Lords Sitting of 30 July 1998

Preamble
The House met at three of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Chichester.

The Lord Chancellor: Leave of Absence
The Lord Chancellor (Lord Irvine of Lairg): My Lords, before business begins, I take the opportunity to inform the House that I am to attend a departmental strategy conference on 5th October when the House will sit. Accordingly, I trust that the House will grant me leave of absence.

House of Lords: Working Hours and Conditions
Lord Barnett Lord Barnett asked Her Majesty's Government:
What consideration they have given to improving the working hours and conditions of the House of Lords in line with proposals being put forward for the House of Commons by the Leader of that House.
Lord Carter: My Lords, Her Majesty's Government have put forward a number of proposals to the Modernisation Committee of another place. The most recent include: Thursday sittings to be advanced by three hours to end at 7 p.m.; a constituency week to coincide with half-terms in February and October; Standing Committees to sit during the Recess; and consideration to be given to altering the normal sitting day so that it begins at 1.30 p.m. and ends at 9.30 p.m.
Not all of those proposals are relevant to your Lordships' House and they would in any case be matters for the Procedure Committee. As Chief Whip, I would be willing to put appropriate proposals to that committee but, of course, in this as in all other matters, your Lordships' House proceeds by agreement.
Lord Barnett: My Lords, I think that I thank my noble friend for that Answer. Does he agree that many noble Lords on all sides of your Lordships' House would find morning sittings difficult because, obviously, they like to try to earn the odd shilling, which is perfectly understandable? In those circumstances, would he accept that it might be worth thinking the unthinkable and considering even paying noble Lords who attended morning sittings?
Lord Carter: My Lords, I cannot help reflecting on the fate of the last Minister who was required to think the unthinkable! The noble Lord puts forward an interesting idea about morning sittings. Your Lordships occasionally sit in the mornings, principally on Fridays and before the Recess. As we know, the other place does so regularly on Wednesdays. But there is no guarantee
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that sitting in the morning means rising earlier at night. As all Chief Whips know, business expands to fill the time available. Many of your Lordships find the mornings useful for other work; for instance, in this House serving on important Select Committees, such as that chaired by my noble friend, and away from the House to earn a living.
Lord Strathclyde: My Lords, does the noble Lord the Government Chief Whip accept that no working procedure will compensate for either the overload of Parliament or the imbalance of business between the two Houses? Will he also agree that this is the longest Session since 1979–80 and that the average daily sitting has increased by about one hour since that time?
Will the noble Lord the Government Chief Whip and the noble Baroness the Leader of the House make it their summer task to convince their colleagues in the Cabinet that it should give more business to the House of Lords at the beginning of the Session so as to avoid it having to scrutinise important constitutional business in the middle of the night?
Lord Carter: My Lords, I am afraid that the noble Lord is wrong about the House sitting longer on average. This Session, the House has sat for an average of six hours and 57 minutes each day. That is in line with the average sitting time under the previous Administration. But as we know, this Government have delivered a heavy programme of legislation and there is still more to come. It is comparable to the 1979–80 Session because it is an 18-month Session of a government which was elected after a period in opposition in the spring of 1979, and in our case in the spring of 1997.
I am sure that the whole House will agree that the sweeping nature of the Government's majority in May last year, combined with a wide-ranging manifesto for reform on which we were elected, has meant that it is inevitable that there will be a number of major items of legislation this Session. I believe that the number of Bills for Royal Assent by the summer break is fewer in this Session than in that of 1979–80. The statistics on the average sitting time of the House indicate that, while it has been a long Session, the Government have, with the co-operation of the noble Lord, managed their programme to ensure that their important priorities are delivered without having to force your Lordships to sit late into the night on too many occasions. I should add that there has been no all-night Sitting in this House this Session—so far.
Lord Harris of Greenwich: My Lords, is the noble Lord aware that all Opposition parties in this House, and no doubt in the House of Commons, complain about an overloaded legislative programme, which translated means a programme that they do not support?
As regards the serious point made by the noble Lord, Lord Barnett, would it not be a good idea to have the matter considered at the next meeting of the Procedure Committee? Perhaps the noble Lord might arrange for a memorandum to be placed before that committee, reminding the House of the most valuable report of the

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late Lord Rippon of Hexham, who made a number of proposals which, unhappily, were not supported by the then government?
Lord Carter: My Lords, that is an excellent idea and I will undertake to do that.
Lady Saltoun of Abernethy: My Lords, will the Government kindly bear in mind that one Peer's better working conditions and hours may be another Peer's worse working conditions and hours? Will he give the matter a great deal of thought and advice before altering the status quo?
Lord Carter: My Lords, yes, that is a view I have heard on almost every occasion in relation to making a change in this House.
Lord Renton: My Lords, does the noble Lord agree that Members of this House do a wonderful job with great expertise without being paid any salary? I would not compare the expertise of Members of another place with what is to be found in your Lordships' House, but they do cost the taxpayer a large amount of money, whereas we cost the taxpayer scarcely anything. If change is not necessary, is it better not to change?
Lord Carter: My Lords, the question of the payment of a salary to Peers has been suggested a number of times. We all know that many of your Lordships work long and hard for very little financial reward. I can remember my own time in opposition. But there are considerable practical difficulties with any such proposal in what I think is fair to describe as a predominantly amateur House with a very variable membership. It is true that your Lordships can be rightly proud of the value for money that this House provides for the Government.
Lord Dean of Beswick: My Lords, in an earlier reply my noble friend referred to the fact that a number of noble Lords need to earn a living outside, as he described it. Your Lordships' House reached the stage some years ago at which, in order to get business through the House, there needed to be an increasing number of full-time Peers and not part-timers. On that basis, should we not be looking at a more generous scheme of allowances than the very poor one that we have at present?
Lord Carter: My Lords, as I understand it, the question of your Lordships' allowances was considered some time ago and it was decided that it should be looked at again in, I believe, the year 2000 by the Top Salaries Review Body.
Lord Mackie of Benshie: My Lords, in view of the heavy strain on Members of this House, should we not introduce a retirement age?
Lord Carter: My Lords, that has also been suggested. Perhaps the noble Lord would like me to prepare a paper on that suggestion. However, the problem is as to what age I should put in the paper.
Lord Campbell of Alloway: My Lords, whatever is done about working hours and conditions, I ask the noble Lord to ensure that nothing will ever be done to inhibit the freedom of Back-Benchers in this House to initiate debates and ask questions, unlike the position in another place.
Lord Carter: My Lords, as the Government Chief Whip, I love the idea of Back-Benchers asking questions and initiating debates and playing the very full part which they do in the work of the House.

President of Argentina: State Visit
3.16 p.m.
Lord Hurd of Westwell Lord Hurd of Westwell asked Her Majesty's Government:
Whether there is any intention on their part to discuss the sovereignty of the Falkland Islands, or relations between the Falkland Islands and Argentina, with President Menem when he visits the United Kingdom in the autumn.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, the visit by President Menem will be an occasion on which to concentrate on the good and substantial relationship we enjoy with Argentina on a range of issues. Our position on the sovereignty of the Falkland Islands is well known and remains unchanged. We do not regard it as negotiable.
Lord Hurd of Westwell: My Lords, many of us welcome the impending visit of the president because we strongly favour substantial friendship between Britain and Argentina, including practical arrangements where necessary as regards oil and fishing licences in the South Atlantic. But I welcome the noble Baroness's reply when she made clear that questions of sovereignty over the Falklands are quite a separate matter. As she said, Her Majesty's Government, in line with the policy also of the previous government, do not intend to negotiate or discuss that sovereignty with the Argentine authorities.
Baroness Symons of Vernham Dean: My Lords, when we invited President Menem, we made it clear that the visit would not be an opportunity to discuss the sovereignty of the Falkland Islands but should rather focus on the strong bilateral relationship between the two countries. We see eye-to-eye with Argentina on a wide spectrum of international issues, as the noble Lord, Lord Hurd, indicated. We worked together in the United Nations on peacekeeping operations and we have been working together to co-ordinate the international response to nuclear testing in India and Pakistan, among many other issues.
Viscount Waverley: My Lords, does the noble Baroness believe that we can retain our capability with a reduced presence without undermining sovereignty issues?
Baroness Symons of Vernham Dean: My Lords, we reduced the military presence in the Falklands with the construction of the airport at Mount Pleasant in 1986. But the islands are currently defended by a garrison comprising air, sea and land assets. We believe that those are maintained at the minimum size required to guarantee their security.
Viscount Montgomery of Alamein: My Lords, in connection with bilateral relations, is the noble Baroness aware that this is the first visit by an Argentine president since 1961 and therefore some may consider it long overdue? Secondly, does she agree that since the restoration of commercial relations in 1989, our trade has increased quite spectacularly from a position of zero to something which is growing very quickly indeed in both directions.
Baroness Symons of Vernham Dean: My Lords, I realise that it is the first visit since the time that the noble Viscount has indicated. Everything that he says about the importance of the commercial and trading relationship is true. Argentina is now our second largest market in Latin America ahead of Mexico and Chile. In 1997, Argentina was one of our fastest growing markets anywhere in the world. In that year, it imported 0.5 billion worth of British goods into the country. Moreover, it is a key member of Mercosur, and in our role in the EU, we have been prominent in promoting a greater interchange between the EU and Mercosur.
Lord Kennet: My Lords, obviously my noble friend the Minister is well aware that the Argentinian Government have been saying to their own people that they expect to be able to settle all their difficulties with this country about the Falklands during the forthcoming visit. Therefore, how do the Government regard this statement, when laid alongside the statement that my noble friend has just made as regards our willingness to discuss sovereignty?
Baroness Symons of Vernham Dean: My Lords, there is a world of difference between President Menem restating Argentina's position on the Falklands and our entering into any sort of negotiations. President Menem has a right to restate his position on the Falklands, but we do not intend that there will be any discussion of the issues. We remain firmly committed to the islanders' right of self-determination. They continue to tell us unequivocally that they wish to remain British, and the Argentinians are well aware of our position.
Lord Moynihan: My Lords, I welcome the reply that the Minister gave a few moments ago. However, in response to President Menem's suggestions on shared sovereignty, could the noble Baroness elaborate a little further as to exactly how the Government will seek to
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reconcile the wishes of the Falkland Islanders with the promotion of a constructive relationship with Argentina as an important trading partner of the United Kingdom?
Baroness Symons of Vernham Dean: My Lords, there are many things to discuss other than the sovereignty issue which, as I said, is not up for discussion. Indeed, I believe that I have been as clear on this as I can. We fully expect President Menem—no doubt for his own domestic reasons, given the Argentinian position on the matter—to state his position in relation to the Falklands. However, that does not mean to say that there will be any negotiations on that issue. Of course, there are many other issues that we shall be discussing. For example, we discussed a few moments ago the importance of trade. Moreover, the noble Lord, Lord Hurd, talked about oil and we shall discuss fisheries. There are a number of important issues in the area and a number of very important international issues, which I detailed in my supplementary answer to the noble Lord, Lord Hurd. That will make a very substantial agenda during the visit of President Menem.
Lord Ironside: My Lords, can the Minister say whether anything will be discussed about the removal of landmines which now litter the Falkland Islands, and whether Argentina will be able to contribute towards solving that particular problem?
Baroness Symons of Vernham Dean: My Lords, the Ottawa Convention, as now enacted, requires us to de-mine all areas under our jurisdiction, and that includes the Falkland Islands, within 10 years of the legislation entering into force, unless we can show good reason why we should not do so. Such reasons might include humanitarian, environmental, financial and technical considerations. There are problems with de-mining the Falklands. There are many mines on the island and, bearing in mind the terrain, the enormous number of mines and the problems with the peat, in which many of the mines are embedded, there will need to be technological solutions. We propose to carry out a British-led study into the feasibility and the costings of de-mining the Falklands. We are currently considering how this might best be financed and carried out.
Lord Wallace of Saltaire: My Lords, can the Minister assure the House that transport links will also be on the agenda—that is to say, access directly from the Falklands to Argentina and open travel in both directions? After all, that has been one of the more difficult issues to arise thus far.
Baroness Symons of Vernham Dean: My Lords, it is a difficult issue. However, it is a matter for the Falkland Island's Government. Their policy to date is that Argentine passport holders are not permitted to visit the islands. We have encouraged the islanders to consider broadening the range of contacts between themselves and Argentina. We believe that the process of reconciliation and the development of mutual understanding would be helped by more interaction between the two communities. But that would in no way compromise the sovereignty of the Falkland Islands.

Iran: ECGD Cover
3.23 p.m.
Viscount Waverley: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I should declare that, this week, I was appointed chairman of the British Iranian Chamber of Commerce.
The Question was as follows:
To ask Her Majesty's Government whether they will introduce ECGD (Export Credits Guarantee Department) cover for Iran; and, if so, when.
The Minister of State, Department of Trade and Industry (Lord Simon of Highbury): My Lords, Iran is a difficult market to assess, not least because of oil price uncertainty. However, my right honourable friend the President of the Council when President of the Board of Trade, announced that ECGD has reintroduced insurance cover for capital goods and services contracts concluded on cash payment terms and short-term reinsurance capacity for private sector insurers of consumer goods exports.
Viscount Waverley: My Lords, I thank the Minister for that Answer. However, while that is welcome as a first step, it falls short of the much-needed full cover which currently France and Italy offer, and which Germany will soon be offering. Therefore, will the Minister undertake to monitor the situation? Further, is the noble Lord aware that, procedurally, our visa regime is practically unworkable? That causes considerable difficulties. Is it not now high time to exchange ambassadors in what is potentially Britain's largest single market in the Middle East?
Lord Simon of Highbury: My Lords, perhaps I may, first, congratulate the noble Viscount on his appointment. I am sure that that will do a great deal for relations and the trade that we want to build up with Iran. However, in response to the noble Viscount's two questions, it is important to point out that the cover already announced will facilitate some valuable trade and that this will be broadly welcomed by exporters. As I said, the Government are keen to encourage trade relations but there are a number of steps that we will have to take before full cover is reintroduced. That is largely to balance the interests of taxpayers and the trading opportunities. I believe that that is the right first step on the road, but it is to be hoped that there will be more to come. As regards visas, I agree that there is work to be done to smooth the procedures which are not yet what we would like them to be.
Lord Beloff: My Lords, does the Minister agree that a precondition of more active relations with Iran should be the cancellation of the fatwa against Salman Rushdie and repayment to this country of the costs which British taxpayers have incurred in protecting him?
Lord Simon of Highbury: My Lords, it is quite clear that the Government have a number of issues which
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need to be resolved with the Iranians. Indeed, they will be part of the wide-ranging negotiations which will also affect our trading conditions and be undertaken by colleagues in other departments.
Lord Hylton: My Lords, can the Minister tell the House whether the Government of Iran are still sponsoring murder outside its borders, while persecuting religious and other minorities inside its borders?
Lord Simon of Highbury: No, my Lords. I am afraid that I am not in a position to comment on what the Government of Iran are undertaking. Indeed, that is a matter for the Government of Iran to answer.

Lockerbie Air Disaster: Trial Prospects
3.27 p.m.
Lord Steel of Aikwood Lord Steel of Aikwood asked Her Majesty's Government:
Whether they will consider making arrangements for an international venue to try the two persons accused of the Lockerbie disaster under Scottish law in a neutral country.
The Lord Advocate (Lord Hardie): My Lords, although I remain committed to a trial in Scotland, I can confirm that I have considered alternative ways of securing my objective of bringing the accused to justice. We are currently involved in discussions of a highly complex nature and full consideration must be given to all the legal and technical aspects of such an initiative before a final decision can be made. It would be quite inappropriate for me to say any more at this time. I can assure the House that any steps that I take will be in accordance with my independent responsibility to discharge my duty as prosecutor.
Lord Steel of Aikwood: My Lords, I should like to give a very warm welcome to the tone of the noble and learned Lord's Answer; indeed, it is the first sign of flexibility on the issue after nearly 10 years since the disaster occurred over Lockerbie. Will the noble and learned Lord at least recognise that there are many people who believe that if the authorities remain obdurate on this question there might never be a trial and we would never discover the truth of what happened at Lockerbie?
Will the noble and learned Lord accept that there is international unease at this stalemate and that the bereaved families themselves are pressing for the solution that I have put forward in this Question? Will he also recognise that citizens of some 13 nations were killed in this disaster, but that if the bomb had gone off either 10 minutes or 10 minutes later it would not have been in Scottish jurisdiction? If ever there was a major international crime, this was one.
Lord Hardie: My Lords, I fully recognise all the points made by the noble Lord as I was involved in

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the Lockerbie incident from the outset. I was junior to the noble and learned Lord, Lord Fraser of Carmyllie, when he was Lord Advocate, at the public inquiry.
I am fully aware of the concerns of the families but the primary consideration for me must be to ensure a proper trial in accordance with Scots law in Scotland. If that cannot be achieved, other considerations will be taken into account. However, the overriding consideration must be to ensure that whatever arrangements are made do not interfere with the ability of the prosecution to conduct the case without any prejudice, nor to interfere with the interests of the defence, and that both of those interests are safeguarded. If those conditions cannot be met, I shall not prosecute anywhere other than in Scotland.
Lord Fraser of Carmyllie: My Lords, many of us in this House will be reassured by the noble and learned Lord's repeated and proper preference for a trial in Scotland of those accused of the Lockerbie murders. We strongly support his reassertion of his primacy in this matter as the independent public prosecutor in Scotland with a lonely responsibility and not a collective one. We offer that support particularly in the light of the clumsy, constitutionally improper and badly leaked efforts of the Foreign Office to usurp the noble and learned Lord.
If he takes an irreversible step to hold the trial outside Scotland—we understand why he might wish to contemplate that, given the decade of agony and uncertainty that the relatives of the victims of Flight Pan Am 103 have endured—I hope he will understand that, in spite of our understanding of why he is possibly looking to a way forward, we must reserve the right to scrutinise whether any agreement he reaches brings the prospect of a trial closer or whether it merely offers the opportunity for endless further wrangling from Tripoli.
Lord Hardie: My Lords, I welcome the comments of the noble and learned Lord about the lonely office of Lord Advocate. I can assure the noble and learned Lord that I share his concerns about the press speculation as to what has been going on. I have been assured by the Foreign and Commonwealth Office that it is not responsible for such leaks. In relation to the scrutiny of the agreement, if any agreement is reached the terms of that agreement and any necessary orders will, of course, be made available to your Lordships for consideration. I repeat that my sole consideration is to ensure that the prosecution of the accused is in accordance with Scots law and will take place preferably in Scotland. It will not take place outwith Scotland unless my two criteria are satisfied. I referred to those criteria when answering the noble Lord, Lord Steel of Aikwood.
Lord Mackay of Drumadoon: My Lords, I refer to the proceedings before the International Court of Justice raised by Libya against the United Kingdom and the United States. I seek the noble and learned Lord's assurance that, in reaching his decision on whether the trial may take place overseas, he will have regard to the existence of that litigation because there may be an argument that it would be highly undesirable for the noble and learned Lord the Lord Advocate to agree that
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the trial should be held in the Hague, or anywhere else, if at the same time Libya continues the action it has raised against this country and America.
Lord Hardie: My Lords, the proceedings before the International Court of Justice are effectively civil proceedings relating to the interpretation of the Security Council resolutions and the applicability of the Montreal Convention. I am fully aware that these proceedings are continuing. At the present time I am involved in drafting and revising pleadings for the next stage. If a criminal trial were to take place either in Scotland or outwith Scotland, there may well be a case for making an application to the court to assist these proceedings, but that is further down the line.
Lord Steel of Aikwood: My Lords, I assure the noble and learned Lord the Lord Advocate that I fully respect the integrity and independence of his office and welcome everything he has said this afternoon. Will he confirm that the Security Council resolution on this subject refers to a trial either in Scotland or the United States? Accordingly, in arriving at his future conclusions, will the noble and learned Lord confirm that he is in touch with his opposite numbers in Washington?
Lord Hardie: My Lords, as I have indicated, there have been detailed, complex negotiations which have involved myself with people of equivalent standing in other countries and officials. Clearly I am aware of the existence of the Security Council resolutions. The existence of those resolutions will be taken into account in any agreement, should agreement be reached.
Lord Selkirk of Douglas: My Lords, does the noble and learned Lord the Lord Advocate accept that calls which have been made in the past to Lord Advocates that evidence in this case should be revealed in advance of a trial are totally inappropriate and could be prejudicial to the accused?
Lord Hardie: My Lords, I thank the noble Lord for those comments. It is not the practice of the Lord Advocate ever to disclose evidence other than in the course of a trial. I do not accept that it would be appropriate to disclose the evidence while there is the prospect of a trial.

