowing power and how it is expected to work. What would the borrowing be for? What relationship would the borrowing have with local authority borrowings? How would the Parliament supervise local authority borrowings? How would the liabilities be incurred—would the Parliament issue its own loan notes or would there be overdraft facilities and, if so, would they be borrowed from a bank or directly from the Secretary of State? Are we postulating a scenario in which the Secretary of State would ring the Parliament and say, "Sorry, you'll have to borrow a bit because the cheque is in the post"? What if the Scottish Executive should default on their borrowings? What measures are made available in the Bill to deal with that? Why a limit of £500 million? Why not less, or more? Why should we not expect the Scottish Executive to build up a reserve rather than depend on short-term overdrafts to deal with 646 cash flow fluctuations? What measures would be available under the Bill if borrowing limits were exceeded? How would the Government, or the United Kingdom Parliament, force a future Scottish Executive to live within their borrowing constraints? Who would be liable for borrowing that turned out to have been incurred illegally? In a local authority, that is clear as the councillors are liable. The Minister should answer that question.
Our amendments are purely for clarification. Amendment No. 298 would make it clear that the borrowing should be subject to the approval of the Treasury and the Chancellor of the Exchequer rather than the Secretary of State. Amendments Nos. 299 and 300 are for the avoidance of doubt and establish that the Treasury should make the decisions. Amendment No. 301 questions whether there should be permission to raise the borrowing limits simply by order or whether it should require primary legislation. There seems to be no reason why the Parliament should not be invited to build up a reserve, rather than depend on short-term borrowing to deal with cash flow fluctuations.
Finally, in tabling amendment No. 302 to clause 65, we would simply ask why the Bill should contain a power for the Scottish Parliament to borrow in any currency other than sterling. Why would the approval of the Treasury ever be needed for that Parliament to borrow in a foreign currency?

§ Mr. Dalyell
From the seat now occupied by the hon. Member for North Tayside (Mr. Swinney), the late Enoch Powell spent not minutes, but hours on the borrowing requirements, with great effect and great justification. This is a very important issue.
The excellent notes on clauses provided by the Scottish Office say, on clause 63: Amounts required for repayment (of principal and interest) are charged on the Scottish Consolidated Fund. The clause also prohibits members of the Scottish Executive from borrowing except under this clause or under any specific power in an Act of Parliament. What Act of Parliament?
I do not want to go over all the questions asked by the hon. Member for North Essex (Mr. Jenkin), but may I repeat his question on default? There could be serious over-borrowing—in good faith, initially—by Departments desperate to fulfil political imperatives in social policy, housing, education and local government. We have to be told what happens if there is a real difficulty in Holyrood on default.
In view of the time and because I hope that we shall have an opportunity to ask questions on later clauses—particularly clause 66—I shall leave my contribution at that. I had some of the same questions—arrived at from a different direction—as the hon. Member for North Essex. To save time I shall not repeat them, but I look forward to hearing the answers.

§ Mr. Swinney
I shall keep my contribution brief. I start with a point of agreement. Like the hon. Members for North Essex (Mr. Jenkin) and for Linlithgow (Mr. Dalyell), I should like to understand the position on local authority borrowing. It is not clear how that will be affected. I look forward to the Minister's answer.
The hon. Member for North Essex said that these were probing amendments. I suspect that that means that we can say anything that we like. He almost gave us a lecture 647 on the near inevitability of the Scottish Parliament being profligate, with heavy borrowing going out of control and no brakes on the system.

§ Mr. Jenkin
I did not say that.

§ Mr. Swinney
That was the implication.
In 1991–92, the public sector borrowing requirement was £21.7 billion; in 1992–93, it was £44.5 billion; in 1993–94, it was £50.9 billion. I do not remember any Act being breached or any ceiling being reached. Parliament accepted the Executive's view that that level of public sector borrowing was necessary. A lecture from the Conservatives about the inevitability of the Scottish Parliament's finances going out of control is a bit rich.

§ Mr. Dalyell
The issue was not inevitability. Such a scenario could realistically happen. I am not saying that it is inevitable, but we have to think seriously about the danger.