Scotland Bill
3.36 p.m.
The Parliamentary Under-Secretary of State, Scottish Office (Lord Sewel): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Sewel.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMMITTEES in the Chair.]
The Earl of Balfour The Earl of Balfour moved Amendment No. 260:
After Clause 53, insert the following new clause—

COMMUNITY OBLIGATIONS OF THE PARLIAMENT
(" . A Community obligation of the United Kingdom is also an obligation on the Scottish Executive if, and to the extent that, the obligation could be implemented (or enabled to be implemented) or complied with by the exercise by the Parliament of any of its functions.").
The noble Earl said: In moving Amendment No. 260 I wish to speak also to Amendment No. 261. In Clause 53 the parliament of Scotland must comply with any Community obligations in the same way as this Parliament at Westminster has to do. Clause 54 mentions the Secretary of State, although we already know that when the Scottish parliament is established his or her position is somewhat doubtful. In complying with international or Community obligations governments from time to time have had to introduce retrospective legislation. The object of this amendment is to ensure that no person in the broadest sense of the meaning of "person" is guilty of an offence where the law is changed by retrospective legislation. I hope that the principle I have put forward will be seriously considered by the Government. I beg to move.
The Earl of Mar and Kellie: My Amendment No. 260A is grouped with the one we are discussing. It refers to the powers of the Secretary of State to prevent or require action with regard to Scottish parliamentary legislation. The purpose of Amendment No. 260A is to clarify Clause 54(1), which refers to international obligations by adding the words "Community law" to international obligations.
The need for this amendment stems from the definition of "international obligations". Clause 112(10) defines it as,
"obligations … other than … under Community law".
If the clause remains unamended, the Secretary of State will not have the explicit power to require action on legislation which does not comply with Community law. Although Clause 53 refers to Community law, it does not seem expressly to empower any action by the Secretary of State to remedy errant legislation. This amendment makes the issue abundantly clear.
Baroness Ramsay of Cartvale: I understand the thinking behind the amendments in this group, but we are satisfied that we have already provided a robust legislative framework to ensure that EU obligations are properly fulfilled by the Scottish parliament and the Scottish executive. The noble Earl, Lord Balfour, has suggested in Amendment No. 260 that a clear statement should appear on the face of the Bill to the effect that community obligations extend to the Scottish executive. The general transfer of functions in Clause 49 already achieves that.
Any obligation upon Ministers of the Crown to observe and implement Community law within devolved competence is transferred to Scottish ministers by Clause 49. Scottish ministers will therefore be liable to implement community obligations within devolved competence and be responsible for any failure to do so under EU law. Scottish ministers will also be liable for
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the same penalties as UK Ministers if they fail to observe or implement Community obligations. All that is confirmed by Clause 53(1), which provides that,
"Despite the transfer to the Scottish Ministers by virtue of section 49 of functions in relation to observing and implementing obligations under Community law, any function of a Minister of the Crown in relation to any matter shall continue to be exercisable by him as regards Scotland for the purposes specified in section 2(2) of the European Communities Act 1972".
Ministers of the Crown do not lose their powers to implement Community law in relation to devolved matters but continue to be able to exercise any function as regards Scotland for the purposes of implementing Community law. In other words, Ministers of the Crown have concurrent powers with Scottish ministers. Furthermore, Clause 53(2) requires a member of the Scottish executive to act only in accordance with Community law. Clause 28(2)(d) also makes it clear that legislation of the parliament must be compatible with Community law.
Any breach of Community law by a member of the Scottish executive, whether constituted by some action or failure to act or by some subordinate legislation made by that member, is one of the devolution issues which are subject to the special procedures in Schedule 6. While I understand the noble Earl's intention, I think his amendment is unnecessary and I hope that in the light of my explanation he will feel able to withdraw it.
The effect of Amendment No. 260A would be to extend the power of UK Ministers to prevent or require action in relation to the UK's international obligations, to cover Community obligations. It would be inappropriate and unnecessary to include a reference to Community obligations in Clause 54. Clause 54 refers to international obligations because that is the only way in which the UK Government can ensure observance of international obligations by the Scottish executive. It is not possible, for example, to make this a vires issue which can be adjudicated by the courts because the courts generally do not take cognisance of any international obligations unless they are incorporated into domestic law.
However, that does not apply in the case of Community law because that is part of our domestic law and our courts can, and must, have regard to it and enforce it. As I have pointed out already, the Bill requires the Scottish executive to comply with Community law and its failure to do so can be adjudicated by the courts.
These provisions make it unnecessary to extend the power of intervention to include Community obligations—‹there is no scope for the Scottish executive to derogate from the same essential requirements to comply with Community law that bind the UK Government. With that explanation, I invite the noble Earl to withdraw the amendment.
I can fully appreciate the noble Earl's reasons for introducing Amendment No. 261. However, in our view it is unnecessary. An order made under this provision may require action to be taken by a member of the Scottish executive to implement international obligations in so far as the member of the Scottish executive has power to take the required action

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retrospectively, the Secretary of State can require him to do that. If the member of the Scottish executive did not have power to take retrospective action there would be no point in the Secretary of State's order having retrospective effect. In the light of what I have said I ask the noble Earl to withdraw the amendment.
3.45 p.m.
The Earl of Balfour: My Lords, I am grateful to the noble Baroness for having explained the position. I was particularly concerned about someone being considered guilty of an offence retrospectively. I did not want to see that happen. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 54 [Power to prevent or require action]:
[Amendment No. 260A not moved.]
Lord Mackay of Drumadoon Lord Mackay of Drumadoon moved Amendment No. 260B:
Page 23, line 45, after ("international") insert ("treaty").
The noble and learned Lord said: With the leave of the Committee I shall speak also to Amendments Nos. 260C and 260D, 261A, 262A and 263A. These amendments fall into two groups. First, Amendments Nos. 260B, 262A and 263A seek to introduce the word "treaty" between the words "international" and "obligations" where they appear in Clause 54 and elsewhere in the Bill.
The purpose of the amendments is to make it clear that when the Bill refers to international obligations, it refers to legal obligations which are binding on the United Kingdom as a matter of international law. The concern is that unless the term is more carefully defined it might be construed to cover all sorts of understandings, and indeed moral obligations, which emerge from discussions involving Foreign Office Ministers, members of the Diplomatic Service or Foreign Office officials in the course of their duties.
Similar concerns arise out of the introduction of the terms "interests of defence" and "interests of national security" which now form part of the provision as a consequence of government amendments moved earlier. Clearly, the full ramifications of these amendments will require consideration during the Recess by those of us participating in these debates.
The practical consequence of the concern is this. If these terms remain as general as they are it will be possible for the Government, without any reference to Parliament whatsoever, to expand upon the extent to which the Secretary of State in terms of his powers under Clause 54 can interfere with the Scottish executive's exercise of the functions that lie within its competence. This matter was raised in our debates on Tuesday by my noble and learned friend Lord Fraser of Carmyllie. The noble Lord, Lord Steel, undertook to reflect and write on it over the Recess. That takes the discussion—
Lord Steel of Aikwood: With great respect, I did nothing of the kind.
Lord Mackay of Drumadoon: I beg the noble Lord's pardon. I was in error in thinking that the
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noble Lord, Lord Steel, intended to do anything over the Recess—except of course, engage in a little fishing. I do not think he will be alone.
The purpose of the other amendments is slightly different. They provide that if the Secretary of State is of the view that the Scottish executive has acted or refused to act in a way which is incompatible with international treaty obligations or incompatible with national security or defence interests, he should have two options. One option is to go to the court and seek a declarator that the Scottish executive has acted in such a way. The alternative would be for him to have an order-making power in his own right to take the action which is necessary—an expansion of the power which he already has in terms of subsection (4).
My concern is that his order-making powers in subsections (1) and (2) which enable him to direct the Scottish executive to take action or refrain from taking action will be perceived to be the powers of a colonial governor. If they were ever used and if they exist and the use of them could be threatened, it would serve to provoke friction between the Scottish executive and the United Kingdom Government, where there is a concern that the Scottish executive's actions could be or are perceived to be incompatible with the three terms to be found in the Bill.
It should be a clear-cut choice for the Secretary of State. In such a case he should raise the matter with the court and seek a declarator. It may be a complicated action to bring and it may be a complicated matter for the court to decide. But as I understand orders under Clause 54 to be subject to judicial review, these are the kind of difficult legal issues which the court may require to deal with in any event. He should have these two routes, either to go to the court or to act on his own hand. The idea of him directing the Scottish executive on what to do is not compatible with common sense or the hope that the executive and the Government will work profitably and fruitfully together in the future. I beg to move.
The Chairman of Committees (Lord Boston of Faversham): As Amendment No. 263A is also being spoken to, I must point out to the Committee that if that amendment is agreed to I cannot call Amendments Nos. 264 to 266 inclusive.
Lord Thomson of Monifieth: We await with interest the Government's response to these amendments which raise some rather erudite questions of both domestic and international law. Am I right in feeling believing in connection with the phrase "international obligations" in the Bill, that it is designed to cover a wider range of possibilities than simply treaty obligations? Do we not have general obligations under customary international law? It is the international equivalent, I suppose, of common law, or binding Security Council resolutions or decisions of international tribunals, such as the International Court of Justice. On that at the moment I am content with what I guess may be the Government's position.

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On the other matter, I await the answer with interest. The mind boggles at the idea of the Secretary of State, in the new post-Scottish parliament situation, sitting in Dover House acting as a colonial governor. It seems to defy common sense to me.
Lord Hylton: On the grounds that everything possible should be done in advance to try to prevent conflict between different levels of government within the United Kingdom which may be governments of different political complexions, I am inclined to support the thrust of this group of amendments.
Lord Rodger of Earlsferry: Arising out of what has been said, it has been stressed that yet again there are legal minefields ahead. It might be helpful if the Government reflected over the Recess on whether anything could or should be done to assist the courts when, for example, they are faced with questions as to what international obligations are. As the noble Baroness pointed out, it is not usual for domestic courts to become involved in questions of international law and what constitutes an international obligation.
I am not clear how it is envisaged that it will be handled if there were a judicial review such as is contemplated by the noble and learned Lord, Lord Mackay of Drumadoon. It is obviously possible, or given the idea of reasonable grounds it looks possible. For that reason, therefore, it might be for consideration whether anything requires to be done as to the way in which such international obligations could be proved and how the courts could look at international obligations. I should also be interested to know whether it is envisaged that some kind of certificate system would be used in order to signify what the interests of defence and national security were thought to be by the Secretary of State.
Lord Hardie: As has been observed, Clause 54 enables the Secretary of State, by order, to require the Scottish executive to take or desist from action in respect of international obligations or to revoke subordinate legislation that he has reasonable grounds to believe to be incompatible with international obligations.
The noble and learned Lord's amendment would restrict those powers so that they were only available for treaty obligations. The noble Lord, Lord Thomson of Monifieth, was correct and, for the reasons outlined by him, the Government do not believe that it would be right to restrict the powers to such limited obligations.
The effect of the amendment would be to leave the United Kingdom Government unable to enforce those international obligations which arise under customary international law. These are just as important and just as binding on the United Kingdom as our treaty obligations. Indeed, even where matters are generally governed by multilateral treaties, in fields such as diplomatic immunity, the law of the sea or human rights, not all states are parties to the treaties in question. Vis-à-vis non-parties, our obligations are governed by customary law. Devolved areas in which such
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obligations might be found include: fisheries and marine pollution; immunities of foreign states; immunities of diplomats and consuls from states not party to the Vienna Conventions.
I hope that in the light of this explanation, the noble and learned Lord will agree that it would not be appropriate to restrict the Secretary of State's powers of intervention in the way proposed by him. I ask him to withdraw the amendment.
As for the concept of the United Kingdom acting as a colonial power in relation to Scotland I would not accept that that is a fair interpretation to put upon the right of the Secretary of State to intervene in such matters.
The Committee will be aware that foreign relations are a reserved matter and will remain the responsibility of the United Kingdom Government and Parliament. In any scheme of devolution, that must be so. To give effect to our international obligations, it is essential that this power is available to the Secretary of State.
Having said that, again I wish to express my hope and optimism that the situation will not arise. I am sure that the Scottish parliament will endeavour to ensure that its legislation is not incompatible with the United Kingdom's international obligations.
Amendments Nos. 260C and 260D would replace the order-making power of the Secretary of State in regard to compliance with international obligations with a power for the courts to rule on such matters. As my noble friend Lady Ramsay of Cartvale has already observed, and the noble and learned Lord, Lord Rodger of Earlsferry, alluded to it, it is not normal for domestic courts to take cognisance of international obligations. It is for that reason that the Bill proceeds in the way that it does. Before the Secretary of State can intervene, he must have reasonable grounds for that belief—that is, that the obligation has not been complied with—and obviously those grounds may be challenged by way of judicial review.
The Government feel that the powers given to the Secretary of State in this regard are entirely appropriate. To deal with the question raised by the noble and learned Lord, Lord Roger of Earlsferry, in relation to the approach to be taken by the courts, I hope that my explanation of what international obligations encompass will be of some assistance to the courts should any challenge ever arise.
In determining the question of whether the Secretary of State had reasonable grounds, one would expect the court to apply the same standards and tests as it does in reviewing the decision of any other authority which is obliged to have reasonable grounds before taking action. As I said, the question of the role of the courts and its relationship to Parliament is a matter which is being considered and hopefully will be clarified in that regard as well as others before we reach the next stage of the Bill.
In relation to Amendment No. 261A, the Secretary of State can by order require the Scottish Ministers to take action to implement an international obligation. Where an obligation relates to reserved matters the UK Government will of course implement it in any case

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across the United Kingdom. I suggest that the powers already envisaged for the Secretary of State in this regard are already sufficiently wide and I invite the noble Lord to withdraw the amendment.
Amendment No. 263 seeks to delete the order-making power of the Secretary of State to revoke subordinate legislation of the Scottish parliament under Clause 54(4)(b). That power, which has already been modified by government Amendments Nos. 264 and 266, as the noble and learned Lord observed, is necessary to provide safeguards where Scottish legislation could have adverse effects on the law as it applies to reserved matters. As I have already said, these powers are meant to be longstops and their use would require to be justified and would be liable to scrutiny by judicial review.
I ask the noble and learned Lord to withdraw the amendment.
4 p.m.
Lord Thomas of Gresford: I did not entirely follow the argument of the noble and learned Lord the Lord Advocate. In Schedule 6, Part I, paragraph 1 says "devolution issue" includes, at (d),
"a purported or proposed exercise of a function … by a member of the Scottish Executive [whether it] is, or would be, incompatible with any of the Convention rights or with Community law".
It is envisaged therefore that the Scottish courts would be considering incompatibility of Scottish legislation with the human rights convention and with Community law made in Europe. Therefore, although the Scottish parliament is not charged with Community law, nevertheless the courts are required to consider incompatibility in that context.
However, in addressing Amendments Nos. 260C and 260D, the noble and learned Lord said that the Secretary of State is to have this fairly draconian power of acting upon his own belief—that is what subsections (1) and (2) of Clause 54 actually say—checked only by judicial review. The reason given for that was that the Scottish courts do not have anything to do with the construing of international law. Yet, if there is judicial review of the exercise of that power by the Secretary of State, what is to be considered save the competence of the Scottish legislature to take either a proposed action or to legislate the competence, having regard to its compatibility with those very international obligations which the noble and learned Lord said would not be within the competence of the Scottish courts?
Therefore, on judicial review, using that machinery, the Scottish courts will consider compatibility with international obligations. Under Schedule 6 as a devolution issue, the Scottish courts will construe the competence of Scottish legislation having regard to the convention rights or Community law. But the right of the Secretary of State to act on his own belief is still maintained in that context. I see no logic in that and suggest that the noble and learned Lord ought to consider further the logic that may lie behind his explanation.
Lord Hardie: Perhaps I can explain to the noble Lord, Lord Thomas of Gresford, that, of course,
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Community law is in a different category from international law. Clause 54 considers the question of international obligations. The question for the court would not be whether the actions of the Scottish parliament were or were not compatible—that would be asking the court to substitute its decision for the decision of the Secretary of State—but whether the Secretary of State had reasonable grounds to believe that the proposed action was or was not compatible. Applying the Wednesbury test and that line of authority, the court would only interfere if it concluded that the Secretary of State had acted in a way which no reasonable Secretary of State could have acted, or had acted in a capricious manner. The noble Lord will be well aware of the line of authority to which I refer.
Lord Thomas of Gresford: Of course, but in considering whether there are reasonable grounds to believe that there is an incompatibility, what else can the court do but look at the international obligations and set against them the proposed action or the proposed legislation with which the Scottish parliament is concerned, and come to a conclusion as to whether that compatibility exists? It seems to me that on judicial review the Scottish courts will be bound to consider that issue one way or the other.
Lord Hardie: That would be a fact that the court would take into account—looking into the international obligations and the proposed action of the Scottish parliament—but it would also take into account any other factors that the Secretary of State may have taken into account in reaching his or her decision. That would be the test; not whether or not the action was incompatible, but whether, on the information before the Secretary of State, the Secretary of State had reasonable grounds to believe that it was incompatible.
Lord Rodger of Earlsferry: The noble Lord, Lord Thomas of Gresford, put the point rather more clearly than I put it when I made my intervention earlier. I was asking how it was that the court, which could not normally consider matters of international obligation, when it came to judicial review would be furnished with the power, the knowledge of this international law and the right to consider this international law in the context of judicial review.
The point which I understand the noble Lord, Lord Thomas, to be making is if, in the context of judicial review, the court is going to be seized necessarily with comparing the action with the rights and obligations under international law, why is it thought to be wrong for the courts simply to test the subordinate legislation in question against those self-same obligations under international law which it will have to consider any way in judicial review?
Lord Hardie: The question as to whether there are reasonable grounds for believing that it is incompatible is quite different from a purely legal issue of comparing an international obligation with the text of the Scottish provision.
As I indicated, it may well be a factor for the court to look at the two provisions, but the real issue is to look at what was before the Secretary of State before he or she reached the conclusion that he or she had reasonable grounds to believe that the action was or would be incompatible.
Lord Mackay of Drumadoon: I hope that the noble and learned Lord will reflect on what has been raised today. If I may respectfully say so, what the noble Lord, Lord Thomas, and the noble and learned Lord, Lord Rodger, have said seems to have considerable force. Whether the Court is considering whether the action of the Scottish executive is incompatible with international obligations or whether it is considering that the Secretary of State had reasonable grounds for believing that the action of the Scottish executive was incompatible with international obligations, the Court has to address its mind to the issue of what is meant by the term "international obligations" and what in the context of the case before it is the international obligation in question which gives rise to the incompatibility. If one uses the term "national security", what is the aspect of national security which gives rise either to the existence of the incompatibility or the existence of reasonable grounds for believing that there is such an incompatibility?
I remain concerned about the Secretary of State directing a member of the Scottish executive to do anything. As the noble and learned Lord was responding to the debate, a point struck me which I had not thought of earlier. If having been ordered to do something or to stop doing something by the Secretary of State, what happens if the member of the Scottish executive just continues as before and, for whatever reason, says, "I am not taking instructions in this manner"? I wonder whether it might not be better to give the Secretary of State the power contained in one of my amendments.
It is clear from what noble Lords on the Government Front Bench have been saying, both on Tuesday and this afternoon, that this clause will be the subject of reflection over the Recess. Letters are to be sent and I am sure replies will also be sent. When we return to this in October it might be possible to see a way through the practical problems which this grouping of amendments has raised. On that basis, I seek leave to withdraw Amendment No. 260B.
Amendment, by leave, withdrawn.
[Amendments Nos. 260C to 261A not moved.]
Lord Sewel Lord Sewel moved Amendment No. 262:
Page 24, line 10, leave out ("would") and insert ("to").
On Question, amendment agreed to.
[Amendment No. 262A not moved.]
Lord Sewel Lord Sewel moved Amendment No. 263:
Page 24, line 11, after ("obligations") insert ("or the interests of defence or national security").
On Question, amendment agreed to.
[Amendment No. 263A not moved.]
Lord Sewel Lord Sewel moved Amendment No. 264:
Page 24, line 12, leave out from ("which") to ("which") in line 15 and insert ("make modifications of the law as it applies to reserved matters and").
On Question, amendment agreed to.
Lord Sewel Lord Sewel moved Amendments Nos. 265 to 267:
Page 24, line 16, leave out ("would") and insert ("to").
Page 24, line 17, leave out ("an enactment") and insert ("the law").
Page 24, line 19, leave out ("revoking the legislation") and insert ("making the order").
On Question, amendments agreed to.
Clause 54, as amended, agreed to.
Lord Steel of Aikwood Lord Steel of Aikwood moved Amendment No. 268:
After Clause 54, insert the following new clause—

DELEGATIONS TO EUROPE
(".—(1) When matters in relation to which the Parliament has competence are being discussed between the United Kingdom and any of the institutions of the European Union, the appropriate Scottish Ministers shall be entitled to accompany United Kingdom Government Ministers and to participate in such discussions on behalf of the Parliament.
(2) Where the matters to be discussed under subsection (1) are non-reserved matters that only affect Scotland and do not affect other parts of the United Kingdom, Scottish Ministers shall be the sole representatives of the United Kingdom.
(3) In appropriate cases, on non-reserved matters affecting both Scotland and other parts of the United Kingdom, a Scottish Minister, with the agreement of a Minister of the Crown, may lead the United Kingdom delegation.").
The noble Lord said: Let me first say to the noble and learned Lord. Lord Mackay of Drumadoon, that I well understand his slip of the tongue earlier between "Steel" and "Sewel". He is not the first person to make it. He may be interested to know that a couple of weeks ago I had a telephone message after midnight from a young lady inviting me to telephone her. I did so with curiosity as she was not known to me, only to discover it was a call for the noble Lord, Lord Sewel. In the hope of getting a very good answer to this amendment I shall say nothing more.
We have debated this matter before and we should not go over the whole ground again. The reason we have tabled this amendment is to achieve a little more clarity than we have had in either House so far as to what is to happen when Ministers from the Scottish executive—or Scottish government, as I prefer to call it—are involved in discussions on European Union matters.
What we set out in our amendment is very straightforward. It is what we think the practice should be. First of all, when matters in relation to which the Scottish parliament has competence are being discussed between the UK and any of the institutions of the European Union, the appropriate Scottish Ministers should be entitled to accompany the United Kingdom

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Government Ministers and to participate in such discussions on behalf of the Scottish parliament. I cannot believe that that is particularly controversial.
We go on to suggest that where the matters to be discussed are non-reserved matters which only affect Scotland and not other parts of the United Kingdom, the appropriate representatives to attend such meetings are the Scottish Ministers. We had in earlier debates mention of precedents from the parliaments of Catalonia and Bavaria.
We go on to say that in appropriate cases on non-reserved matters which affect both Scotland and other parts of the UK, a Scottish Minister, with the agreement of a Minister of the Crown, may lead the UK delegation. Again, that is obvious common sense.
If I may refer to a previous debate on this matter, I know that the noble Lord, Lord Mackay of Ardbrecknish, and his colleagues take the view that when it comes to European discussions Scotland does better out of having a Parliamentary Under-Secretary tagging along with the UK Minister. That is a perfectly legitimate point of view. But it is not one that I or many other people share, including the President of the Scottish National Farmers' Union.
My noble friend Lord Mackie of Benshie, who is, as everyone knows, a kindly and benign man, chided me for being a little rough on the noble Lord, Lord Mackay, on a previous occasion on this matter simply because the president of the Scottish NFU happens to have been adopted as the Liberal Democrat candidate for his old constituency. I make a serious point here. I hope he will not make too much of this. We should be pleased that there are people at the top of their professions and occupations in Scotland who are willing to come forward as candidates for the Scottish parliament, regardless of party. I certainly welcome that. They should not be attacked in this House or elsewhere because they happen, in order to get membership of the Scottish parliament, naturally to be affiliated to the party of their choice.
To stick with the issue under discussion, our amendment clarifies what ought to be good practice in future where delegations consisting both of UK Ministers and Scottish Ministers attend meetings of the European Union. I beg to move.
4.15 p.m.
Baroness Strange: I should like to speak to Amendment No. 269, which is similar to Amendment No. 268, although mine applies more specifically to representation at the Council of Ministers. With the enormous importance of both agriculture and fisheries to the Scottish economy, and as so many vital decisions affecting both those industries are decided at the Council of Ministers of the European Community, it is absolutely vital that Scotland and the new Scottish parliament should have a direct voice and say in anything being discussed. Therefore there should be Scottish Ministers included in any United Kingdom delegation which discusses these matters. If the matters discussed would primarily affect Scotland, the delegation should be led by Scottish Ministers. The
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effect of this amendment would mean that, without in any way diminishing the close union between Scotland and England, we in Scotland would still have a direct say in the European matters which closely affect us.
Last Tuesday, on Amendment No. 249A, I understood the Minister to say that the United Kingdom Ministers at the European Parliament would be responsible to the United Kingdom Parliament and would report to the United Kingdom Parliament only, not to the Scottish parliament. This hardly seems fair to the Scottish parliament, or indeed to the people of Scotland.
The Scottish Nationalists have always made a point of direct representation in the European Parliament at ministerial level. If we have this already written into the Bill it would destroy much of the force of their argument.
The Earl of Balfour: I wish to raise one point that I feel the Government should bear in mind. It concerns the extremely valuable whisky industry in Scotland. It is through European directives that Scottish whisky cannot be sold less than 40 per cent. by volume—if it is below that level it is almost impossible to analyse its origin—and it must also be kept for at least three years. Such provisions have helped that valuable industry tremendously. Therefore, I hope that the Government will look sympathetically on these amendments.
Lord Hylton: The analogy of Northern Ireland may be relevant here. The Committee will be aware that the ban on the export of beef from Northern Ireland has recently been lifted, which is a great step forward. That came about because the Minister responsible for agriculture in Northern Ireland and the Minister of Agriculture, Fisheries and Food in the United Kingdom were both members of the same party and of the same government. In Scotland, when agriculture is devolved, that may no longer be the case. They may be of different political complexions. We need to have on the face of the Bill something very similar to one or other or both of the amendments.
Baroness Carnegy of Lour: We have already debated this matter very fully and it was discussed during proceedings on the Government of Wales Bill. I am a little concerned about the noble Lord's amendment. I understand what he is trying to do and I believe that his objective is wholly laudable and desirable.
Subsection (1) of the amendment provides that the appropriate Scottish Ministers should be entitled to accompany the United Kingdom delegation. That is fine. I should like to see that entitlement there and the entitlement to participate. Subsection (2) is slightly more confusing. It is suggested that, on items that are non-reserved matters, it would be possible for Scottish Ministers to be the sole representatives. They might be non-reserved matters, but the relationship with the European Union is a reserved matter. It appears to me that a decision could be taken that was out of kilter with that which the United Kingdom Government wanted. I am not sure what would happen if that occurred. Likewise, under subsection (3), if a Scottish Minister

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was leading, which would in many ways be desirable, what would happen if the decision taken was contrary to that which the United Kingdom Government wanted?
During proceedings on the Government of Wales Bill the noble Lord, Lord Williams of Mostyn, replied that the Minister could always resign. I did not think that that was convincing. I do not see why a Minister should resign for doing something wrong in the eyes of the United Kingdom Government when he is answerable to the Scottish parliament. That is a rather confused line of thought. If the Minister could clarify his views on subsection (2) and (3) and say that he is satisfied and will accept the amendment, no one will be happier than me. But I do not quite understand how it would be possible.
Lord Mackay of Ardbrecknish: This is the third time during the Committee stage that we have returned to this general subject. The exchange that we had on Tuesday has greatly helped me to understand exactly how the Government see negotiations on important European matters. I suspect that the Government will reject the amendment of the noble Lord, Lord Steel of Aikwood, and indeed the amendment of my noble friend Lady Strange, because they are incompatible with the overriding principle that negotiations with the European Union are reserved matters.
There is only one way—we should not beat about the bush—ofor Scotland to have a direct say in the meetings of the Council of Ministers; and that is to be a separate member state of the European Union. There is no way round that problem. That applies especially on reserved matters, but more particularly on almost all matters. There is just no way round that. Member states are the ones who sit at Council of Ministers' meetings and member states cast the votes. The Minister from the United Kingdom casts 10 votes. The only way for a Scottish representative to be there as of right is if he is there from an independent Scotland casting the princely sum of probably three votes. That itself is something which everyone in Scotland ought to bear in mind when it comes to thinking that Scotland might possibly be better off around the Council of Ministers' table if it was independent.
I have to say to the Committee—all my noble friends who have been in similar positions at Council of Ministers' meetings will know this—that the score sheet we draw up has two leagues in it: the league of the voters with 10 votes and the league of the voters with three votes. The people who carry the clout are the people in the league with 10 votes. That is where Scotland is at the moment, as a member of the United Kingdom; and that is where I at least firmly want Scotland to stay.
I believe that a great deal of what we see in the amendments carries the danger of crossing over the boundary between a devolved situation and an independent situation.
Lord Kirkhill: I am grateful to the noble Lord for giving way. I wish only to put to him this hypothetical question. Would he be confident in expressing the view
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which he has just expressed to a Danish representative, a Norwegian representative, a Swedish representative and so on?
Lord Mackay of Ardbrecknish: If the noble Lord is asking about the number of votes, I certainly would. I can remember the fisheries Minister of the Republic of Ireland occasionally asking me how we were going to vote on fisheries matters, in which we had something of a common interest with regard to the west coast of Scotland and Ireland, because it really did not matter much how he was going to vote if we were not going to vote in the same way.
Lord Kirkhill: Norway has gained much of what it wanted by its voting and by its discussions within the groups.
Lord Mackay of Ardbrecknish: What Norway has gained has been because it is outside the European Union and not inside it. The noble Lord is in danger of putting forward an argument which one or two of his noble friends who are not present and one or two of my noble friends are always advancing. I urge the noble Lord to sit back for a moment or else the noble Lord, Lord Bruce of Donington, will come into the Chamber and haunt him.
Lord Kirkhill: I quite understand the position of Norway. As the noble Lord will know, I am, and have been for 12 years, a member of the Council of Europe. I am perfectly aware of that reality. I cited Norway not because it is outwith the European Union but because it has determined negotiators standing for it. If I had wanted to, I could have said the same for Denmark and I could have said the same for countries that are within the European Union.
4.30 p.m.
Lord Mackay of Ardbrecknish: I know from having been there that the Council of Ministers is always mindful about the position of the smaller states. All I am saying is that when it comes to a vote, as it does occasionally and as it will increasingly do as decisions are taken by majority voting, the point I have made is true. Ten votes are a lot more than three. If one is looking for a majority, one is looking for the people who are casting the 10 votes to get that majority. Those with three votes may be helpful, but unless one has those with 10 votes one does not get the majority. My essential point is this. We have to be clear that if people want Scotland to have a direct say they want an independent Scotland. There is no half-way house.
With regard to subsection (2) of the amendment, on matters which are solely Scottish and solely devolved, then, as I have explained to your Lordships before, I can see that the United Kingdom delegation could easily be led by a Scottish Minister. In the letter from the noble Lord, Lord Williams of Mostyn, which I have quoted to your Lordships on a number of occasions, he gave two examples: one was of Bavaria leading for Germany on a cultural matter and the other was of Catalonia leading for Spain on language matters. As I have said before,

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although these matters may be very important, they do not fall into the same category of importance as matters affecting the common fisheries policy, the common agricultural policy or economic and trade policy. It is those matters which concern me.
On the third suggestion, I do not think that it is possible for a Scottish Minister to lead a UK delegation when matters which affect parts of the United Kingdom, other than Scotland, are involved. That is for a number of reasons. It is partly, as I said at the beginning, because that Minister is not a UK Minister. It is also partly because he is not answerable to anybody in the rest of the UK. We established quite late on Tuesday—this has helped me greatly and I continue to read it in Hansard because it continues to help me—that the overarching point is that negotiations with the European Union are reserved matters. Even if the negotiations relate to devolved matters, they are still reserved. Although the Scottish parliament and the Scottish government—I am like the noble Lord, Lord Steel, in believing that that is what we should call it because, frankly, that is what it will be called—may be involved at quite a high level in discussions with the UK on the policies to be pursued, the ultimate responsibility will rest with the UK Ministers who will have to decide what is to happen in the midst of the negotiations.
As I have explained to the Committee previously, these matters often have to be decided as compromises, late at night. Frankly, at that stage, the UK Government Minister will have to make difficult decisions on behalf of the United Kingdom. If my reading of the White Paper is correct, the Scottish Minister will jolly well have to go along with that because he is part and parcel of the collective responsibility, although, ironically, he is not part and parcel of the same government. The Minister made that absolutely clear. I shall quote what he said so that over the long Recess he and his officials can make absolutely sure that this is what was meant and that this is what the position will be. The noble Lord, Lord Sewel, said:
"It is the responsibility of Scottish Ministers to report to the Scottish parliament and of UK Ministers to answer to the UK Parliament for the conduct of EU negotiations even when they affect devolved matters. If the Fisheries Council were deciding questions of TACs and quotas"—
I notice that Hansard reported that as "tax" rather than as "TACs"—
"many of us have been involved in long nights of macho negotiations on quotas—it would be perfectly proper for a Westminster MP to ask the Minister for Agriculture, Fisheries and Food a question on TACs and quotas, perhaps on how they affected Scottish interests. Similarly, a question on dairy quotas and the Agriculture Council could quite properly be asked of the Minister by a Scottish Member of Parliament at Westminster".—[Official Report, 28/7/98; col. 1434.]
Later at col. 1438, the noble Lord said:
"It starts from the basis that the conduct of foreign relations, including EU negotiations, is a reserved matter. That is the starting-off point. UK Ministers, therefore, can properly be made accountable to the Westminster Parliament for that, even when the content affects devolved matters. They are answerable to all Members of the Westminster Parliament".
If that remains the stated position, I at least am almost content with the long debates that we have had. I rather regret that Ministers from the Welsh Office were not
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able to say the same things. As my noble friend Lord Sanderson said on an earlier occasion, it will mean that organisations which want to lobby on European Union matters will not go to Edinburgh to lobby; they will come to London. Particularly with regard to the common agricultural policy and the common fisheries policy, the NFU and the Scottish Fishermen's Federation will be coming here to lobby their Members of Parliament at the other end of this building. They will come here to lobby Ministers in this Parliament because they will be conducting the negotiations. If the Minister can confirm that I am almost—or even fully—right in my interpretation of the position, I at least will think that I have gained quite a lot from this Committee stage.
Lord Sewel: Before I come to deal with the amendments, perhaps I may point out that during our discussion on Clause 35 on Tuesday night I referred to the Treaty of Amsterdam as having inserted the provision which allows Ministers from regional or devolved governments to represent their member states in EU Councils. As I believe that the noble Lord, Lord Mackay of Ardbrecknish, may have been aware, I should have attributed that provision to the Maastricht Treaty. I apologise for any misunderstanding caused. Clearly, confusing Maastricht and Amsterdam is a bit of double Dutch!
Noble Lords: Oh!
Lord Sewel: Well, it is 25 minutes to five o'clock!
The noble Lord, Lord Mackay of Ardbrecknish, quoted back at me what I said on Tuesday night. Ninety per cent. of his interpretation of those remarks is absolutely right. I repeat that the essential point is that negotiations with the European Union, including negotiations at the Council of Ministers, are reserved because foreign affairs are reserved and EU negotiations are a foreign affairs matter. I believe that that puts it as clearly and as simply as I can.
There is an important difference between that clear statement and, to pick up the words of the noble Lord, Lord Steel of Aikwood, what we want to see in terms of "good practice". I believe that those were the noble Lord's words. That is a different matter. I think that we can get there. Indeed, we are trying to indicate how we can adopt the good practice which will ensure that a Scottish voice is built into the development of UK policy at Council meetings and that, where appropriate, that Scottish voice is able to speak and to represent the agreed UK line.
I have said on a number of occasions that the Government fully intend that Scottish Ministers should play as full a role as possible in developing UK positions on EU matters and, where appropriate, in presenting them to the Council. However, we believe that that is best left to administrative arrangements between Her Majesty's Government and the Scottish

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executive. That flows from the very position that I believe that the noble Lord, Lord Mackay, was outlining when he quoted what I said on Tuesday. That is why the administrative arrangements are best dealt with through a concordat. That gives a flexibility of approach. I believe that it is the best and most sensible way of dealing with what is by its nature a relatively unpredictable business and one which is basically not open to be defined through statute. I hope that the noble Lord will recognise that within the framework within which we have to operate, which flows from the fact that the UK is the member state, we are absolutely intent on ensuring that there will be a Scottish voice and a Scottish presence in the development of the UK line and, where appropriate, a Scottish presence and a Scottish voice in the presentation of the UK line. That deals with subsection (1).
Subsection (2) seeks to provide that where matters affect only Scotland, Scottish Ministers should be the sole representatives of the United Kingdom. That is a difficult idea in any case because very few international or European matters could be said to affect only Scotland. Even if not directly, then at least indirectly, there are likely to be UK implications. That is a very difficult line to draw.
Subsection (3) seeks to provide that in appropriate cases on non-reserved matters affecting Scotland the Scottish Minister may lead the UK delegation. This is where I part company from the noble Lord, Lord Mackay of Ardbrecknish, and his interpretation. It is the Government's intention that that could happen with the agreement of the UK Minister. It is because the Scottish Minister would be a minister of the Crown—that is, "minister" with a lower case "m" and "Crown" with a capital "C" rather than "minister" with a capital "M"!—that it would be perfectly possible for the Scottish Minister with the agreement of the UK Minister to speak on any matter. The same sort of argument applies virtually directly to the amendment in the name of the noble Baroness, Lady Strange. On that basis and with that explanation, I hope that the amendments will not be pressed.
Lord Steel of Aikwood: The Committee has had a very useful short debate that has clarified the Government's intentions. There is nothing in my amendment that detracts from the fact that the UK has responsibility in relation to the European Union. Perhaps I may give a specific example that eases the mind of the noble Lord, Lord Mackay of Ardbrecknish. If a UK Minister said to a Scottish Minister that a particular matter affected mainly Scotland, that he had other things to do and that the Scottish Minister should take over the delegation because the line had been agreed upon, and something went wrong, the UK Minister would still be accountable to the Westminster
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Parliament for what he had done. I see no difficulty in this matter at all—even if the noble Lord, Lord Mackay, were himself that Scottish Minister.
Lord Mackay of Ardbrecknish: The consequences of that would be that the UK Minister would not let it happen again.
Lord Steel of Aikwood: I accept that that may be so. The Committee has reached an astonishingly amicable agreement as to what should happen. In that spirit I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 269 not moved.]
Lord Selkirk of Douglas Lord Selkirk of Douglas moved Amendment No. 270:
After Clause 54, insert the following new clause—

REVIEW OF JUDICIARY
(" . The First Minister shall conduct on an annual basis a review of—

(a) the workload of the Court of Session, the High Court of Justiciary, the Sheriff Court and the District Court, and

(b) whether the resources made available to those courts are adequate to meet the interests of justice.").