§ Mr. Swinney
I did not associate the hon. Gentleman with the remarks about inevitability. I accept the seriousness with which he made his arguments. He has raised some valid issues, as he did in the debate on public accounts. Inevitability was inferable from the remarks of the hon. Member for North Essex.
My interpretation of the Government's proposals is that they create fairly limited opportunities for sensible financial management and recognise that there will be a bit of ebb and flow in normal public finances. Businesses manage with a cash flow and businesses have borrowing arrangements with their bank managers. The Government's proposals are not dissimilar.
I am concerned about how borrowing is constrained. I get the impression that a ceiling is being applied, with fairly tight constraints on borrowing. I accept the point of the hon. Member for Linlithgow about the definition in the legislation that constrains borrowing. That is a serious point which must be addressed. On the whole, the proposals are limited in structuring the finances of the Scottish Parliament for the business that it will have to transact.

§ Mr. Donald Gorrie (Edinburgh, West)
I associate myself with the remarks of the hon. Member for North Tayside (Mr. Swinney). Conservative Members may not spell it out in words of one syllable, but time after time, the implication of their speeches is that the Scottish Parliament cannot be relied on to act in a civilised manner and that all sorts of constraints must be put on it. The Scottish Parliament will act as well as any other Parliament and, we hope, better than most. It will run its affairs intelligently.
Clause 63(1) refers to temporary excess of sums paid". What is temporary?
There is also the ceiling, the amount of money that the Scottish Parliament may borrow. What if it decides to fund more of its activities in what might be called a traditional fashion rather than going in for private finance initiatives and other methods of trying to acquire capital that does not count against the system? What if it pays for hospitals, school improvements and the investment 648 that the Scottish water and sewerage industry so desperately needs by Government borrowing? Local authorities have been mentioned. How will all that be managed? Will it be possible for the Scottish Parliament, within the apparent ceiling of £500 million, to deal with that? Some explanation of Government borrowing to fund such activities and organisations, as well as local government, would be helpful.
On the Conservative amendments, I do not see how making things subject to the approval of the Chancellor of the Exchequer and inserting "Treasury" instead of "Secretary of State" will fundamentally alter the finances of a Scottish Parliament or the control thereof. The amendments will not achieve what I think is their goal. The Conservatives appear not to want to allow the Scottish Parliament to increase its borrowing.

§ Mr. Heald
The hon. Gentleman may have noticed that under clause 90, all documents and information about the finance of the Scottish Parliament are to be given to the Treasury. In those circumstances, should not it be in charge of approving borrowing or loans? There is a synergy between information being provided and approval being given.

§ Mr. Gorrie
I have never been privileged to be a member of a Government, but I assume that the Secretary of State mentioned in the Bill would occasionally talk to the Treasury, exchange faxes or e-mails, or whatever is used in future, and sort the matter out. Under the Bill, the Secretary of State is supposed to be the liaison between Westminster and the Scottish Parliament, so presumably he would deal with the matter.
The Conservatives are concerned that the Scottish Parliament will run riot and borrow everything in sight, but it has to borrow from the Treasury. As far as I can tell, the Treasury has to give its approval. According to Tory dogma, the Treasury is all that is sound, sensible and reliable—surely it will not allow the Scottish Parliament to go mad and borrow too much.

§ Mr. Ancram
I think that the hon. Gentleman has fallen into the trap of the Bill by assuming that the Secretary of State mentioned in it is the Secretary of State for Scotland. In fact, right through the Bill, the Secretary of State is undefined and can be any Secretary of State, including, if necessary, the Chancellor of the Exchequer. It makes a nonsense of the hon. Gentleman's case, which is based on who talks to whom, if the Secretary of State in the Bill is not defined as being the Secretary of State for Scotland, so I hope that he will support our amendment to that effect later in the Bill.

§ Mr. Gorrie
I do not accept that point. The Secretary of State is presumably the designated Secretary of State in whatever Government may exist.

§ Mr. Ancram
No.

§ Mr. Gorrie
No, it is the Secretary of State, so—[Interruption.]

The First Deputy Chairman
Order.