The noble Lord said: Amendment No. 270 is very much a probing amendment. It is important to ensure that there is a sufficiency of judges for the workload with which they must deal in the criminal and civil courts. Undoubtedly that workload will increase with the passing of the Scotland Bill and the Human Rights Bill. Furthermore, the powers under the Scotland Bill to deal with devolution issues give the judges a new constitutional position. I understand that the Crown Office has set up a unit to consider the impact of the Human Rights Bill with a view to ensuring that the extent to which legislation increases the workload is monitored. There is a need for a sufficiency of full-time judges. I look forward to hearing the response of the noble and learned Lord the Lord Advocate.
Lord Mackay of Drumadoon: I should like to intervene briefly to say that, while I understand why my noble friend has tabled this amendment, I believe it would be inappropriate to place such a statutory duty on the first minister alone. In the first instance it is the job of the courts to keep under review its own workload and the availability of resources. I have absolutely no doubt that the Lord President of the Court of Session of the day would, if he felt it necessary to seek additional resources, draw that to the attention of the Scottish executive and the United Kingdom Government.
Lord Rodger of Earlsferry: I concur with what has just been said by the noble and learned Lord. Both he and the Lord Advocate are aware that from time to time it is the duty of the Lord President—I have performed this duty—to draw attention to resource issues not just for the Court of Session but for courts generally. That

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is probably the best way around it. For my part, I would not welcome the introduction of a clause along the lines proposed by the noble Lord.
Lord Hardie: I agree with both noble and learned Lords. At present Section 1 of the Sheriff Courts (Scotland) Act 1971 imposes a duty
"to secure the efficient organisation and administration of the Sheriff Courts".
That carries the clear implication that Scottish Ministers must seek to provide the necessary resources to achieve that desirable aim. But there are no statutory equivalent responsibilities with regard to the Supreme Courts where the historic role of the Lord President of the Court of Session comes into play. The holder of that high office, whom I am pleased to see in the Committee today, has the task of organising the business of the courts. With that explanation, I hope that the noble Lord will withdraw his amendment.
Lord Selkirk of Douglas: I am very grateful to the noble and learned Lord the Lord Advocate for his explanation. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
4.45 p.m.
The Earl of Balfour The Earl of Balfour moved Amendment No. 271:
After Clause 54, insert the following new clause—

CONSULTATION WITH BUSINESS
(" . The Scottish Ministers shall carry out consultation with such organisations representative of business and such other organisations as they consider appropriate, having regard to the impact of the exercise by the Parliament of its functions on the interests of business.").
The noble Earl said: I make no secret of the fact that I have lifted this proposed clause from the Government of Wales Bill. The new Scottish parliament must have new businesses very much in mind, particularly small businesses. Recently small businesses have thrived in Scotland and made an enormous contribution to the welfare of this country. I do not believe that I need say any more. I beg to move.
Lord Mackay of Ardbrecknish: My noble friend introduces an interesting new clause. I recall that we spent a few happy minutes, perhaps longer, discussing a similar clause in the context of the Government of Wales Bill. In that Bill there are a number of clauses in which consultation is spelt out. Business was virtually missed out. Some noble Lords believed that that was wrong, that the position of business should be enhanced and consultation with business should be spelt out in more or less the same way as with various pressure groups. I am not surprised that my noble friend is alert to what is in one Bill and not the other and has tabled this amendment. I look forward to the response of the Minister.
Viscount Thurso: Since the proposed new clause has been lifted straight out of the Government of Wales Bill, why is there a need to "carry out consultation"? Surely, the verb "to consult" suffices.
Baroness Ramsay of Cartvale: As the noble Earl has explained, Amendment No. 271 would impose a
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requirement on Scottish Ministers to consult business representatives and other appropriate organisations about the impact of the parliament's activities on business. As the noble Earl has explained and as the Government have spotted, the amendment is based on a provision in the Government of Wales Bill. That provision requires the assembly to carry out this kind of consultation.
The noble Earl is very well aware that the Government of Wales Bill requires the assembly to consult in a number of areas, for example in promoting voluntary organisations and sustainable development, but we have not imposed similar requirements on the parliament or the Scottish executive in this Bill. Quite simply, it would not be appropriate to make similar provision for the Scottish parliament which will be a legislative rather than an executive body. The nature of the Scottish parliament and Welsh assembly is very different. As I and my noble friends have explained at other points in Committee, what may be appropriate for one is not necessarily appropriate for the other.
In this case, as in many others, direct comparisons cannot be made between the Scotland Bill and the Government of Wales Bill. There are two very important differences in the two entities which the Bills create. The Scotland Bill creates a parliament which must be allowed to decide for itself the duties that it should impose on the Scottish executive, whereas the Government of Wales Bill sets up the Welsh assembly which in many respects is more akin to an executive body. There is no Welsh parliament which in future can impose duties on the Welsh assembly. The imposition of duties on the Welsh assembly can best be done through the Government of Wales Bill but the imposition of duties on the Scottish executive should be left to the Scottish parliament.
Scottish Ministers may very well want to take account of the implications for business of the activities of the parliament, and their legislative proposals and the parliament may want to take evidence from these groups. It might even decide that it would be appropriate to have something akin to the assessment of compliance costs for business which forms part of the regulatory appraisal that must accompany all relevant regulatory proposals presented to this Parliament. However, as we have made clear, we believe that this is a matter for the Scottish executive and parliament to decide for themselves. In the light of my explanation, I hope that the noble Earl will withdraw his amendment.
The Earl of Balfour: I am most grateful to the Minister for her very helpful explanation. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 55 [Property and liabilities of the Scottish Ministers]:
Lord Selkirk of Douglas Lord Selkirk of Douglas moved Amendment No. 271ZA:
Page 24, line 22, after ("Property") insert (", including property outside Scotland held for the purposes of facilitating discussion with Ministers of the Crown in relation to matters relevant to the competencies of the Parliament and Parliament,").
The noble Lord said: The effect of this particular amendment is to ensure that the Scottish executive can hold property outside Scotland so as to facilitate discussions between Ministers of the Crown and Ministers of the Scottish executive in relation to matters relevant to the competencies of both parliaments. It is important that the Scottish executive has a base outwith Scotland in which it can hold or host meetings or carry out necessary work which is of significance to the people of Scotland. This means that the first minister and Scottish Ministers should have ready access to the use of facilities close to or within Whitehall and near to the United Kingdom Parliament. Dover House is ideally situated. Can the Minister or the noble and learned Lord the Lord Advocate in reply enlighten the Committee about rumours that the Prime Minister has strong views on this subject? Can the Minister say what the Prime Minister's policy is on this subject? Is Dover House to be used for the Scottish executive or will it be occupied by others who perhaps are less involved with the government of Scotland? What is the position with regard to the lease organised by a previous Lord Advocate in relation to Dover House? When does the lease expire and is there not a strong case for ensuring that that lease continues?
There also has to be sufficient accommodation for the Advocate General who has to be adviser to the United Kingdom Government. What accommodation is to be afforded to the Advocate General? Is Dover House to be prevented from being handed over to the Scottish executive rather like the Tantalus grapes, only to have this rich prize snatched away for the benefit of other groups? If it is the Government's purpose to transfer Dover House to the Scottish executive, how best could this be achieved? Is there provision in the Bill to secure that particular objective? Could that be done without a vast bill being inflicted on the Scottish taxpayer? If not, how best could their purpose be achieved?
The benefits of Dover House are there for all to see. There are rooms for at least five or more ministers and the head of the Scottish civil service. There is room for special advisers. There are rooms for private secretaries, parliamentary clerks and even a press corps. There is room for civil servants, many more rooms on the third and fourth floors, and even a number of beds for those civil servants who are sufficiently diligent to work late or throughout the night.
Lord Sewel: Is not the noble Lord in danger of writing the further particulars?
Lord Selkirk of Douglas: I do not think so. I would be most grateful to hear from the Minister what proposals he could put forward in this connection if decisions have not already been made.
I would add that there is the most modern form of video conferencing in existence in Dover House. Should not this magnificent house, which has been the home of Lord Melbourne and his wayward wife Lady Caroline Lamb, also be provided as being of some relevance to the Scottish executive? There is an important principle embodied in this amendment; namely, that the Scottish
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executive should have a suitable place. There should be legislation in one form or another to ensure that this becomes a reality.
Baroness Carnegy of Lour: The noble Lord raises a very interesting point and I greatly look forward to the answer. In answering, could the noble and learned Lord tell us not just what is going to happen to St. Andrew's House but, if it is no longer a Scottish Office of any form, where the Secretary of State will have his base? Where, for example, will the Moderator of the Church of Scotland visit the Scottish members of this Parliament? Could he also tell us what is going to happen to his offices, which are quite copious and convenient in Carlton Gardens? Will the Lord Advocate of the day be entirely absent from those offices and will it simply be the Advocate General who will be there on his own, with his staff? Will the Lord Advocate have no base in London?
These are all very interesting points, probably not so much to the public at large but certainly to Members of the other place and to this House, and it will be of great interest to the members of the Scottish parliament. I would be most grateful if we could be told what is going to happen about that, as well as what is implied in the Bill.
The Earl of Mar and Kellie: Is the Minister aware that the kingdom of Scotland held property in the Scotland Yard and Whitehall Court area for very many years?
Lord Swinfen: Does the wording of the amendment mean property can be held outside Scotland only to facilitate discussion with Ministers of the Crown? What about holding property outside Scotland where it is necessary to have an office to encourage business to go to Scotland, maybe in a part of the world that is not even part of the United Kingdom? Would this particular amendment limit the area in which the Scottish parliament could own property?
Lord Mackay of Ardbrecknish: My noble friend has raised an interesting point which goes beyond the bricks and mortar of Dover House or Carlton Gardens. Indeed, those of your Lordships who have been to Dover House know that it is a very grand building. There is always competition among Scottish junior ministers as to who will get Lady Caroline Lamb's bedroom, I suspect in the hope that her ghost may turn up, preferably while they are there. I have to say that I never saw her ghost; I am not sure that my noble friend ever did either. There were some frightening things that came through Dover House, but not Lady Caroline Lamb's ghost.
As I understand it, and putting it in its most general form, the Scottish Office has two buildings: one at Dover House and the other at Carlton Gardens, though that is more rightly described as the Lord Advocate's premises. What do the Government envisage will be the future of Carlton Gardens. Will the Advocate General take up residence there or will he perhaps move to Dover House? Clearly there will not be the need for so

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much accommodation for the Scottish ministerial team, because as I understand it it will be reduced to one; namely, the Secretary of State himself.
My noble and learned friend Lord Fraser of Carmyllie has already indicated that he thought the most difficult decision a future Secretary of State for Scotland and an Advocate General would have to make would be where to have lunch together on each day on which the House was sitting. I suspect that it would be much easier if they both inhabited Dover House. The serious point, however, is this. Dover House is at the centre of Whitehall. The Scottish Office is therefore one of the serious offices of state which inhabit an office in Whitehall. Those of your Lordships who have been in offices which are not in Whitehall will know that it leads to some disadvantage. It may be that it should not do so, but it does. There is therefore an advantage in the Scottish Office being in Whitehall. The Secretary of State for Scotland will need a Whitehall base in London. I very much hope that he will remain in Dover House with its key position.
I also hope that he will be able to share Dover House with those people from the Scottish government who will need to be in London in order to do business, either with the Secretary of State or, as we have discussed earlier, with Ministers who will be negotiating matters on the European Union or whatever it may be. It is essential that those officials and Ministers should have proper accommodation here in London from which to work when they conduct these negotiations. It would be a downgrading of the Scottish position if the Scottish Secretary of State and the Scottish government from the Scottish parliament were to be moved out of Dover House, which I think is exactly the right place. It would certainly cause some resentment among many people who have worked there, who know it and who realise its symbolic importance to Scotland, if it were to be taken over as a kind of adjunct to No. 10 Downing Street in which to throw parties. I fully accept that it must be one of the grandest buildings in Whitehall, perhaps in central London, in which to throw a party. The Scots are the best at throwing parties. Dover House should remain the residence of the Secretary of State and the pied-à-terre of the Scottish government and its officials when they visit London.
5 p.m.
The Earl of Kintore: There may be room for some of those dispossessed Ministers at the Caledonian Club where we fly the Scottish saltire and have an excellent lunch.
Lord Hardie: It has been an interesting debate, with speculation about what might happen to property in the future. However, the Government cannot accept the amendment for two reasons. First, it is unnecessary. The second reason is related to the first. The point was raised by the noble Lord, Lord Swinfen. The amendment would restrict the powers which already exist for the Scottish executive to hold property outwith Scotland. Nothing in the Bill prevents Scottish Ministers from holding property outwith Scotland in connection with
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the exercise of their functions; and that is much wider than the purpose which the noble Lord put in his amendment.
Clause 56 of the Bill allows that,
"Subordinate legislation may provide for the transfer to Scottish Ministers any property to which this section applies; or (b) for the Scottish Ministers to have such rights or interests in relation to any property".
Subsection (2) explains that,
"This section applies to property belonging to a Minister of the Crown which appears to the person making the legislation—
(a) to be held or used wholly or partly for or in connection with the exercise of devolved functions, or"—
if it does not fall within paragraph(b)—
"when last held or used for or in connection with the exercise of any function, to have been within that paragraph".
At the date of transfer the property which is held by the Scottish Office will fall within paragraph (b). It will be then for the person making the legislation to make appropriate transfer orders.
The speculation about Dover House is precisely that. After devolution there will undoubtedly be a continuing need for the Scottish executive to have a physical base in London. I do not think that anyone disputes that. It is difficult to predict the intensity of the use, or the precise amount of accommodation, which will be required. We anticipate that after devolution it would be necessary for officials—as well as, on occasions perhaps, members of the executive—to be in London almost as much as at present to maintain close contact with Whitehall departments. Indeed, there may even be an argument that they would be here more often than officials who travel to and from Scotland, to ensure that there is appropriate contact between the Scottish executive and the United Kingdom Government.
It is not possible at this stage to indicate what the precise arrangements will be either in relation to Dover House or Carlton Gardens. Perhaps I may say to the noble Baroness, Lady Carnegy of Lour, that although it is likely that officials from the Scottish executive will be in London, and perhaps Scottish Ministers occasionally for the purpose of meetings, it is unlikely that the Lord Advocate would be in London for any significant period. Certainly I would not envisage the Lord Advocate or his department requiring separate accommodation in London.
With that explanation, I hope that the noble Lord will feel able to withdraw the amendment.
Baroness Carnegy of Lour: Out of interest; if, say, the Prime Minister wanted to hire Dover House for a party and it belonged to the Scottish executive, would the rent the Prime Minister paid have to be returned to the Treasury?
Lord Hardie: The noble Baroness poses an interesting question. It is of course hypothetical. I would think that it would depend on the terms in which the property was held.
Lord Mackay of Ardbrecknish: The noble and learned Lord explained to my noble friend why the amendment may be too narrowly drawn, given that

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the Scottish government may want offices outside Scotland to advance economic development, inward investment, and so on, but he has not answered the questions about Dover House. I know that it is speculation, but we have a right to know what the Government intend.
If the Government have not thought about the matter can we have an assurance that the Secretary of State will fight to prevent people getting their hands on Dover House before the Scottish government are set up and can take part in any such discussions? Having been involved in government, I believe that it would be considerably to Scotland's disadvantage if officials who might wish to be in London were moved out of Whitehall into less salubrious property. It would simply look as though Scotland were downgraded.
I am amazed to hear that the noble and learned Lord thinks that there will be more officials in London from Scotland after devolution. I thought the whole point of devolution was that there might be fewer officials in London; but one learns something new every day. Given the volatile nature of the Scottish political scene, and just in case Mrs. Helen Liddell is not able to turn the tide of nationalism, is it not sensible that the Secretary of State keeps a grip on Dover House so that if the worst comes to the worst it can be the embassy of Scotland in its nearest and dearest neighbour England?
Lord Fraser of Carmyllie: The noble and learned Lord responded as regards the property of Dover House. Might we have some assurance on the contents of Dover House? In the room which I believe is presently occupied by the Minister of State—it is quite the grandest room in all of Whitehall—are hung two of the finest Allan Ramsay paintings in the land. In the presence of one of their number, I have to say to the noble and learned Lord, if he does not know, that the trustees of the National Gallery of Scotland are trying to get their thieving hands on those portraits!
Can we have a further assurance from him that every effort will be made to ensure that those paintings are retained and hung in that room where they look absolutely splendid?
Lord Rodger of Earlsferry: Reference was made by the noble Baroness, Lady Carnegy of Lour, to the Advocate General for Scotland who has been described as a rather shadowy "third man". However, that suggests that he or she will be an entirely new person exercising what I suspect will be a difficult and sensitive role, which must be seen as being of complete independence, too.
I hope that the Government will bear in mind the need for the Advocate General to be suitably housed. The Government may have in mind that the present premises in Carlton Gardens would go to the Advocate General; or perhaps not. However, the Advocate General should be separately housed, so that he or she can be seen to be acting entirely independently in an important legal
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role such as the Lord Advocate at present occupies. Lord Advocates for many years have had separate accommodation.
Lord Selkirk of Douglas: I am grateful to the noble and learned Lord the Lord Advocate for enlightening the Committee that the Scottish executive will be able to have a base.
Lord Mackay of Ardbrecknish: I wonder whether I may ask my noble friend to ask the Lord Advocate to answer some of the points just made.
Lord Selkirk of Douglas: My noble friend anticipates some of the remarks I shall make. First, I thank the Lord Advocate for confirming that a base can be owned outwith Scotland; and, secondly, that there would and should be such a base in Whitehall. I shall be grateful if he will tell the Committee exactly what present considerations are before the Government with regard to the future of Dover House. There must be considerations. This must be a key issue. I believe that while the Bill is going through Parliament it is an appropriate opportunity for the Lord Advocate to say what those considerations are.
It is an attractive base and has been used by many. Indeed, in days gone by I was asked to move out of my office in order to accommodate Sir Robin Butler when he was moved out of Downing Street during the refurbishment of his rooms. Field Marshal Montgomery of Alamein also had the use of those rooms at one time. It would be helpful to know exactly what the proposals are. We would be grateful for confirmation that a fight is being put up in the best interests of Scotland.
Lord Hardie: I shall deal first with the points raised by the noble and learned Lord, Lord Rodger of Earlsferry. As regards accommodation for the Advocate General, no discussions have taken place on that or on the future of Dover House. The Committee will appreciate that we are some way from the date at which the transfer will take place. However, I can assure the noble and learned Lord that the Government will take note of his comments in reaching a decision on an appropriate base for the Advocate General for Scotland.
As regards Dover House, the noble Lord, Lord Mackay of Ardbrecknish, asked whether my right honourable friend the Secretary of State for Scotland would fight his corner. I can assure the noble Lord that my right honourable friend will look to the interests of Scotland in this issue, as he has done throughout his office. The future of Dover House will be the subject of discussions within government at the appropriate time. When it is possible to make an announcement or to give further information to your Lordships I am sure that that will be done either by me or by one of my noble friends.