§ Mr. Gorrie
As I understand it, it is the Secretary of State who is authorised to deal with these matters, and I 649 should think that, whatever his or her title, he or she would be capable of talking to the Treasury, so I do not accept the point at all. The Conservatives should accept that they cannot claim that the Scottish Parliament would run rampant, when it will have to borrow money from the Treasury, which is all that is good and great in the eyes of the Tories.

§ Mr. Swayne
If the hon. Gentleman accepts that, whichever Secretary of State it may be, he or she will in any event be capable of speaking to the Treasury—indeed he or she will have to speak to the Treasury—why leave the Bill as it stands, with the requirement to deal with the monkey rather than the organ grinder?

§ Mr. Gorrie
I am not really an expert on organ grinders and I do not understand the hon. Gentleman's point. The Bill says that there is to be a person who is to deal with Scottish affairs in relation to Westminster, therefore—whatever his title may be in future—surely that person should deal with this matter.
My last point—I hope to be allowed to get through it without further interruption—is that the Conservatives' anti-Europeanism has surfaced even in a Bill about Scotland. The Scots are not to be allowed to borrow ecus or EMUs or whatever. By the time the Bill takes effect and the Scottish Parliament is up and running, sterling may have disappeared, in which case the Scottish Parliament will not be allowed to borrow anything at all.

§ Mr. Jenkin
If we were to enter the single currency, there would be legislation to provide that any reference to sterling in any Act of Parliament would henceforth be taken to refer to euros. I did not want to labour the point, because every time we raise a problem we are told that we must be against the Scottish Parliament, but there is a potential problem. Some local authorities have gone in for curious short-term financial instruments because they were convenient and the authority thought that that would be a good way of earning a little extra revenue. We simply ask: what is the purpose of having a power in the Bill for the Scottish Parliament to borrow in another currency, when we cannot foresee any circumstances in which it might want to do so? The Minister may well come forward with some sensible ideas, but the hon. Gentleman's suggestion is simply ludicrous.

§ Mr. Gorrie
Somebody much brighter than me said, "There are more things in heaven and earth than are within your imagination." The fact that Conservative Front Benchers cannot conceive of a circumstance in which the Scottish Parliament might want to do something does not mean that such a circumstance cannot occur. The future of the United Kingdom is not to be circumscribed by the limited imagination of a few ex-Scots.

§ Mr. Syms
The hon. Member for Linlithgow (Mr. Dalyell) has raised some good points about a critical part of the Bill.
In comparison with earlier clauses relating to accountability for money, the terms of clause 63 are restrictive by most standards. I spent 14 years in local government, and I believe that many local government treasurers would be horrified at a limitation on borrowing 650 powers. According to the notes on clauses, there will be a limitation of £500 million in relation to the turnover of money by the Scottish Parliament, and although that is considerable, it is not a lot of money.
Our amendments are probing, and we are trying to be helpful. I presume that the clause is concerned mainly with the operation of cash flow in terms of the money available. What does "temporary excess" mean in clause 63(1)(a)? Are we talking about smoothing outflows throughout a 12-month period or beyond that? For example, some health trusts have run deficits and been allowed to roll them over. The totality of money available to the Scottish Parliament will be considerably different from that suggested if the Government take a relaxed view about the annual rollover of funds.
As for the working balance of the fund, I would imagine that one of between £400 million and £500 million would not be too bad. Perhaps the Minister can confirm that that is what the Government have in mind. Subsection (4) of the clause states A member of the Scottish Executive may borrow money only under this section or under any power conferred by an Act of Parliament. In common with the hon. Member for Linlithgow, I should be interested to learn under what other Acts money could be borrowed. It may be a good thing to start off by restricting borrowing, because I presume that any borrowing will have an impact on the public sector borrowing requirement. In the United Kingdom context, therefore, one cannot totally ignore the level of borrowing by the Scottish Parliament.
We live in a country that has one of the most sophisticated financial centres of the western world, the City of London. Edinburgh is also a major financial centre of the nation. Many sophisticated financial instruments are used as methods of financing various projects. According to the notes on clauses, borrowing is reasonably restricted—in effect, £500 million via the Treasury. How will that borrowing relate to leasing agreements? In local government in particular, leasing agreements are made on cars and equipment. On occasions, assets have been sold and leased back. Will such practices be covered within the £500 million of borrowing? An authority's capacity to adjust its budget depending on whether it has sold the parking meters, bits of road or major public buildings is considerable.
We live in an age of derivatives and various other financial instruments. The hon. Member for Edinburgh, West (Mr. Gorrie) mentioned the private finance initiative, which has implications for taxpayers within Scotland. We are trying to probe the limitations on the treasurer or a given member of the Executive who is responsible for finance.