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In relation to the paintings, I am sure that the interests of the trustees and of the Government will ultimately be resolved, perhaps in a court.
The Earl of Onslow: To whom will the freehold belong? Will the Scots pay a rent to the English for the use of their property?
Lord Hardie: The transfer of the property is covered by the Bill. The property will transfer to the Scottish executive or it will remain with the British Government, as the case may be. If there is a transfer to the Scottish executive it will belong to the Scottish executive.
The Earl of Perth: Dover House belongs to the Crown Estate. It is a long time since I was a Crown Estate Commissioner, but if I am right will the Government ensure that the Crown Estate is fully informed of the debate?
Lord Hardie: I can assure the noble Earl that the interest of the Crown Estate will be respected and the Crown Estate Commissioners will be fully advised of the situation. If there is a Crown Estate interest it will be respected and any lease or other arrangements from the Commissioners would transfer either to the Scottish executive or remain with the United Kingdom Government.
Baroness Carnegy of Lour: Am I right in thinking that not only will the property be transferred but so, too, will the liabilities which go with it?
Lord Hardie: Yes.
Lord Selkirk of Douglas: I am extremely grateful to the Lord Advocate for giving us more information. I hope that when decisions are made further information will be supplied, as we are acutely interested in the subject. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 55 agreed to.
Clause 56 [Transfers to the Scottish Ministers]:
5.15 p.m.
Lord Sewel Lord Sewel moved Amendments Nos. 271A and 271B:
Page 24, line 36, leave out ("to which this section applies") and insert ("belonging to a Minister of the Crown or government department").
Page 24, line 39, leave out ("to which this section applies") and insert ("belonging to a Minister of the Crown or government department").
On Question, amendments agreed to.
Lord Mackay of Drumadoon Lord Mackay of Drumadoon moved Amendment No. 271C:
Page 24, line 41, at end insert—
("( ) Any subordinate legislation under subsection (1) above which transfers heritable property shall be registrable in the Register of Sasines or the Land Register for Scotland.").
The noble and learned Lord said: Amendments Nos. 271C and 271K are technical amendments dealing with the importance of keeping the property records of
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Scotland up to date in the event that powers to be given in Clauses 55 and 58 to transfer property in the first place to the Scottish Ministers and in the second place to the Lord Advocate are used.
It is accepted on all sides that such registers should be as accurate as possible. The Government would set a good example by accepting the proposal that if any orders are made they should be recorded either in the Register of Sasines or the Land Register for Scotland, whichever is appropriate. I beg to move.
Lord Hardie: These amendments are unnecessary. The Bill, when it receives Royal Assent, together with the subordinate legislation transferring the property, will constitute a sufficient link in the title which the Scottish Ministers or the Lord Advocate can use to register title to particular items of heritable property if they so wish. As the noble and learned Lord will be aware, they could record a notice of title using the Act and the subordinate legislation as links. That would not always be necessary, but would accord with the usual practice.
It would be most unusual to provide for the registration in Scotland of subordinate legislation transferring property. It is unlikely that such subordinate legislation would list each particular item of heritable property transferred and it would certainly not contain a full conveyancing description. The burden on the Keeper of the Registers would therefore be enormous and he would have an almost impossible task in identifying the titles against which to show the subordinate legislation. The simplest way in respect of particular items of property would be to register a notice of title.
There would of course be nothing to prevent the title to any particular heritable property so transferred from being formally recorded at a later stage if Scottish Ministers or the Lord Advocate were minded to. I invite the noble and learned Lord to withdraw the amendment.
Lord Rodger of Earlsferry: Should not the transfer be registrable under the Land Registration Act?
Lord Hardie: It may well be, but the same issue would arise because subordinate legislation might not identify the particular property.
Lord Rodger of Earlsferry: It is a matter for the Government, but they might care to consider whether, since there would be a transfer, it would require registration under the Land Registration Act.
Lord Mackay of Drumadoon: The amendments were moved in the hope that they might be helpful. I am surprised that subordinate legislation is being contemplated which does not identify the property that has been transferred by it.
I shall look carefully at what the noble and learned Lord the Lord Advocate said and I shall research the point made by the noble and learned Lord, Lord Rodger. It may be necessary to raise the issue again on Report. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Sewel Lord Sewel moved Amendments Nos. 271D to 271G:
Page 24, line 42, leave out subsection (2).
Page 25, line 6, after ("Crown") insert ("or government department").
Page 25, line 6, leave out from ("subject") to end of line 12.
Page 25, line 12, at end insert—
("( ) Subordinate legislation under this section may only be made in connection with any transfer or sharing of functions of a Minister of the Crown by virtue of section 49, 59 or 84 or in any other circumstances in which the person making the legislation considers it appropriate to do so for the purposes of this Act.").
On Question, amendments agreed to.
Clause 56, as amended, agreed to.
Clause 57 agreed to.
Clause 58 [Transfers to the Lord Advocate]:
Lord Sewel Lord Sewel moved Amendments Nos. 271H and 271J:
Page 25, line 28, leave out ("to which this section applies,") and insert ("belonging to a Minister of the Crown or government department,").
Page 25, line 31, leave out ("to which this section applies") and insert ("belonging to a Minister of the Crown or government department").
On Question, amendments agreed to.
[Amendment No. 271K not moved.]
Lord Sewel Lord Sewel moved Amendments Nos. 271L to 271P:
Page 25, line 34, leave out subsection (2).
Page 25, line 43, after ("Crown") insert ("or government department").
Page 25, line 43, leave out from ("subject") to end of line 3 on page 26.
Page 26, line 3, at end insert—
("( ) Subordinate legislation under this section may only be made in connection with the Lord Advocate becoming a member of the Scottish Executive or having any retained functions or in any other circumstances in which the person making the legislation considers it appropriate to do so for the purposes of this Act.").
On Question, amendments agreed to.
Clause 58, as amended, agreed to.
Clause 59 [Power to transfer functions]:
Lord Mackay of Drumadoon Lord Mackay of Drumadoon moved Amendment No. 271Q:
Page 26, leave out line 8.
The noble and learned Lord said: This amendment and Amendment No. 271T raise certain issues relating to the powers which are proposed in Clause 59 to the effect that Her Majesty may, by Order in Council, provide for functions which are currently exercisable by a Minister of the Crown in, or as regards, Scotland to be exercised in different ways: first, by Scottish Ministers in place of or instead of a Minister of the Crown; secondly by Scottish Ministers concurrently with a Minister of the Crown; and thirdly by the Minister of the Crown only with the agreement of or after consultation with Scottish Ministers.
That is a power which could be used to transfer to the Scottish executive, either to act on its own or to act concurrently with Ministers of the Crown, executive competence over a wide range of functions additional to the executive competence which will flow from other provisions of the Bill.
As Members of the Committee will be aware, there has been deposited in the Printed Paper Office a draft of the first Order in Council under Clause 59 which extends to almost 90 pages and indicates a huge variety of functions under a large number of Acts, covering a great range of reserved matters as those are to be found in Schedule 5.
The purpose of the amendments are two-fold: first, to prevent that expansion of executive competence in a manner which would exclude altogether a Minister of the Crown. I have no objection to Scottish ministers being given such competence which they could exercise concurrently with Ministers of the Crown. As I understand it, in such a situation one or other could act and no doubt the working arrangements, whether they be by way of concordat or otherwise which will evolve in the years ahead, will ensure which one does act. But I am concerned about the Minister of the Crown being excluded from having any executive competence in those fields which all relate to reserved matters.
Amendment No. 271T seeks to ensure that it is not one-way traffic; in other words at present all that can happen is that the executive powers of British Government Ministers can go to Scottish Ministers in one of the three ways set out in Clause 59(1). If that power is exercised, it can mean only that the executive competence of Ministers of the Scottish executive increases every time another Order in Council is made.
The purpose of Amendment No. 271T is to enable there to be a reverse process in circumstances that if Her Majesty in Council decided that a particular executive power should go back to the Minister of the Crown alone, or be altered in the second and third ways set out in subsection (1), that also would be competent. I should indicate that I have no objection to government Amendment No. 271TA. I beg to move.
Lord Steel of Aikwood: Members of the Committee on these Benches do not agree with this series of amendments. We regard Clause 59 as providing a very welcome, flexible process by which, over the years, some executive functions may transfer. I simply do not understand the objection to that by the Conservative Party. It is quite clear in subsection (1)(a) that if functions are to be transferred to Scottish Ministers instead of a Minister of the Crown, Ministers of the Crown must agree to that, otherwise it would not happen. Therefore, I am afraid that this is the Conservative Party reverting to type and the great conversion on which I praised the noble Lord, Lord Mackay, on occasion has temporarily disappeared.
Lord Renton: I find the last comments of the noble Lord, Lord Steel, surprising as well as being unacceptable. Surely the overriding factor which we must bear in mind in considering these amendments is that although there is to be devolution, and on a fairly large scale, the unity of the United Kingdom must be preserved.
If merely by an Order in Council Scottish Ministers are to have responsibilities transferred to them by a Minister of the Crown, that departs from the definite character of devolution at which we should aim. Flexibility in many matters of government is worthwhile. However, we must bear in mind the need for preserving the unity of the

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United Kingdom and giving the United Kingdom Government and Parliament the power to do what is necessary for the country as a whole. I believe that the amendment proposed by my noble and learned friend is necessary.
Lord Sewel: Amendments Nos. 271Q and 271T are about the executive devolution of functions to Scottish Ministers; that is the process by which executive functions which relate to reserved matters are to be exercisable, in particular as regards Scotland by Scottish Ministers.
Amendment No. 271Q would prevent any such functions being transferred to Scottish Ministers so as to be wholly the responsibility of those Scottish Ministers. That transfer would take place only by order and on the initiative of a Minister of the Crown. On the basis of this amendment, that option would not be available to the Minister of the Crown. By preventing functions being transferred to Scottish Ministers in that way, the amendment goes against the very principle of devolution and introduces a degree of inflexibility into the system that I do not want.
The transfer order to set in train that process would be an Order in Council which would be affirmative in both Westminster and the Scottish parliament so there is plenty of opportunity for both parliaments to come to a view as to whether the content of the order is appropriate in any particular.
Amendment No. 271T appears to be intended to allow for the statutory functions exercisable by Scottish Ministers to be transferred to UK Ministers or to be exercisable by UK Ministers of the Crown either concurrently with Scottish Ministers or with the agreement of or after consultation with Scottish Ministers. I assure the noble and learned Lord that that matter is covered fully by Clause 98. An order under that clause can provide functions exercisable by a member of the Scottish executive to be transferred to a UK Minister or to be made concurrently exercisable by a Scottish Minister and a UK Minister. Again, it is the order route and I believe that that maintains the right framework and provides the right vehicle.
Therefore, I trust that having been given that explanation the noble and learned Lord will be able to withdraw his amendment.
I turn now to Amendment No. 271TA which stands in my name. Clause 59 provides that a function to be transferred or made concurrent under a Clause 59 order is exercisable only,
"with the agreement of, or after consultation with, another Minister of the Crown or other person".
Then, unless the order provides otherwise,
"the function shall be exercisable…free from any such requirement".
Amendment No. 271TA removes the reference to the "other person", so that, for example, a requirement to consult the local authority transfers automatically with the function. Further reflection on the wording of Clause 59 has led us to conclude that it is right that where a UK Minister is required to obtain the agreement of, or consult with, a third party—the "other person"—the Scottish Ministers should also be subject to the same requirement
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when they come to exercise that function after devolution. I am grateful to see the noble and learned Lord, Lord Mackay of Drumadoon, indicate that he has no objection to my amendment. On that basis, I hope that it will be acceptable to the Committee.
5.30 p.m.
The Earl of Balfour: I am only going by what I read in the Bill, but I am worried about the proposal to leave out the words "or other person", as set out in Amendment No. 271TA. I must say that I felt the original words would cover—and here I am on shaky ground—the independence of the Law Officers, because they are not quite Ministers of the Crown in this respect. I thought that the words "or other person" were designed to cover them within the provisions.
Lord Sewel: No, that is not the case. The "other person" in this subsection would relate to a situation where it was necessary for a Minister to consult a local authority or some other body before exercising his functions.
The Earl of Mar and Kellie: Can the Minister confirm whether I am correct in thinking that we are now discussing the transfer of reserved or devolved matters between the Westminster Parliament and the Scottish parliament?
Lord Sewel: No, that is not the case. We are not discussing the transfer of reserved or devolved matters; we are talking about the transfer of executive function, not legislative competence.
The Earl of Mar and Kellie: I am grateful to the Minister for that explanation.
Lord Renton: I understand the argument advanced by the Minister, but surely the power in Clause 59(1)(a) should be limited to such change as is made necessary by the power given under Clause 29 which says:
"Her Majesty may by Order in Council make any modifications of that Schedule"—
that is, the schedule which defines the reserve powers and exceptions. The Minister's argument was that the functions must be transferred because the legislative powers have been transferred. If that is not so—
Lord Sewel: No, that is not so.
Lord Renton: Well, if it is not so, when he reads the Hansard report of the debate I think the Minister will find that he has limited it in that way.
Lord Sewel: It is perhaps necessary to pull back a little and recognise the difference between legislative devolution—that is, the devolution of legislative competence—and some executive acts in respect of which, where the legislative competence is reserved, the executive authority will nevertheless devolve to Ministers.

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As the noble and learned Lord mentioned, we published a draft order in February and a further draft was made available on 10th July. They indicated the different categories into which various executive functions would be allocated; for example, those relating to reserved matters. Some were to be transferred to the Scottish Ministers, some would be made concurrently exercisable by the Scottish Ministers and a UK Minister, and some would be exercisable by UK Ministers only with the agreement of, or after consultation with, the Scottish Ministers.
The current version of the draft order lists over 400 functions which will be treated in one of those three ways. The majority of them will be transferred to Scottish Ministers so that only the Scottish Ministers will exercise that function in or as regards Scotland after devolution. Functions to be executively devolved include functions relating to betting, gaming and lotteries, firearms licensing, extradition, funding Gaelic broadcasting, appointments to tribunals, powers and duties in respect of electricity supply, roads and airports, the running of public sector pension schemes and the approving of places where abortions may be carried out. Those are all areas where the legislative competence remains reserved, but they are executive functions which conveniently, on the basis of common sense, are best carried out by the Scottish executive.
Lord Mackay of Drumadoon: I was disappointed to hear the noble Lord, Lord Steel, accuse me of reverting to type. Indeed, from day one of the proceedings on the Bill I have made quite clear where my priorities lie; namely, to make the Scottish parliament and the Scottish executive as successful as possible. In the first of my amendments I was not seeking to prevent the transfer of some executive authority or executive competence to Scottish Ministers in relation to reserved matters, if that was sensible. I fully accept that there are many instances where it is highly sensible that they should have that executive competence. I was seeking to avoid a situation where the sole person who would have executive competence would be a Scottish Minister in a situation where the only body which would have legislative competence would be this Parliament. I anticipate that what is competent under Clause 59(1)(a) could, in certain circumstances, give rise to tension between London and Edinburgh.
I draw the Committee's attention to one example which happened to catch my eye in the draft order. There are certain powers under the Abortion Act 1967 where the executive competence is to be devolved. I hope that I am right in that assumption. Indeed, this is a matter where the Scottish Ministers alone would have that power; yet the legislative competence lies entirely here, as noble Lords decided in a vote earlier this week. Therefore, it is possible that a problem could arise, which could be avoided, if we were limited to Clause 59(1)(a). That is why I raised the matter. I hope that I did so in a constructive manner.
On Amendment No. 271T, I fully accept that, when one looks at Clause 98, it could be construed as covering sending the powers back. Indeed, I should have
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appreciated that earlier. I fully accept that this amendment is unnecessary. However, I have raised the matter, and I now beg leave to withdraw Amendment No. 271Q.
Amendment, by leave, withdrawn.
[Amendments Nos. 271R to 271T not moved.]
Lord Sewel Lord Sewel moved Amendment No. 271TA:
Page 26, line 15, leave out ("or other person").
On Question, amendment agreed to.
Clause 59, as amended, agreed to.
Clause 60 [Transfers of property and liabilities in connection with functions]:
On Question, Whether Clause 60 shall stand part of the Bill?
Lord Sewel: I must point out to the Committee that, on this Bill, I have not reached my best until about 10.30 at night. Indeed, this is just the opening canter. Clause 60 is no longer required in consequence of Amendment No. 271G, which the Committee agreed to earlier.
Clause 60 negatived.
Clause 61 [Scottish Consolidated Fund]:
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 271U:
Page 27, line 4, at beginning insert ("Recognising the needs of Scotland in relation to the United Kingdom as a whole,")
The noble Lord said: We now come to Part III of the Bill which concerns financial provisions. Amendments in this group stand in my name, one in the name of my noble friend Lord Dixon-Smith and I believe two in the name of the noble Lord, Lord Steel of Aikwood. These amendments deal with the question of the money which is to go to the Scots parliament, how much it is to be and how it is to be calculated.
I should explain why I think my amendments are superior to that of my noble friend and to those of the noble Lord, Lord Steel of Aikwood. We have to be clear about exactly how the system works, and how I understand it may work in the future. I shall probably have to help the Government as they do not appear to be able to find their way in their own Bill at the moment.
Noble Lords: Cheap!
5.45 p.m.
Lord Mackay of Ardbrecknish: It may be cheap, but it is true. One of the interesting aspects of all discussion on the money which goes to the Scottish Office currently—and which will, of course, go to the Scottish parliament—is a total confusion about exactly what the Barnett formula does and is. The Barnett formula is not the mechanism for determining spending levels in Scotland. It determines only the annual changes that take place to the totals. The block itself is determined quite separately.
The Barnett formula was devised—but not named—by the noble Lord, Lord Barnett, when he was the Chief Secretary to the Treasury in 1978. It replaced a formula called the Goschen formula which was named after the forebear of my noble friend

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Lord Goschen, and which I believe had lasted for some considerable time. The noble Lord, Lord Barnett, did not name his formula. Interestingly enough, it was named by Mr. David Heald, who is now the professor of accountancy at Aberdeen University. It is amazing how Aberdeen University has cropped up throughout the Committee stage of this Bill, sometimes to the Government's advantage, but sometimes, I suspect, to their disadvantage. In 1980 Mr. Heald wrote when he was then at the University of Strathclyde's centre for the study of public policy,
"All formulae need a name. In the apparent absence of an official one I now name this the Barnett formula. Perhaps some day this will make Joel Barnett as famous as Lord Goschen".
It certainly has made the noble Lord, Lord Barnett, as famous as Lord Goschen; they talk about little else but the Barnett formula in the pubs of Scotland.
As regards the Scottish Office expenditure—and therefore the expenditure which will go to the new parliament—the block itself constitutes about 96 per cent. of the Scottish Office spend. I know that my noble friend the Duke of Montrose is interested in agriculture, fisheries and food. However, those matters are outwith the block. Perhaps we should establish whether that will continue to be the case. In the deep recesses of the Treasury a decision is made every year as regards what the percentage uplift should be for each department's spending. That is decided on inflation factors. We shall discuss later exactly how that is or ought to be measured. Thereafter there are negotiations between the Treasury and the English, or English and Welsh spending departments. They agree either increases or decreases. If they agree an increase, a proportion of that increase is added to the Scottish block. If they agree a decrease—that does not happen terribly often, but it happens occasionally—a proportionate cut is made.
Until 1992 the formula was related to population—as I believe one of the amendments in this group states—and it was 10/90ths for English and Welsh expenditure together and 10/85ths for England only. However, in 1992, after the censuses, the formula was changed. Now if there is an increase in an English department, the Scottish Office will receive 10.66 per cent. of that increase. If that occurs in an English and Welsh department such as the Home Office—I think that is the only case where this applies—the figure is 10.06 per cent.
The principle which the noble Lord, Lord Barnett, had in mind was that, over time, spending per head in Scotland ought to reduce to the English level. However, the simple fact is that the noble Lord, Lord Barnett, was wrong in that regard. Convergence has not occurred largely because of advantageous changes which have been made to the block thanks
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to the negotiating power of successive Secretaries of State. To be honest, these are negotiating changes which I—
Lord Dean of Beswick: Is there not perhaps another reason; namely, the emerging SNP? It has nothing to do with negotiations.
Lord Mackay of Ardbrecknish: I imagine that quite often Secretaries of State say to their Treasury colleagues, "If you do not give me some more money, the SNP will obtain more votes". However, that has not been terribly successful in stopping the march of the SNP in the past few months. The Government have now decided that rather than give more money, they will send a Treasury Minister. I am not entirely sure whether she will fare much better. But in fairness to my right honourable friends—some of whom are now my noble friends—they negotiated favourable positions thanks to the clout they had in Whitehall. That clout will be removed. There are therefore two ways in which this money is made up. It is because there are two ways that I think the formula advanced by the noble Lord, Lord Steel of Aikwood, misses the point entirely because his amendment implies—if I read it correctly—that the Barnett formula affects the whole of the block. However, that is not the case: it is not nearly as mechanistic as that.
In 1980 there was an interesting exchange. It was interesting partly because of what was said, but also partly because of the two individuals who took part. There was an exchange between Donald Dewar—now the Secretary of State for Scotland, but then the chairman of the Scottish Select Committee—and the then Secretary of State, my noble friend Lord Younger of Leckie, then Mr. George Younger. In answer to Donald Dewar, George Younger said,
"There are two different sorts of expenditure which come under my control. Those sorts of expenditure which have comparable forms of expenditure in England like education, health etc., are common to north and south of the Border, and other sorts of expenditure which are not strictly comparable. They are dealt with differently. What you have just asked refers to the main block of expenditure which concerns the comparable programmes. The way those are adjusted year by year is that they are argued on a general basis within government as comparable programmes as a whole".
That is why Scottish Office Ministers invariably accompany UK colleagues at discussions between the Treasury and the spending ministries. The Scottish block expenditure is calculated according to the formula that I have just explained. Mr. George Younger concludes,
"This is, I should stress, purely for the alteration of the programmes and not for the base line from which they start".
I must warn the Committee against making calculations and inserting mechanistic formulae which do not take into account the fact that the Barnett formula refers only to increases and decreases and not to the block.
The noble Lord, Lord Barnett, is always greatly flattered to be quoted in Scottish debates. He gave

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evidence to the Treasury Select Committee of the other place just recently. He said,
"I am flattered that the Barnett formula has lasted 20 years. I hope it will last much longer. At the time I must confess I did not think it would last a year or even 20 minutes. I was not sure".
I say to the noble Lord, Lord Steel of Aikwood, that I am not sure the noble Lord, Lord Barnett, will be flattered if his name is put into legislation and therefore acquires the eternity that that brings with it. The noble Lord, Lord Barnett, also said,
"Can I also make clear, as you also referred to the question of devolution, that the Barnett formula either then or now—although I know somebody said it at the time—has nothing whatsoever to do with devolution. I think that has to be borne in mind".
In the White Paper the Government stated that the arrangements I have explained based on the block and formula,
"have produced fair settlements for Scotland in annual public expenditure rounds and have allowed the Secretary of State for Scotland to determine spending decisions in accordance with Scottish needs and priorities. They have largely removed the need for annual negotiations between the Scottish Office and the Treasury. The Government have therefore concluded that the financial framework for the Scottish parliament should be based on these existing arrangements with, in future, the Scottish parliament determining Scottish spending priorities".
That is fine as far as it goes, but the reality is that from time to time over the past 18 years—I have little doubt this will occur from time to time in the future—the Treasury had a go at the block. It will not have a go at the Barnett bit of the block as that does not worry the Treasury too much because it has already negotiated that matter with a Whitehall department, but it will have a go at the block, sometimes aided and abetted. When that happens, the Secretary of State has to work very hard to resist it, as I know one or two of my noble friends have had to do in their time.
My Amendments Nos. 271U and 275A get away from the idea of the block and any mechanistic proposal and simply say that the amount of money should be allowed,
"Recognising the needs of Scotland in relation to the United Kingdom as a whole".
That would be a fairer and better long-term position for Scotland with regard to the money that comes to it. I am sure that it can be argued on a variety of counts that there are good reasons why Scotland ought to receive more per capita than other parts of the UK, just as it can be argued that there are good reasons in relation to Northern Ireland and Wales, and, if I may say so, that certain areas of England should have higher expenditure per capita than other parts of the United Kingdom. I should like to write my amendments onto the face of the Bill to make clear the basis on which any future discussion would be held on the block itself.
My noble friend Lord Dixon-Smith has tabled a much more mechanistic amendment which probably introduces the "Dixon-Smith formula" into the block. I do not particularly like it. It is too mechanistic, and I believe that my amendment is better. My noble friend tries to measure the same sort of matters, such as GDP per capita in Scotland and how it relates to the rest of
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the UK. But there is more to the issue than merely GDP per capita in Scotland. There are questions of needs, sparsity and other factors which are present in Scotland and which require, and deserve, higher government expenditure.
With his Amendments Nos. 272 and 274, the noble Lord, Lord Steel, wants to enshrine the Barnett formula. I do not know where that leaves the block itself. If it leaves it anywhere, it certainly leaves it open to considerable attack by the Treasury.
Perhaps I may say a word about the previous amendment just to give the flavour of my—
Lord Steel of Aikwood: I am most grateful to the noble Lord for his exposition. It has been remarkably lucid. But surely his Amendment No. 271U, simply saying,
"Recognising the needs of Scotland in relation to the United Kingdom as a whole",
without any mechanistic formula whatsoever, is far more likely to be open to raids by the Treasury. I do not think the noble Lord was present on the occasion when the Secretary of State, Malcolm Rifkind, was going through the same tortuous explanation to the Commons. My noble friend Lord Russell-Johnston asked him about the application of the "OCHTHINE" formula and whether that did not apply. Malcolm Rifkind looked rather puzzled and asked what it was. He was told that it was the well-known Scottish Office dictum: "Och, tae hell, it's near enough"!
Lord Mackay of Ardbrecknish: I do not think we will have that formula, nor indeed a new Russell-Johnston formula.
It is difficult to devise a provision that ties in the relationship between Scotland and the United Kingdom when we move to devolution. I am basing my effort on a broad-brush, broad-principled approach, because it is extremely difficult to tie the matter down. It is certainly very difficult to do so on the basis of the Barnett formula, for the reasons I have given. Perhaps some of us would merely prefer to write into the Bill, "and nothing will ever change". But in reality that cannot be done.
Let us assume for a moment that the new Scottish parliament is as good as some of its advocates suggest, the economy of Scotland hugely improves, and some of the reasons for Scotland acquiring more money begin to disappear—as in many ways they have over the past 20 years; they have been reduced. The previous government were very successful in many regards in changing the Scottish economy, introducing new industry and so on. But if we are to have these changes, there must be some underlying principle by which future Secretaries of State and Treasury officials will judge the matter.
The amendment tabled by the noble Earl, Lord Mar and Kellie, and my noble friend Lord Lindsay, seems a good deal more interested in territory, wildlife and scenery than it does in people. I believe that a formula

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should be devised more on the basis of the needs of the people of Scotland relative to the United Kingdom. I beg to move.
Lord Mackie of Benshie: I rise to speak to Amendment No. 272 and related amendments. I, too, am extremely grateful to the noble Lord, Lord Mackay of Ardbrecknish, for his exposition. It was lengthy but full of good work, and I am the wiser for it. What we are trying to do is elicit from the Government how they intend to lay down a system. The amendment is a probe to find out how in future we are to have a system that will work. It appears to us that one approach is certainly the so-called Barnett formula.
One of the reasons that we like to think that the Barnett formula might be used has already been given by the noble Lord, Lord Mackay of Ardbrecknish. It is that successive Secretaries of State in the Tory government successfully competed with the Treasury for more money under that formula. It is a system whereby at least the supply of money is laid down according to some formula and there cannot be the kind of competition that one always gets in the Treasury—and the competition that there might be from a hostile government. The other point is that, as I understand it, there is competition between Members of the same Cabinet on some occasions. They might well use their enmity to force their own point to the detriment of Scotland.
We are saying simply that we need a formula. If there is a formula, then at least the new Scottish government can begin to tackle the problems that have given rise to the need for more money per head as compared with England. The obvious one is the amount of area that is involved, the distance that has to be covered. Another factor to be contended with is the bad health of the people of Scotland. There is also the decline in heavy industry from which Scotland has suffered since the end of the war, although it is now catching up in the field of electronics and so on. Those are all special problems that Scotland has. If the Scottish parliament works within a formula that has been enough under previous governments, then it can do better and can do more with that money. But to leave matters as stated in subsection (2) that,
"The Secretary of State shall from time to time make payments into the Fund out of money provided by Parliament of such amounts as he may determine"—
is possibly a little too wide. A formula needs to be provided so that we know that for a recognisable period of time there will be adequate income for the new parliament to overcome the ills that have lowered the income per head and the need for more money per head.
Amendment No. 279 is a simple amendment to determine what is going on, to assess the amount of money coming in from Scotland's industry, to assess the increase, and so on. That is a factor that we shall be examining. In time, if the Scottish parliament is any good at all, then it will depend on the money that it raises on its own. As the noble Lord, Lord Mackay of Ardbrecknish, said, agriculture is presently in a different category. But in Scotland it is a far more important factor proportionately than it is in England. I shall be
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interested to hear the Government's response. I am sure that we shall receive an admirable explanation as to how the system will work.
Lord Dixon-Smith: I am grateful to the noble Lord, Lord Mackay of Ardbrecknish, for, in a sense, introducing my Amendment No. 273. During the course of his remarks, although he rejected it, he actually began to make the case for it. I do not need to remind the Committee that we are discussing the Scottish block—not increases to that block, but the block itself. I have tabled an amendment which attempts to protect the Government from the slings and arrows of outrageous politicians—or perhaps it should be outraged politicians. Without something on the face of the Bill, it is my view that the Government's position will become increasingly difficult as we go forward into the future.
I have a formula of sorts which relates expenditure in Scotland to population. It picks up the factor that my noble friend Lord Mackay of Ardbrecknish mentioned of sparsity. It has an escalator clause in it in relation to prosperity. The escalator may go up and down too rapidly or it may be that the sparsity proportionality is not absolutely appropriate. However, I took the trouble to work it out in relation to existing expenditure, with a view to not causing too great a shock. Expenditure in Scotland is just below 20 per cent. greater than the average United Kingdom expenditure. I shall not trouble to compare it with the English per capita average.
If I take the wording of the amendment proposed by the noble Lord, Lord Steel of Aikwood, literally and apply it to the Scottish block, as it is intended to be applied, it is my belief that it would lead to a dramatic reduction in the size of the Scottish block. I am sure that that is not quite what the noble Lord intends. I assume that he is applying the proportionality of the increase to the total public expenditure budget and bringing it back as a proportion to create a figure for Scotland. On my arithmetic, I think Scotland would lose if that were done. It may be that I have misinterpreted the way it is intended to be used.
Lord Mackie of Benshie: All we are saying is that we continue the block negotiations as at present. So how that can block the expenditure or reduce the amount of money coming into Scotland, I fail to follow.
6 p.m.
Lord Dixon-Smith: The problem with the block is that it is not a definable sum. The block itself reveals the weakness to my mind of the amendment proposed by my noble friend on the Front Bench. The block consists of a sum of money calculated annually after a negotiation between the Secretary of State for Scotland and the Treasury in which it seems that, unusually, over the years the Secretary of State for Scotland has beaten the Treasury and been successful.
However, they will both argue that that calculation is made recognising the needs of Scotland in relation to the United Kingdom as a whole. It has always seemed to me that that is the present situation and I am sure that when the noble Lord, Lord Sewel, winds up he will tell me that that is the case. I shall be surprised if he does

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not. If the government of the day, in arriving at that kind of calculation, do not take account of the needs of Scotland in relation to the needs of the United Kingdom as a whole, then frankly, I do not know what they would be doing. They would certainly not be doing their proper job.
I seek to provide protection for the Government for the future. Let me illustrate the problem. The exam questions will become more difficult as time passes. The noble Lord, Lord Sewel, will need no reminder of the differences between secondary education in England and Scotland. We had a debate on the subject a little while ago in relation to payment of fees at Scottish universities. We know that Scottish secondary education is based on a five-year module and that English secondary education is based on a six-year module. The fact is that the five-year module costs just over £900 more per pupil, but in order to make the point we will take £1,000. That is £1,000 more per pupil than the English six-year module. If I were a tight-fisted canny Scot, I would begin to wonder why this supposedly superior system, which costs £1,000 more, actually produces a product which then requires four years of university education to achieve the same degree for which an English pupil, having had less spent on him in an inferior system, only requires three years.
Of course, I am not a canny hard-nosed Scot so I do not have to ask the question. But if I were standing as a member of the Scottish parliament I would see enormous opportunities here for re-jigging the budget. It seems to me that there are elements of excess expenditure. The point I make is this. These questions will arise and be examined in detail. They will be examined more and more from an English perspective. As the questions are asked, pressures will increasingly be put on the Government. The result will be that the Scottish block will come under critical examination and there will be pressure for it to be reduced.
The Government will then have a choice. They can reduce it and become the enemy of Scotland or maintain it and become the enemy of England. That is not a situation in which the Government of the United Kingdom should ever permit themselves to be put. That is why I have devised a formula. It may be inadequate, it may even be that it needs considerable improvement. But I suggest in all seriousness that the Government will put themselves in jeopardy for the future if they do not put something like this on the face of the Bill.
Lord Dean of Beswick: I am puzzled as to why we are talking about amendments on what financial assistance or entitlement will be received by Scotland when the Scottish parliament becomes fact. It does not exist yet, but as I understand the situation, people already know what they will get before the parliament has been brought into existence. In my opinion, that is a peculiar way of legislating. One only has to look at Hansard for Tuesday 14th July to see repeated in your Lordships' House the Statement on the Comprehensive Spending Review. Col. 133 states:
"At every stage, we are linking investment to reform and it is on this basis that the Education Secretary tomorrow will announce the biggest single investment in education in the history of our country.
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In this and other services there will be separate announcements based on the Barnett formula for Scotland, Wales and Northern Ireland".
There is nothing about England; we do not know what England will get. No figures are put on it.
Baroness Carnegy of Lour: Will the noble Lord allow me to intervene? I have one question on what he has been saying. Does he appreciate that the increases in the Barnett formula are based on spending in England? That is why it is not mentioned.
Lord Dean of Beswick: The reference is not only to the Barnett formula; we are talking about financial issues in general. The key figures are given at paragraph 22.4 on page 93 of the Comprehensive Spending Review:
"The new plans will provide an additional £4.1 billion over the next three years to invest in Scottish public services".
It has not been negotiated, it is a handout which is already known. I wonder why we are going through all the business of trying to introduce separate amendments. For the life of me, I cannot see any Chancellor of the Exchequer of the United Kingdom altering major decisions which are taken on the basis that amendments of some kind may arise. I just wonder what the situation is.
Over a period, as is probably known by those who are interested in the Bill, I obtained a league table. I have not brought it with me because I am hoping to speak more at length when we reach Report stage. By then we will know in detail what is emerging from the Statements to which I have just referred. At present, we do not know. At that time I may be able to find out what will be paid to the different services in the English regions.
I believe that the announcements made today or those to be made tomorrow in relation to the English regions will have come into being and they will be de facto. The chairmen of those regional councils will want to know how big a share of the cake they will receive once they know what Scotland is receiving. They would be doing less than their job if they did not ask for a better comparison than we see in the figures before us.
In relation to every item of spending, if we take it on a per capita basis, Scotland does infinitely better than England. Wales does better on a lower scale, but the biggest difference pro rata is Northern Ireland, and there are specific reasons for that. Let me give some examples. I received some figures today. I tried to obtain them from the Treasury some time ago but was sidelined each time I asked for them. In fact, the cost of obtaining them was disproportionate to what they uncover. However, I asked some researchers to look into the situation.
We all know that there has been a lot of antagonism, especially between Scotland and the northern counties of England just across the Border. I wanted to know how much money was being provided to buy jobs—I say "buy" jobs—for north of the Border. Finally, I obtained these figures—they are the Government's figures—from the Library. We are not talking about peanuts. They show that, in development areas,

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the average government subvention to Scotland was £8,103 per job; in England, it was £4,326—just slightly more than half. Wales was similar to Scotland.
When I hear Members of your Lordships' House on the other side asking for a bigger share of the cake, as somebody from the English regions looking at these figures I say, "Not on your life. I think you are doing very well as it is". If we look at the figures produced in your Lordships' House some time ago—for instance, per capita spending on tourism—in England it is £20 a head and in Scotland £5,000.
Those figures are beyond belief. I do not know what formula produced them, but it is amazing to me that it has been allowed to happen. And they are not my figures. The noble Lord, Lord Dixon-Smith, referred to some figures in his speech. But the known fact is that, under the present system, the total spending per capita in Scotland above the total spending per capita in England is £871 per head, which is a lot of money. According to the headlines in one of the Scottish newspapers, the new deal that was announced a few weeks ago in the spending review gives the Scottish people £800 per head out of that. That makes the difference even more, unless the Government are going to pump a substantial amount of money into the English regions. I do not want to take any of the money back from Scotland, but I do not want Scotland to have a £1,600 advantage over England in the payments it receives from the Treasury.
I do not know whether any other Members of your Lordships' House received a booklet today called "Brigadoon". Do I take it the noble Earl wants me to give way?
Earl Russell: Yes.
Lord Dean of Beswick: Well the noble Earl might ask!
Earl Russell: Would the noble Lord, Lord Dean of Beswick, be equally indignant if the Government were spending more per head in Mosside than they were in Trafford?
Lord Dean of Beswick: The noble Earl draws a strange conclusion. What happened in Mosside has nothing to do with the people in Mosside; it is to do with ethnic people who have come over here and settled there in an attempt to make a home. We are dealing with people who have been established in England without variation and without specific problems.
The Earl of Mar and Kellie: I am grateful to the noble Lord for giving way. Does he accept that the spending in Scotland is part of the Treaty of Union in which Scotland was asked to trade its sovereignty for economic advantage.
Lord Dean of Beswick: If the noble Earl could say that Scotland had traded in its sovereignty when 60 per cent. of the United Kingdom Cabinet comes from north of the Border, there would be some relevance in it. Three out of the four Ministers at the Treasury who
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decide these issues—I believe it changed in the latest round—happen to be Scottish MPs. So it is not a bad deal they are getting.
I believe—and I am making the point—that if all this money is going to be made available to Scotland (I have just quoted the figures from the Chancellor's report and there are substantial increases) we must keep an eye on the situation. The facts will emerge. Once the regional assemblies come into being, the people on those assemblies representing Yorkshire, Lancashire and other areas will want to know what is in it for them; how far will they be able to go in developing areas?
It is well known that one of the most deprived areas in terms of unemployment south of the Border is the North-East. Its average input from the Government per job is just £3,000 and in Scotland it is £8,000. Let us try to tell the people in the North-East that they are getting a good deal and that the Barnett formula is working. They will tell us to go and get stuffed, to put it crudely. That is what will happen. They are starting to wake up to the situation.
The Government are aware of the position. I do not intend to do anything about the amendments, but I shall watch the situation when we come back for Report stage. If amendments need to be tabled, there may be some anti-Scottish elements in them from looking at the figures because Scotland is doing a hell of a sight better than any of the regions in England on any of the figures produced.
The Earl of Onslow: The noble Lord opposite has shown the glory of old Labour. The faces of his colleagues on the Front Bench were wonderful to behold as he spoke pure, unadulterated common sense. What he said is so obviously true; that is, that this unbalanced, block formula will do nothing other than cause anguish between England and Scotland. And anguish between England and Scotland is something that I, as a Unionist, English by geography and British by nature, find deeply offensive and terribly worrying. That was perfectly well illustrated by the intervention of the noble Earl, Lord Mar and Kellie, who simply did not understand the Act of Union one tiny bit, even though his forebear signed it.
In this Bill we have either gone too far or we have not gone far enough. If we are to allow the Scots to have their own money, they should raise it themselves. Or they should not have it at all. What we cannot do is have a "Damascus tailor" argument over the block grant and the irritation, the hassle, the disaster and the increase in hatred—that is exactly the word I intended to use—between the English and the Scots, which to me would be the most tragic thing that could possibly happen. The noble Lord has just said from the Benches opposite exactly what I feel. He may be shaking his head, but I promise your Lordships that he did. He did it wonderfully, and I thank him.
Lord Dean of Beswick: I am sorry that the noble Earl takes the view that I want to engender antagonism between the Scots and the English. The point I am trying to make is that I do not want any money from Scotland if it has been apportioned to them, even on the increases