§ Mr. Dalyell
The hon. Gentleman referred to the Edinburgh finance houses; in practical terms, they represent an extremely important subject. There will be an enormous temptation on the Members of the Holyrood Parliament to press for extra borrowing powers. As surely as night follows day, some members of those finance houses will say, "Why don't you fight to extend the borrowing powers? We would love to accommodate you. We will overcome your short and medium-term problems in any sector that you care to mention. We have the money, and we will do that." There will be great 651 frustration on the part of the Holyrood Members if they are not able to extend the borrowing powers as offered to them by the Edinburgh financial institutions. Therein lies a considerable pressure to extend the borrowing powers.

§ Mr. Syms
The hon. Gentleman makes a good point. Most of the debate has been about the level of taxation and whether more resources should be pushed north of the border. Given the scale of the cash flow and the turnover of billions of pounds going through to a Scottish Parliament, it is inevitable that the person in charge of financial affairs will try to wriggle within the constraints. Those constraints seem to be reasonably fixed by the Bill. I hope that the Minister will reassure us that that is the case, as there are financial implications for the entire United Kingdom.
There may be some debate about whether the Scottish Parliament should have more borrowing powers or should have wider powers to use the financial instruments available. As I mentioned, some local authorities have sold buildings, roads, parking meters and other facilities that provide a stream of income. The way in which the Scottish Parliament progresses in terms of its borrowing capacity, leasing and perhaps using the private finance initiative will affect cash flow, education income and everything else, and determine how that assembly works.
With reference to one of the questions that will be put to the Scottish people—the question of the 3p on taxation—we heard from the Scottish National party that that relates to only a small portion of money, and we heard from Labour Members that they would not use that to start off with. If Labour controls the assembly, there will be tremendous temptations to look for financial alternatives to finance the Parliament's expenditure. Banks and other institutions, and some of the clever Edinburgh lawyers who are often mentioned in this place, would no doubt look for loopholes and methods by which to finance the political priorities over time.
I await a reassurance from the Minister that the Bill is as cast-iron as it looks. Are the borrowing powers of £500 million, primarily through the central Government of the United Kingdom, fixed? Are there clear definitions of financial terms such as borrowing, leasing and back-to-back loans? Those terms can become a jungle, and we must be clear, especially as this Parliament has a responsibility to the United Kingdom through the public sector borrowing requirement. If, as is natural, the Scottish Parliament is determined to use such flexibility as it can, that might have overall implications for resources throughout our island.

§ Mrs. Laing
This group of amendments is vital, as it goes to the heart of the Bill. Once again our discussion reveals the inherent conflict between the powers that the Bill gives to the new Scottish Parliament, and the powers that are reserved to this Parliament. The issues of responsibility and accountability are crucial, and we see yet more uncertainty in the Bill.
Those who want to see the Scottish Parliament succeed should not be so over-sensitive about its powers. The theme of this debate is like a discussion between a teenager and his parents: "No, I am quite able to do that for myself; "No, I want to watch what you are doing and keep an eye on you." The inherent conflict at this stage of the plan for devolution can only get worse.
652 It will be interesting to know whether the Minister envisages the powers of the new Scottish Parliament increasing. Are the powers given by these clauses only the basis for the powers of a Scottish Parliament? Some hon. Members on my left—they certainly are on my left—representing the Scottish National party envisage the powers of the Scottish Parliament increasing. No legislative assembly operating in any part of the world does not want to see its powers increase. All such bodies look for ways of increasing the powers that they have been given or have taken.
9.30 pm
The interesting point is that, by challenging the amendments, the Government are saying implicitly not so much that the House does not trust the new Scottish Parliament—although that has been asserted—but that they do not trust the House to exercise properly its duties in holding to account the Chancellor of the Exchequer and other Treasury Ministers for public expenditure for which Her Majesty's Treasury is responsible. Only the Chancellor of the Exchequer can answer to the electorate of the whole United Kingdom for tax that is raised from the whole United Kingdom.
We are talking about that money tonight. Funding for the activities of the new Scottish Parliament will be raised from taxpayers throughout the United Kingdom. The body that is responsible for raising those taxes, and is therefore accountable for spending them, is the Treasury through the Chancellor of the Exchequer and this Westminster Parliament.
If Parliament is raising the taxes in order to fund the borrowing, it is nonsense to say that it should not be accountable for how they are spent. I am sure that most hon. Members will agree that control of public borrowing must be the responsibility of the body that funds the borrowing.