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that have been stated. I am making the case that unless the same things are done for the English regions there will be hell to pay. I hope that the Government are listening. I do not want any aggro over it. The entitlement for those areas should be there, and it should be a fair one. That will remove the animosity. Nothing else will.
Baroness Carnegy of Lour: I am sure that we all agree that the noble Lord, Lord Dean, has made a splendid speech. He has expressed the views and fears of a great many people both north and south of the Border. We should all be grateful to him. I agree with him that this is the part of the Bill that will play most immediately into the hands of the people who want to tear Scotland out of the United Kingdom unless something can be done about it.
It also shows what the Prime Minister meant when he compared the Scottish parliament to a parish council in England. On finance, this parliament will not have anything like the power of even a local government council over its own finances. Local government councils, apart from the money they can raise through their own taxation, can buy and invest on the market; they own and control their own funds. Not so this parliament. Its funds will be raised in the way that the Bill says—of course with the extra tax—but the funds will be held in the Scottish Consolidated Fund, not in its charge but in the charge of the Paymaster General.
If the parliament receives interest, that interest has to go back into the UK Consolidated Fund. If the Scottish parliament wants to borrow, it can only borrow for a short-term need to keep the books in balance. Again, any interest that it has to pay has to be at the Treasury rate, not the market rate.
Apart from the tax which the parliament can raise through increased income tax, everything will depend on the size of the Treasury grant that we are discussing. The calculation which is underlying the Bill, with only the Secretary of State for Scotland in the Cabinet to defend the calculated fund, will matter enormously to the people of Scotland. The speech of the noble Lord, Lord Dean, illustrates that.
There are two ways that it can be calculated. You can do it by a formula, openly stated either on the face of the Bill or published, which is seen to be fair. The amendment of the noble Lord, Lord Dixon-Smith, should not be underrated in this respect. It is a carefully thought-out formula and there is much to be said for it. It may be that the Government will wish to consider something like this over the summer.
Alternatively, one could have internal arrangements, used for their own convenience by the Treasury and the Cabinet, which of course is what the Barnett formula is. My noble friend Lord Mackay of Ardbrecknish has explained that the Barnett formula does not set the rate of the block but is about increases in Scotland, Wales and Northern Ireland related to the spending in England. That is probably becoming a very old-fashioned way of proceeding. Most local government councils gave up that way of budgeting a long time ago, as I am sure the
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noble Lord, Lord Sewel, will agree from his experience. They go in for zero budgeting whereby they decide what they need to do and what it will cost, and start there. There is something of that in the amendment of my noble friend Lord Dixon-Smith. It is an old-fashioned way.
Are the Government prepared to put anything more definite on the face of the Bill? That is the question that we are discussing. Before long other ideas will emerge about this. There is some thinking going on already. There is an interesting pamphlet, published by a group in Scotland called the Tuesday Club, which relates to one method. You can take what the Scottish Office spends at the moment in the way that it calculates it and then calculate what is needed for the reserved powers. You could collect all the money into the Scottish Consolidated Fund, which is raised by taxes in Scotland, and you would then pay over what is required for reserved and other functions.
I asked the Library to analyse that booklet and it was explained to me that there are certain aspects of it which are somewhat vague. You could question how it calculates what the spending needs are. It is a very interesting approach. Other groups are thinking in the same way. In time the Government will have to think of better ways of deciding how the Scottish parliament can receive its money and spend it so that it is more stable.
My noble friend on the Front Bench has suggested that the Bill should have on its face the fact that the Scottish block is related to needs. It is a small change, but at least it indicates that what the noble Lord, Lord Dean, was complaining about would not be the case. There would be no mystery about percentages as applied through the Barnett formula.
There is a rumour that the noble Lord, Lord Barnett, wishes to change his name to Lord Barnett of the Formula in order to perpetuate this marvellous part of history, where his name is attached to what we in Scotland depend upon. I do not know whether he will do that. I do not think that the Barnett formula should be on the face of the Bill. It is out of date. Although it is gradually having a diminishing effect on the difference between spending in Scotland and the average over the UK, it is not the right way to do it now.
My noble friend has a good point. I hope that the Government will think about this over the Recess and perhaps at least put in the Bill more information on how the whole thing will be worked out. Otherwise the separatists will have a great time with this part of the Bill.
Lord Thomas of Gresford: The indignation that was expressed by the noble Lord, Lord Dean of Beswick, and supported by the noble Earl, Lord Onslow, arises out of the way in which the funds that were devoted to Scotland and Wales were spent in the past. To a very large extent the Secretaries of State for Scotland and Wales were prepared to, in effect, bribe overseas companies to come to their areas, and to attract inward investment in this way.
One hopes that the Scottish parliament and the Welsh assembly will spend the money that is made available to them on removing the disadvantages of those respective

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countries. If the money is spent on improving communications, education and technology and encouraging indigenous industry in Scotland and Wales, then those countries will have their economies improved to the extent that they will no longer be, as they are now, suffering a low wage level.
Lord Dixon-Smith: Does the noble Lord accept that his argument may well be applicable to Wales, which is his own country, where the GDP per head is well below the United Kingdom average, but that it is a much more difficult argument to sustain for Scotland, where the GDP per head is now, thanks to 20 years of successful development, virtually at the United Kingdom average?
6.30 p.m.
Lord Thomas of Gresford: I am grateful to the noble Lord for his intervention because it enables me to make a point. The Barnett formula has brought Scotland up to a degree which no other mechanism could perhaps have done.
In Chapter 7 of the White Paper Scotland's Parliament, under the heading "Financial Arrangements", I see that the objectives of the financial arrangements of the Scottish Parliament are said to be that Scotland will continue to benefit from its appropriate share of United Kingdom public expenditure and that the Scottish parliament's assigned budget is to be determined by a method which is "objective, transparent and widely accepted". When one turns to the Bill itself, all one sees is:
"The Secretary of State shall from time to time make payments … of such amounts as he may determine".
That does not seem to express a method which is "objective, transparent and widely accepted".
When one looks further at the White Paper one sees the Government's view that arrangements based on the block and the formula have produced fair settlements for Scotland in annual public expenditure rounds and have allowed the Secretary of State for Scotland to determine his spending decisions in accordance with Scottish needs and priorities. The White Paper goes on to say:
"The Government have therefore concluded that the financial framework for the Scottish Parliament should be based on these existing arrangements with, in future, the Scottish Parliament determining Scottish spending priorities".
More than that, an appendix is devoted to explaining the Barnett formula in terms.
That being the case, I do not see how the Government can now resist the amendments proposed from these Benches which seek to have as a starting point the Barnett formula and its revision over a period of some 10 years, after one sees how the formula is put into effect and when one has had an opportunity to see whether the Barnett formula is working in accordance with what the White Paper said. So the very least the Minister can do in response to the arguments put forward today is to give an assurance that, from the beginning, the Barnett formula will be applied. I am looking to hear that from the Minister when he replies at the end of the debate.
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Perhaps I may move on to Amendment No. 287, which stands in the name of my noble friend Lord Thurso but has not been addressed by anyone so far. It is a probing amendment. The Bill gives the parliament the right to vary income tax upwards or downwards by 3p in the pound. When tax in Scotland is varied upwards, the Bill provides that the surplus revenue generated is to be paid into the Scottish Consolidated Fund and thereby increasing the amount of money available to be spent. Clause 74, to which Amendment No. 287 refers, provides that where tax is varied downwards the shortfalls in receipts are to be deducted from the Scottish Consolidated Fund and paid back to the Treasury.
The argument in relation to how tax-varying powers are treated is relatively simple. The Government take the view that there is a Scottish block which in the estimation of the United Kingdom Parliament is sufficient for the financial needs of Scotland. However, they have recognised that the Scottish parliament may take a slightly different view as to the needs of the Scottish people. Indeed, when one looks at the amendment moved by the noble Lord, Lord Mackay of Ardbrecknish, one has to ask the question: who estimates the needs to which he refers? Is it the Scottish parliament or is it the United Kingdom Parliament? If hidden within that amendment is the suggestion that it is entirely the United Kingdom Parliament's determination which counts, the Scottish parliament will be entirely at the mercy of what happens at Westminster.
All those who support tax varying are in agreement with the Government that the Scottish parliament should have this tax-varying power. The Bill provides that the parliament can vary the tax downwards by up to 3 per cent. If that happens, it is the Government's view in Clause 74 that Scotland does not need the total fund voted to it and, consequently, any moneys lost to the central Exchequer from such a downward variance should be reimbursed to the Exchequer out of the Scottish Consolidated Fund. The result of Clause 74 must be that no future government of Scotland would ever vary the basic rate of tax downwards because the money would simply go back to the United Kingdom Parliament. It would be returned to the Treasury.
What one is looking for in the amendment is a means by which the funds granted under the block grant could be retained in Scotland and used for other purposes. That is the purpose of the amendment in the name of my noble friend Lord Thurso.
The Duke of Montrose: I thank my noble friend Lord Mackay of Ardbrecknish for the masterful way in which he laid out the framework under which we are now operating. I wish to make one or two observations about Clause 66. I listened to the speech of the noble Lord, Lord Lang of Monkton, when we were considering Clause 33, and to the Minister's reply to the debate. The first question that came to mind is: to which Secretary of State does the provision refer? In the first instance, one thinks that it must be the Secretary of State for Scotland. However, given the total lack of definition or content as to what constitutes the office of the

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Secretary of State for Scotland, one has to ask whether in the long term there will be such a position; and if not, who will take the action.
At present, the Secretary of State for Scotland receives a block grant from the Treasury. Presumably, that process will continue. In Amendment No. 274 the noble Lord, Lord Steel of Aikwood, asked that the payments to be made under subsection (2) should consist of a block grant to the Consolidated Fund. Presumably, we are talking about two block grants. Let us hope that they will always coincide, but I do not think that that will always be the case.
I see from Annex B to the White Paper that expenditure on domestic agriculture, fisheries and food is to be taken into the new Scottish block. When one looks to see whether there is any indication of that in the Comprehensive Spending Review to which the noble Lord, Lord Dean of Beswick, referred, one sees that the expenditure limits of the Scottish Office are approximately £1 billion per annum less than in the previously published government expenditure forecast. I wish I could offer this to the noble Lord, Lord Dean of Beswick, as a comfort. However, not being a statistician, I can only say that it must be a statistical quirk, because the Government tell us that this is an increase.
The figures given for the Ministry of Agriculture, Fisheries and Food refer only to domestic agricultural expenditure for England. I know from inquiries that the expenditure limits for the Department of Agriculture in Scotland have been set until the year 2002, but in the Comprehensive Spending Review they appear to have been dropped into a black hole. The question to which I should like an answer is whether this means that, even after devolution, the money supplied to the Secretary of State for domestic agriculture in Scotland will be under a separate heading and that any reallocation of funds carried out by the Scottish parliament will have to be within the department's own allocation?
The Earl of Mar and Kellie: The noble Duke, the Duke of Montrose, has brought us to a point at which it might be appropriate for me to speak to Amendment No. 275, which relates to the environment. Despite the encouraging way in which the noble Lord, Lord Mackay of Ardbrecknish, gave it the thumbs-down, I invite other Members of the Committee to consider it.
The amendment has been tabled to ensure that payments made to the Scottish parliament are adequate to meet the environmental needs of Scotland. This is the second amendment that has been suggested to me and to the noble Earl, Lord Lindsay, by the RSPB in Scotland. The amendment would supplement the Scottish block calculations, which are largely based on population—by that, I mean that they are based on the human population. It has to be recognised that Scotland is inhabited by more than just humans, and that land is taken up as habitat for many species, of which humans are but one, albeit a significant, component.
Scotland is distinctive within the United Kingdom in terms of environment, among other things. It is well known that Scotland is home to 8 per cent. of the UK's
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human population. Scotland comprises 33 per cent. of the UK landmass. The Scottish coastline is lengthy, and accounts for 54 per cent. of the UK coastline. In terms of sites of special scientific interest, Scotland has 29 per cent. of those notified, but examination of the area involved shows that this is larger than usual, and that Scottish SSSIs represent 79 per cent. of the UK's SSSI hectarage.
When it comes to considering special protection areas as designated under the Birds Directive 79/409, 52 per cent. of the still-incomplete list are to be found in Scotland. Under the Habitats Directive 92/43, 40 per cent. of the UK's special areas of conservation are in Scotland.
My penultimate percentage concerns wetland sites under the Ramsar convention. Here, Scotland enjoys 34 per cent. Perhaps I may link my final percentage with the purport of all this environmental data and the amendment itself. Scotland clearly has greater liability for its interesting and diverse environment and landscape. The Scottish parliament is, rightly, required to comply with international obligations. Clearly, the formal environment—perhaps I mean "Environment" with a capital "E"—is greater than its population would imply. The funding of the Scottish parliament must reflect that responsibility.
I conclude with a final statistic, which is that of the UK's protected birds, 67 per cent. live in Scotland. Those birds are a good indicator of how agri-environmental policies are working. They have the means of going elsewhere in the event of policy failure. That, of course, is a possible event if the Scottish parliament is not adequately funded to take up its task of environmental stewardship.
Lord Taylor of Gryfe: I have listened with great interest to this afternoon's debate. Although I have nothing original to say, I cannot help feeling that we are discussing the heart of the matter. Most of us are committed—I believe that all Members of this Committee are committed—to Scotland remaining part of the United Kingdom. Unless we resolve sensibly and acceptably the financial arrangements for the continued Union, we will be in immense difficulties.
The public expenditure review—I have a copy with me—promises that the Barnett formula will continue for another three years. That is not stated in the Bill, but it appears in the Government's spending plans for the next three years. The Barnett formula was formulated when Scotland was suffering severely from economic depression and neglect. For the past 15 years, I have been one of the vice-presidents of the Scottish Council (Development & Industry). As a result of its activities as well as those of the Government, we have been able to improve substantially the standard of living of the people of Scotland—
The Earl of Onslow: Under a Tory Government!
6.45 p.m.
Lord Taylor of Gryfe: It was a combination of interests. It started even before the coming to power

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of the Tory Government 18 years ago. I hope that a Scottish parliament will contribute to Scotland's further prosperity, but that will certainly diminish the differentiation in standards on which the Barnett formula was established.
There is reason to believe that some of the sentiments expressed by the noble Lord, Lord Dean of Beswick, will have some impact on political thinking, particularly south of the Border. I note that one of the candidates for the position of Mayor of London has said that if he is elected mayor of London, he will want the same level of GDP per head expenditure in London as is received by the people of Scotland. That is part of his manifesto programme. So, the noble Lord, Lord Dean of Beswick, has some friends in London.
The heart of the matter will be how much Scotland will have to spend. During the "yes/no" campaign, what the Scottish parliament was going to deliver was hyped up and exaggerated. It was not totally realistic. The public expenditure review states that Scotland will have sufficient money—bless his heart, Sam Galbraith, an excellent man who is in an appropriate position as Minister for Health, has said that Scotland will have the best health service in Europe. Others have promised that it will have the best transport service, with an integrated transport system. It is said that services in all other areas of public expenditure will be better delivered than ever before.
As we all know as reasonable and sensible politicians, getting the best health service in Europe is not simply a matter of having a good Minister in charge. It is a matter of cash, expenditure and the good running of the business. The Scottish people have been led to believe that there will be a tremendous economic and social transformation in Scotland. I hope that that will be delivered, but a good deal will depend on what we are discussing this afternoon in terms of the amount of money that will be made available to Scotland as part of the United Kingdom.
This is a most serious point. Any failure to deliver by the Scottish parliament will be blamed on the Westminster Government—and that is the beginning of the separatist argument. So, I hope that the Minister is fully cognisant of the importance of this issue—I am sure that he is—because it is the heart of the matter.
Lord Selkirk of Douglas: I rise to ask two brief questions. In his amendment, my noble friend refers to recognising the needs of Scotland. I should like to ask the Minister whether there will be a comprehensive needs assessment, as I understand happened in the past under the previous Labour Government. If there is not to be a comprehensive needs assessment, is it the Minister's view that the present system of funding equates with the needs of Scotland and other parts of Britain?
Lord Renton: The noble Lord, Lord Taylor of Gryfe, rightly said that he wished all of this to be considered
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as part of the United Kingdom. If he looks at Amendment No. 275A he may agree that it fulfils his wishes.
Lord Sewel: I should like to deal with many of the points that have been raised in this wide-ranging debate on an extremely important issue that affects the devolution project. I start with a comment of the noble Lord, Lord Mackay of Ardbrecknish. He was gracious enough to draw the attention of the Committee to the work of my former colleague Professor David Heald (as he is now). I let the Committee into a little secret. About 10 to 15 years ago Mr. David Heald (as he was then) and I published various articles on public expenditure in Scotland. He came up with the bright idea of describing this as the Barnett formula. Some years later, when I was responsible for social sciences at the University of Aberdeen, the department of accountancy was looking for someone to head the public expenditure branch. David Heald was a formidable candidate for that post and was successful in obtaining his chair. Since that time it has been recognised on all sides that he has made a significant contribution to the whole debate about public expenditure; in particular the implications for public expenditure raised by devolution. He is always constructive and helpful. He is a professor, unlike my other valued colleague Dr. Michael Dyer, whose comments and insight are not always as helpful to Her Majesty's Government. He is a lecturer at the University of Aberdeen.
The noble Lord, Lord Mackay of Ardbrecknish, explained well the nature of the Barnett formula and what it did; and, perhaps more importantly, what it did not do. I believe that the undergrowth has been cleared. It is important to remember that it is about incremental change and only that. In response to the noble Baroness, Lady Carnegy of Lour, I am a great advocate of incremental change. It is something that is manageable. I am very suspicious of people who say that they carry out zero-based budgeting every year. For complex organisations I believe that that is more rhetoric than reality, but never mind.
The noble Lord, Lord Mackay of Ardbrecknish, said that one of the purposes of the Barnett formula was to bring about convergence of public expenditure levels on a per head basis as between Scotland and predominantly England. The extent to which convergence takes place is a function of basically two factors: inflation and the real increase in public expenditure from year to year. If inflation and real public expenditure increases are low, convergence takes a long time. If inflation is let rip because one is dealing with incremental change, convergence takes place that much more quickly.
Further, the Barnett formula element is population-driven and, as such, it is re-calibrated from year to year. That is always a problem for those who have to think of the number on the spur of the moment. The noble Lord, Lord Mackay of Ardbrecknish, came up with 10.66 per cent. I believe that the mid-year estimates have driven it down to 10.45 per cent. this year. It is a dynamic formula which is responsive to population change. In the field of public expenditure one of the annoying factors is that as soon as one thinks

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one understands it, one or other aspect is changed. The concept of the block is now out of date and has been replaced by the idea of departmental expenditure limits as opposed to annually managed expenditure. That difference may help the noble Duke, the Duke of Montrose. Domestic agriculture, fisheries and food expenditure will in future form part of the DEL. CAP expenditure in Scotland will count as part of annually managed expenditure, but it will not be within the block. CAP expenditure was never part of the block and it will not be part of the DEL.
A specific point was raised on why Scottish spending was £16 million lower than previous totals. That is a statistical quirk and arises from a definitional problem. Because one moves from the block concept to the concept of departmental expenditure limits more than £16 million of non-domestic rates expenditure goes out. That adjustment arises for that reason. Domestic agriculture will also be included within the DEL.
A number of points have been raised about need and attempts to produce various formulae. The noble Lord, Lord Dixon-Smith, and the noble Earl, Lord Mar and Kellie, spoke to this. How does one measure need? That is an extremely difficult challenge. We know enough about the drivers of public expenditure to understand that in Scotland factors like sparsity, population loss, multiple deprivation and morbidity are all factors that produce higher levels of spending need than in other parts of the United Kingdom. Another complicating factor in Scotland is that in education there is a much higher percentage of the school population in the public sector than in the private sector. Those factors are identifiable by virtue of various heavy correlative number-crunching exercises.
Lord Dixon-Smith: I entirely accept the point that has just been made about numbers, but that would not affect the cost per head. I made reference to the cost per head which is not affected by numbers.
7 p.m.
Lord Sewel: In Scottish education one can arrive at a cost per head figure which is driven up. If one is providing primary education in the Highlands and Islands, because of the sparsity factor inevitably one has a large number of very small schools which are comparatively very expensive to provide. Those kinds of factors help to explain the higher expenditure needs in Scotland than elsewhere.
The amendments before the Committee focus in different ways on the funding arrangements for the Scottish parliament. Amendments Nos. 272, 274 and 279 aim to give, at least for an interim period, some statutory force to the funding arrangements that currently exist for Scotland which will be largely carried forward following devolution. They also make provision for a review of those arrangements aimed at moving the funding of the parliament closer to a system of assigned revenues.
I listened carefully to the proposed arrangements advanced by noble Lords. I fully appreciate the sentiments behind this set of amendments. I therefore
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intend to respond primarily on the basis of principle rather than on the practical effect of the amendments. Before doing so, I am bound to point out that Amendment No. 274 would, as it is phrased at the moment, in effect freeze future grants to the parliament at the 2000–2001 level for all time. I appreciate that that is most likely to be a drafting slip but that is what it would actually do as it stands. That cannot have been the noble Lord's intention. Let us turn to the wider picture, however.
I believe that these amendments are misdirected in principle. I therefore hope that I will be able to persuade the noble Lords who have proposed the amendments to withdraw them. As has been pointed out on many occasions, the funding arrangements proposed by the Government in the White Paper, essentially the continuation of the Barnett formula, have a long history. They go back 20 years. There has been a cross-party acceptance from government to government that they have worked well. The Barnett formula is well understood among the broad cognoscenti in the public expenditure world and has delivered fair settlements for Scotland for the last two decades. That is important. I do not believe that there is anybody—or very few—who would challenge the idea that successive governments in distributing the total have delivered Scotland a fair settlement. No Secretary of State for Scotland in my memory has ever claimed that the formula has worked to adverse effect in Scotland, because it has worked; it is fair; it has reflected the country's relative need for public resources. We may have some dispute and some disagreements among us on absolute need but, in terms of the relative need, the relative share, the formula dishes out the given total fairly and equitably.
As a Government we are firmly committed to this arrangement and we made this clear in the White Paper. The formula will provide stability and predictability at a time of major change and transition and will establish a firm basis for the longer-term funding of the parliament. It is absolutely vital that, as we change the political institutions of the United Kingdom, there is an underpinning of financial stability to see us through that period of political change. That is exactly what we intend. That is what the comprehensive spending review which my noble friend Lord Dean of Beswick asked us to examine does, by giving us that three-year period of actual figures which is a product of the application of the Barnett formula.
Of course nothing lasts for ever and I have to recognise that. "Never" is a word that a politician should never use. We made it clear in the White Paper that if circumstances changed some reassessment of relative need could be agreed between the Scottish parliament and the UK Government. I think that is a sensible and pragmatic position to adopt: seeking to start with an arrangement which is familiar and works well but not ruling out for the future the possibility of change. Clearly any change would have to be made on the basis of an extremely thorough assessment at some time in the future of the relative expenditure needs of Scotland vis-à-vis other parts of the United Kingdom.