§ Mr. Swinney
How successful does the hon. Lady believe the previous Conservative Government were at controlling borrowing? How effective was Parliament at restraining that Government from putting borrowing through the roof?

§ Mrs. Laing
I have absolute confidence in the way in which Conservative Governments controlled borrowing for 18 years until they lost control of borrowing to the new Labour Government. We shall soon see what a disaster that is for the British people, for business and for the prosperity of the whole economy.
I remind the hon. Gentleman that borrowing is a cyclical function: when the economy goes up and down, borrowing fluctuates also. There is no doubt that the former Conservative Government controlled the public sector borrowing requirement to a far greater degree than any Labour Government ever did. That was an essential part of the economy's success in the late 1980s and early 1990s. It is sad that the Conservative Government lost control of the PSBR and public borrowing on 1 May.

§ Mr. Alasdair Morgan
In reply to one of the hon. Lady's earlier comments, I fear that the teenager may be forced to run away from home. These amendments would 653 put severe and tight constraints on the Scottish Parliament, but the hon. Lady seems to be heading in the opposite direction when she talks about profligate borrowing.

§ Mrs. Laing
No, certainly not. I thank the hon. Gentleman, but that is not the point. There are constraints on the Scottish Parliament. The point is not where the constraints lie, but who is accountable for the money that is raised to fund the borrowing. It is not reasonable to say that anyone other than the Chancellor of the Exchequer can be accountable for taxes raised in the United Kingdom. Therefore, the amendments are logical and sensible. They can be challenged only by those who do not trust the House and Ministers of this Parliament to carry out their duties properly.

§ Mr. Morgan
I thank the hon. Lady for giving way once again. Surely many pieces of legislation that pass through the House enable various Secretaries of State to spend from the moneys that are available and do not always require them to refer every piece of expenditure to the Chancellor of the Exchequer. Therefore, why should the various Secretaries of State be treated any differently in this particular enactment?

§ Mrs. Laing
I must entirely disagree with the hon. Gentleman. Any money that is spent by Secretaries of State who are responsible to the House has come to those Secretaries of State, as the hon. Gentleman said, through the Treasury and the Chancellor of the Exchequer; those Secretaries of State are responsible to the Chancellor of the Exchequer; and the Treasury keeps—or it did until 1 May last year, in my experience—a firm grip on the spending of any Department of State.
Therefore, the hon. Gentleman simply emphasises my point. Here we have yet another conflict inherent in the system that the Bill sets up. The hon. Member for Linlithgow (Mr. Dalyell) has highlighted the conflict itself. If the inherent conflicts that we are discussing are not ironed out now, and if there is not more certainty in the Bill as to how the new Scottish Parliament's financial operation will work, those tensions will increase.
As a result of that increase in those tensions between the Scottish Parliament and the Westminster Parliament, Scottish National party Members will get their way. There will be a complete lack of confidence in the devolved Parliament because of those tensions and conflicts and, sadly, as I said earlier, that will take us down the slippery slope towards an independent Scotland. That is the great fear.
It is not the detail that matters here, but the fact that there is in the Government's attitude to the amendments a clear lack of trust between what is envisaged as the new Scottish Parliament and the Parliament at Westminster. It is that lack of trust that will cause those tensions to increase and so allow Scottish National party Members to get their way.
If we do not get the Bill straight now and allow the devolution plans to work in a reasonable and reasoned way, they will not succeed and we shall go down the slippery slope to a separate Scotland, which is not what I want to see.

§ Mr. Swayne
I approach the amendment much in the spirit of the hon. Member for North Tayside (Mr. Swinney). It is proper to have amendments Nos. 298 and 299, which are in the spirit of clause 90. They effectively substitute for whomsoever Secretary of State it may be, the Government reality of having to deal with the Treasury. I am not quite so sanguine as my hon. Friend the Member for Poole (Mr. Syms). The amendments will ensure that any money borrowed by the Parliament is approved by the Treasury. That provides yet another safeguard against irresponsible financial behaviour by the Scottish Parliament.
The Minister will regard my speech as that of yet another Tory who is not prepared to trust the new Parliament. I return to an earlier theme—the pressures that the new parliamentarians will be under. They will face tight financial settlements; they will be up against real social problems in Scotland; and they will be unable to secure greater funds from London. One way out is borrowing, with all the sophistication that the modern financial markets can offer. It is in that respect that amendment No. 302 is so appropriate.

§ Sir Robert Smith
May I follow the hon. Member for Poole (Mr. Syms), especially in the light of today's news? Let us suppose that the Scottish Parliament were to embark on a great project, such as a high-speed link under the Irish sea to Ireland, and set it up as a private sector project. If the contract contained a wee clause saying that, in the event of the whole thing going belly-up, it would be bailed out by the Scottish Parliament, would these clauses have to deal with that?

§ Mr. McLeish
I appreciate that the hour is getting late. To be charitable, there seems to have been some genuine confusion. However, the meaning of the clauses has been completely distorted.
The general thrust of the clauses is control—who is controlling what, and what is the effect of scrutiny? Clause 68 says: The Secretary of State shall, for each financial year—

(a) prepare, in such form and manner as the Treasury may direct, an account of sums paid and received by him under sections 63, 64 and 67, and

(b) send the account to the Comptroller and Auditor General…

and the Comptroller and Auditor General shall examine, certify and report on the account and shall lay copies of it and of his report before each House of Parliament. Those are circumscribed powers.

§ Mr. Jenkin
The Minister says that the powers in clause 68 are circumscribed. The clause is simply about provision of information and cannot circumscribe borrowing powers.

§ Mr. McLeish
If the hon. Gentleman reads the text of all the clauses subsequent to clauses 63 and 68, he will see that the Comptroller and Auditor General will get reports on those matters. The main point that I am trying to establish is that the powers in the Bill are extremely curtailed. Hon. Members have sought to distort them. The Bill is drafted in such a way as to ensure that the borrowing powers are housekeeping powers. I shall illustrate that point when I deal with the amendments.
655 May I answer some of the specific questions that were raised? The Bill does not affect local authorities' powers to borrow. The existing systems of control over borrowing by local authorities and other bodies remain in place.

§ Mr. Welsh
If the Scottish Parliament wanted to abolish the 75 per cent. capital debt repayment from the sale of current assets by local authorities, could it do so?

§ Mr. McLeish
That is not germane to the clause. The Scottish Parliament has a budget, and any steps that it takes in relation to devolved matters will have a hit on that. It will be up to the Parliament to decide. This matter concerns devolution in the sense that the block provides cash, so decisions that are taken always have a financial penalty.
Borrowing will involve a charge on the fund. We are discussing the Parliament's ability to act in an irresponsible manner.

§ Mrs. Margaret Ewing (Moray)
I seek clarification from the Minister. Did he answer "yes" to the point raised by my hon. Friend the Member for Angus (Mr. Welsh) in the context of the 75 per cent.?

§ Mr. McLeish
I am dealing with clause 63. It is important to deal with the issues at stake because so many distorted comments have been made in relation to our proposals.
Leasing agreements were also mentioned. Expenditure on finance leases will count against the Parliament's budget at its capital value, as in the current public expenditure survey rules. That will reduce the money available for grant, and will not count against the borrowing limit.
There was also a question about the word "temporary". That subsection covers sums borrowed over a short time scale: days and weeks, rather than months and years. It puts the housekeeping nature of this arrangement into perspective. The clause is not meant to provide a semi-permanent loan facility to allow the Parliament or Executive to exceed its allocated budget. The phrase may be given more definition in practice by the repayment terms that are set out by the Treasury under clause 63(3), which states: Sums borrowed under this section shall be repaid to the Secretary of State at such times and by such methods, and interest on them shall be paid to him at such rates and at such times, as the Treasury may from time to time determine. Every subsection contains formidable checks on borrowing under the rather narrow clause 63.

§ Mr. Dalyell
It is perhaps unreasonable at a quarter to 10 at night to ask for an answer to the question put by the hon. Members for Angus (Mr. Welsh) and for Moray (Mrs. Ewing). Could we, therefore, have a considered letter covering that issue? It is of considerable importance to local authorities, and I am afraid that I am rather in the dark.

§ Mr. McLeish
We shall respond to my hon. Friend's suggestion.

§ Mr. Ancram
Will the hon. Gentleman send us a copy?

§ Mr. McLeish
Yes, I shall follow the usual courtesies.
656 Amendment No. 298 would require the Scottish Ministers to seek the approval of the Chancellor of the Exchequer for sums borrowed from the Secretary of State under clause 63(1). Amendments Nos. 299 and 300 would make the Treasury rather than the Secretary of State the lender under the short-term borrowing power. However, all such borrowing is also subject to the provisions in clause 64, which explicitly states that the Treasury may issue to the Secretary of State, out of the National Loans fund, the sums required by him for making loans to the Scottish Ministers under clause 63.
Clause 63 also provides that the borrowing shall be repaid to the Secretary of State on terms determined by the Treasury. That includes such matters as time scales and methods of repayments and the rates of interest to be paid.
I am satisfied that those provisions give the Treasury fairly robust powers in relation to such short-term borrowing under clause 63.
Amendment No. 301 would enable the Secretary of State to reduce as well as increase the ceiling of £500 million for the short-term borrowing power. The ceiling of £500 million specified in clause 64(2) is intended to be just that an upper limit. We expect that borrowing will be well within that limit the majority of the time. Clause 64(3) simply enables that amount to be increased, with the consent of the Treasury, from time to time should it be necessary, such as to deal with unforeseen circumstances.

§ Mr. Heald
If the Treasury is responsible for an issue such as the repayment of debt under clause 63(3), it is usual for the statutory provision to specify the Treasury rather than the Secretary of State, as in clause 90. If the Treasury is to be the relevant Department, why should not the Bill say so?

§ Mr. McLeish
The Secretary of State is much closer to accounting officers, so the strategy used in clause 63 is sensible, given that the Treasury will underpin the arrangements.
Clause 101 provides that a statutory instrument containing an order under clause 64(3) shall be an affirmative instrument of the House of Commons. There will be ample opportunity for proper consideration by hon. Members.
Amendment No. 302 would prohibit completely non-sterling borrowing by public bodies. We believe that that is too inflexible. Although we do not expect any great demand for this facility, it is necessary to allow such borrowing should it be required. It is not beyond the bounds of possibility that a public body will want to borrow from a European Union institution, and such borrowing may be available only in euros. This contingency arrangement is designed to give maximum flexibility to the Parliament in those circumstances. Given that non-sterling borrowing can have macro-economic consequences, it is only right and proper for any bodies that want to take advantage of such borrowing first to obtain the consent of Scottish Ministers, who in turn must seek the Treasury's approval. As hon. Members will know, macro-economic concerns are very much a reserved matter.
657 There are good financial management reasons for Departments other than the Treasury to undertake lending to public bodies. As I said earlier, Departments are generally closer to their operations and accounting officers than the accounting officer at the Treasury.
For those reasons I believe that the amendments are unnecessary, and I hope that amendment No. 298 will be withdrawn.

§ Mr. Jenkin
I am grateful for the trouble that the Minister has taken in responding to at least some of the points that have been made. As he knows, we will not press the matter to a Division, but I want answers to two questions that I asked about local authority borrowing. First, I asked what relationship with local authority borrowings the Scottish Parliament would have. Under the present arrangement, the Scottish Office will distribute borrowing consents to local authorities. If we are delegating the borrowing authority to the Scottish Executive to distribute, does it have to be delegated to local authorities? Perhaps, when he is dealing with the pertinent points raised by the Scottish National party, the Minister will explain exactly what the relationship is.

§ Mr. McLeish
The amendments do not relate to local authority borrowing.

§ Mr. Jenkin
I appreciate that the Minister has not been briefed on the subject, but I would be grateful if he could deal with it.

§ Mr. McLeish
May I make my point? We are dealing with a housekeeping borrowing requirement in clause 63; it does not affect local authority borrowing.

§ Mr. Jenkin
I think that I have made my point.
Will the Minister answer the other questions that I asked, which he has not answered so far? One of them was raised by the hon. Member for Linlithgow (Mr. Dalyell). What happens if the Scottish Executive or the Scottish Parliament defaults on its borrowings? The Minister also gave no explanation or rationale for the figure of £500 million. Was it plucked out of the air?
In the event of default, what sanctions has this Parliament, or the Government, over the Scottish Executive or the public bodies if borrowing limits are exceeded? How would the Treasury force the Scottish Executive to live within their borrowing constraints, or, indeed, force the Scottish Executive to return moneys that they refused to return? I realise that we are dealing with a worst case scenario, but I think those questions need to be answered.
I also asked who would be liable in the event of borrowing that turned out to be illegal. I consider that a fair question. We have strict rules relating to local authorities; what are the equivalent rules in this instance?
The Minister glossed over questions about sale and leaseback. Will the Scottish Parliament be able to enter into such arrangements? Clause 61 deals with sums received by the Scottish Parliament. Must those sums be 658 paid back in the repayment of loans, or, as currently obtains in the rest of the United Kingdom, must assets disposed of by Departments go back into the Treasury pot? Should there not be an obligation to repay debt on the disposal of such assets?
I do not feel that the Minister has dealt adequately with a good many questions, particularly the point amplified by the hon. Member for Linlithgow about default.

§ Mr. McLeish
The hon. Member for North Essex (Mr. Jenkin) mentioned the £500 million. His hon. Friend the Member for Poole (Mr. Syms) considered that a reasonable amount, and that is our judgment. It is about housekeeping—about day-to-day transactions in relation to shortfalls. I think that the position is self-evident, but remarkable distortions have been built into the clause. It is common sense: it allows the Parliament to deal with business as it ebbs and flows throughout the year. The Opposition, however, clearly find it difficult to deal with the issue without trying to distort it and to give us a stronger flavour of their reluctance to acknowledge that devolution for Scots is a serious issue.

§ Mr. Dalyell
There must be a question of contingency of default. I have an interest in not wanting a reply tonight because I should like to ask one question on clause 66, but will my hon. Friend the Minister write to us in the cold light of morning about the question of default? It is a real possibility—we will not say probability—and we must know one way or the other.

§ Mr. McLeish
My hon. Friend refers to default as a possibility. It is an entirely remote possibility. The serious issue is that this is a mature Parliament dealing with substantial sums of public funds, passed through in grant from this House. It is inconceivable that less responsibility will be exercised in the Scottish Parliament than in the House.
Comment after comment suggests that Members in the Scottish Parliament will not want to scrutinise or take the responsibility—and privilege—of spending other people's money as seriously as we do in this House. It is vital that our central proposition is acknowledged. However, if there were default, which I have described as a remote possibility, the Secretary of State can withhold grant. The charge against the Scottish Consolidated Fund is something against which the Parliament cannot vote. Therefore, there are important safeguards in every clause from 63 to 68, but I will set them out in a letter, which we will pass to the Opposition and which will illustrate entirely the implications of the points that have been raised.

§ Mr. Jenkin
1 beg to ask leave to withdraw the amendment.