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I do not believe that there is benefit in enshrining the Barnett formula in statute. We have a clear commitment from the Government that Barnett will be used certainly in the period of transition: that we see it as a sound basis of allocation. If circumstances change, however, there is the opportunity to revisit the area but on the basis of agreement between the two parliaments and, I would strongly suggest and support, on the basis of a thorough and proper means assessment at some time in the future. I am almost getting into the area of speculation, however. What we are faced with at the moment is a clear statement by the Government of how they intend to handle the present and the near future.
Turning to Amendments Nos. 273, 271U and 275A, these are concerned with relating the size of grant which Scotland gets from the UK Government to the country's needs. Amendment No. 273 would in effect replace the current funding arrangements with a new statutory formula. This would use population density and relative GDP per head as measures of Scotland's relative need.
Once again I understand the sentiments behind the amendments but I think they are wrong. What we have at present is a system whereby relative need across the spectrum of government spending in Scotland is built into the public expenditure baselines. The historic baseline is part of the building block of the settlement. It is an arrangement which properly captures relative need and that is why we are proposing to continue with it.
Amendment No. 273 has two particular difficulties. First, I am by no means clear that it is possible to attach a specific and accurate level of uplift purely to the effects of lower population density. I think the noble Lord will recognise that himself. Secondly, relative GDP per head is, at very best, only a partial indicator of relative need and could in practice create distortions. Most of the need indicators lag behind GDP. Health expenditure is a good example. The noble Lord, Lord Dixon-Smith, made the point that Scotland's GDP has increased to almost parity with the rest of the United Kingdom but it is clear that our health record remains very much worse. The level of morbidity in Scotland is much worse than in the rest of the United Kingdom. I hope that it will change. There can be an increase in GDP over a relatively short period of time. It takes so much longer to bring about changes in the cultural aspects of health—the diet of west central Scotland being but one of them.
Baroness Carnegy of Lour: Hidden in this Barnett formula concept that the noble Lord is describing is a big problem and he has just illustrated it. The health budget is high partly because of our diet. We eat more chips than anyone does anywhere else; we take less exercise; we eat less fruit and vegetables and we have more heart attacks. As long as the funding formula has, in its base, the payment of all of that in the health service, we will not stop eating more chips.
This is all very comforting but, at the end of the day, it is not the best thing for Scotland. I hope therefore that this transitional arrangement will not last too long.
Lord Sewel: I do not think that we will bring about major changes in the diet of my fellow citizens of
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Scotland by changing the Barnett formula. It has great value and power but I do not think that even the Barnett formula can bring about those changes.
Amendment No. 275 tries a different type of approach to the same problem. The kind of indicators which are proposed there are somewhat quixotic in public expenditure terms, if I may say so. I am not absolutely convinced that the number of SSSIs or the hectarage of the country covered by SSSIs is a public expenditure driver of any great moment; nor is the number of rare and endangered bird species. I am exceedingly pleased that the noble Earl, Lord Mar and Kellie, revealed that the provenance of this amendment was the Royal Society for the Protection of Birds. I shall try not to let the amendment colour the way I treat other representations I receive from the Royal Society for the Protection of Birds. However, in this instance the tying of those factors in the noble Earl's amendment to public expenditure need is at best quixotic.
I turn to Amendment No. 287.
Lord Thomas of Gresford: Perhaps I may invite the Minister to reserve his fire on that amendment. I am conscious of the fact that I did not properly put my noble friend's argument. I am sure the noble Lord did not understand it; I am not sure I did. Perhaps I may return to the amendment in its place on the Marshalled List.
Lord Sewel: I was about to say that if I thought we could get away with it, I would welcome it. But I leave the matter at that.
We have come to the stage where we recognise that we seek a fair, acceptable, efficient and effective system for funding the work of the Scottish parliament. We are building on the Barnett formula. We are continuing the Barnett formula because it has stood the test of time. It is seen as being fair and delivering the goods. It will be uprated annually as a result of population changes; so there will be a recalibration. We are committed to publishing the rules which will determine Scotland's annual assigned budget. In the White Paper we have left open the door for future changes but on the basis of agreement between the Scottish executive and the UK Government.
I hope that all those points together will give the Committee reassurance that we can go forward with that important degree of financial stability underpinning the political changes that we are introducing.
The Earl of Onslow: The noble Lord, Lord Taylor of Gryfe, uttered perhaps the most important sentence in the debate: that unless we get right the financial side, the whole thing goes pear shaped and we destroy the Union. I may have paraphrased it somewhat, but that was the underlying point. The Government have not addressed the problem. When the block grant is perceived to be too little or too much, with income tax variable by an increase or decrease of 3 per cent., how do the Government get round the complaint that will inevitably arise from Edinburgh that Westminster is dealing with Scotland unfairly? That point goes totally to the core of the matter.

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If we are to have this wretched devolution, which we obviously are, it would have been miles better to have given the Scottish parliament greater tax raising powers so that it was responsible to its own citizens for the taxes it raised from them and the expenditure it made on their behalf. What we have is a United Nations aid agency dolloping out stuff about which there will be undoubtedly complaints and whinges from both sides, be it the noble Lord, Lord Dean of Beswick, myself or the Scots. It is a formula for disaster. Unfortunately the Minister in no way addressed the intellectual incoherence of the basic formula.
Lord Lyell: Following the fiery speech from behind me, perhaps I may ask the Minister this question. He always likes to say that I am a simple accountant; and I still am. I admired his coverage of all the points.
The noble Lord mentioned a figure of £15 million as a statistical quirk. Am I right in thinking that that was the result of a continual uprating of the Barnett formula? Is it a statistical quirk that will arise every two to three years? It is after all, 1 per cent. of the total budget for the Scottish Office. If the figure can be restricted to that, it is pretty accurate. But what was the statistical quirk? The noble Lord was honest in admitting it. Can he clarify that now or later?
Lord Sewel: It is the product of changing the concept of the block grant to the departmental expenditure limit. I said that it is infuriating when the concepts keep changing. Non-domestic rates were included in the block but excluded from the near-comparator of the departmental expenditure limit. That accounts for something in excess of £16 million. That is why we have the point identified by the noble Duke, the Duke of Montrose.
I must clarify a figure. It is not £16 million; it is £1 billion.
Lord Mackay of Ardbrecknish: I was puzzled about that. I think that £1 billion is more than a statistical quirk. My noble friend the Duke of Montrose made a smart flanking attack on the Minister worthy of his noble ancestor. I found the answers interesting, especially as regards the departmental expenditure limits, which I suppose we should treat as chips off the old block, so to speak. We shall have to look at this statistical quirk and how £1 million less can be trumpeted in the Scottish press as an increase in public expenditure.
However, that is not what we are discussing. We are discussing how the Scottish parliament will be funded in future and whether we need to write that into legislation. I detected that some people do not think it worth while to continue the debate; they tend to be those who have not taken much part in the long Committee stage of the Bill. As the noble Lord, Lord Taylor of Gryfe, said, this is the heart of the matter. My fellow citizens have been persuaded that the Scottish parliament will bring with it huge improvements. I do not go so far as to say a land flowing with milk and honey; and many of the improvements can come about
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only by increased public spending. If that is not coming, people will be disappointed. That disappointment will turn them, I regret to say, to the Scottish National Party.
Lord Gordon of Strathblane: I thank the noble Lord for giving way. I am sure he will agree that our fellow citizens are not daft. But they believe that it is possible to spend even the same amount of public expenditure rather more wisely by having it spent closer to the people than at present. It is not simply a question of throwing money at the problem but of being more responsive to needs and having government that is closer to the people. That will apply in English regions as well as the Scottish parliament.
Lord Mackay of Ardbrecknish: I look forward to the expressions of delight when those parts of the Scottish Office which will receive less money in order that others receive more realise that. I hope that industries such as the tourist industry will be happy when it sees some of its money being spent, for example, on health, which is one of the areas which needs increased money on the basis of what I hear in Scotland, although we do quite well.
The Minister and I are in a fair degree of agreement. That always worries me. When the two Front Benches agree, it is not a good thing. However, I am certain that there is no way to devise a mechanistic formula to deal with the issue. I differ from my noble friend Lord Dixon-Smith. Government spending, wherever it is in the country, has inevitably to be based on discussions of needs and priorities. The two are linked. I do not believe that we can find a simple formula.
The interventions and speeches of the noble Lord, Lord Dean of Beswick, and my noble friends Lord Onslow and Lord Dixon-Smith illustrate a problem that we have to face. When I was at the Department of Social Security, I had to visit the north-east of England on a fair number of occasions because the Department of Social Security has major enterprises in the north-east of England. My noble and learned friend Lord Fraser of Carmyllie was the Minister designated with responsibility for the north-east of England. A great deal of successful effort had to be put into bringing new industries to the area in order to replace those which had closed. None of us should dismiss the points made by the noble Lord. Lord Dean of Beswick, about the areas of England which I mentioned in my original speech and which need additional help. They are more like the valleys of Wales and Clydeside and have many of the same problems. Nor should we dismiss problems such as those so understated by my noble friend Lord Onslow in his usual manner. We must guard against that, but I do not believe that we can do so by a formula.
I return to my problem with the amendment in the name of the noble Lord, Lord Steel of Aikwood, who is no longer in the Chamber. It ties in the Barnett formula. I say to the noble Lord, Lord Mackie, that nobody competes for the Barnett formula; it is automatic. The competition takes place between spending ministries in Whitehall and the Treasury. I say to the noble Lord, Lord Thomas of Gresford, that it is nothing to do with increased or decreased need in Scotland. It is the one

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thing which is mechanistic. It simply moves with what has been decided by the big negotiations between the English spending ministries and Scotland.
Lord Mackie of Benshie: All that weare saying is that is a start. People know about it; it is practised and it would give a certain confidence were it adopted.
Lord Mackay of Ardbrecknish: For reasons I gave earlier, I would not like to predicate the whole of the Scottish budget simply on the Barnett formula. The bulk of the money that Ministers in the Scottish parliament will have to spend will not come from the Barnett formula but from the block; or the "departmental expenditure limits", as I must learn to call them.
I can see an argument for saying that the increases ought to continue to be governed by the Barnett formula. I can also see an argument for linking that with some expression in the Bill about relative needs. But I accept that most of the amendments, including mine, do not solve the problem which exists. I regret to say that the Minister is probably right in saying that it has to be a matter of faith. The negotiations between the United Kingdom Government and the Scottish government will be conducted on a basis which is realistic and will ensure that the government in Scotland have sufficient resources for the needs of the people in Scotland. That is what my amendment attempted to achieve.
I do not wish to be portrayed as someone who wanted to disband the Barnett formula. I might not get back to Scotland for the Recess, which would be profoundly bad news. I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 271V:
Page 27, line 4, after second ("time") insert ("and at least once in every financial year").
The noble Lord said: I shall be brief. The Bill provides that payments will be made from time to time. I wish to insert the words "and at least once in every financial year" in order to ensure that the Scottish parliament receives money in a proper flow. I should be happy for a brief explanation of what the Government envisage "from time to time" to mean, which will probably satisfy me.
Baroness Ramsay of Cartvale: I, too, shall try to be brief. The amendment appears to impose a particular timetable on the payment of the grant by the Secretary of State. On the face of it, the amendment seems reasonable, but it is entirely unnecessary. The detailed arrangements as to the timing of payments into the fund by the Secretary of State out of moneys provided by Parliament will be a matter for agreement between the Secretary of State and the Scottish Ministers. Surely that is the way we should leave it. There is no need for a prescription on the face of the Bill. While I appreciate the noble Lord's point, which seems reasonable, it
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should be left to the Sectetary of State and Scottish Ministers and I ask the noble Lord to withdraw his amenment.
Lord Mackay of Ardbrecknish: I am grateful to the noble Baroness for her assurances. I beg to leave to withdraw the amendment.
amendment, by leave, withdrawn.
[Amendments Nos. 272 to 275A not moved.]
Lord Hoyle: I beg to move that the House be now resumed. In moving the Motion, I suggest that the Committee Stage begins again not before 8.30 p.m.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Northern Ireland (Sentences) Act 1998 (Specified Organisations) Order 1998
7.25 p.m.
The Parliamentary Under-Secretary of State, Northern Ireland Office (Lord Dubs)The Parliamentary Under-Secretary of State, Northern Ireland Office (Lord Dubs) rose to move, That the draft order laid before the House on 28th July be approved.
The noble Lord said: My Lords, I beg to move that the draft Northern Ireland (Sentences) Act 1998 (Specified Organisations) Order 1998 which was laid before the House on 28th July be approved.
Under the Good Friday agreement, the Government gave a commitment to put in place legislation that would allow the accelerated release of prisoners convicted of scheduled or similar offences. The Good Friday agreement was overwhelmingly endorsed by the people of Northern Ireland. Our duty now is to implement the agreement faithfully and in full and the Government intend to do that. The legislation that gave effect to that commitment—the Northern Ireland (Sentences) Act—received Royal Assent on Tuesday.
This order specifies organisations under Section 3(8) of the Northern Ireland (Sentences) Act 1998. Under Section 3 of the Act, a prisoner is not eligible for early release if he or she supports an organisation which is specified. In addition, a prisoner who has been released may have his licence suspended and be recalled to prison if they support a specified organisation, whether or not it was specified when he or she was released.
However, these are not the only conditions a prisoner must satisfy. In addition to the requirements regarding the nature and length of the sentence, the commissioners—who will make decisions under the Act—must consider whether the prisoner would, if released, be likely to become a supporter of a specified organisation or become concerned in the commission, preparation or instigation of acts of terrorism concerned with the affairs of Northern Ireland. A life sentence prisoner would not be released if he or she would be a danger to the public.
In deciding whether to specify an organisation, the Secretary of State is required to make a judgment on two matters. The first is whether the organisation is concerned with terrorism connected with the affairs of Northern Ireland or in promoting or encouraging it. The second matter follows directly from the words of the agreement. The agreement states that,
"prisoners affiliated to organisations which have not established or are not maintaining a complete and unequivocal cease-fire will not benefit from the arrangements".
In deciding whether an organisation has established and is maintaining a complete and unequivocal cease-fire, the Secretary of State is directed by the terms of the Bill to take account of whether an organisation: is committed to the use now and in the future of only democratic and peaceful means to achieve its objectives; has ceased to be involved in any acts of violence or of preparation for violence; is directing or promoting acts of violence by other organisations; and is co-operating fully with the Decommissioning Commission. These are factors to be taken into account, not separate tests to be satisfied, and they follow directly from the Prime Minister's speech at Balmoral on 14th May.
The Secretary of State can take into account any other relevant information in deciding whether an organisation has established and is maintaining a complete and unequivocal cease-fire, but, in making her overall judgment, she must take account of each of these.
The Secretary of State has decided to specify: the Continuity Irish Republican Army (CIRA); the "Real" Irish Republican Army; the Irish National Liberation Army (INLA); and the Loyalist Volunteer Force (LVF).
If the order before your Lordships' House is approved, the effect will be that the commissioners may not grant a declaration of eligibility for early release to any prisoner who they consider supports any of these organisations. The Secretary of State has reached these decisions on the basis of security assessments and following consideration of advice from the RUC.
I shall say a little about each of the organisations the Secretary of State has decided to specify. The Continuity IRA has been involved in acts of terrorism since 1994 and there are no indications that either CIRA or its political wing, Republican Sinn Fein, has any intention of abandoning violence as a means of pursuing its political objectives.
The "Real" IRA has carried out a number of attacks so far this year which have included car bombings and mortar attacks and there are no indications that the "Real" IRA intends to call a cease-fire.
The Irish National Liberation Army is a more established organisation having been in existence since 1975. At no time since then has it declared a cease-fire. It has been responsible for many appalling attacks and there are no indications that INLA is yet ready to declare a cease-fire. Its political wing, the IRSP, has spoken of the possibility of a cease-fire, but there are no indications yet that there is a serious prospect of this being delivered.
The Loyalist Volunteer Force, or LVF, has been responsible for many murders. In May this year the LVF declared a cease-fire. This is a welcome step. It has also named a contact person with the decommissioning body and meetings have taken place. But a cease-fire must be demonstrated in acts as well as words. I hope that will be the case, but my right honourable friend the Secretary of State is not fully convinced that the LVF cease-fire is complete and unequivocal.
Those have not been easy judgments to make. But they are judgments made on the balance of the information—a balance recognised by the right honourable Member for Bracknell in another place when he explained why the previous Government did not exclude Sinn Fein from talks when punishment beatings and murder were continuing. Any specific failure by an organisation has to be weighed alongside all the other available information.
There are some organisations that have yet to establish a complete and unequivocal cease-fire but which would appear to be moving in the right direction, like the LVF. Those organisations must now embrace the democratic process that has been endorsed by the vast majority of the people of Northern Ireland. If those organisations do establish and maintain complete and unequivocal cease-fires then the Secretary of State will reassess their position.
Other organisations such as PIRA, the UDA and the UVF which have established such a cease-fire, must continue to demonstrate that they are maintaining it in order to avoid being specified in the future. And this test will, as the Prime Minister said, become more rigorous over time.
In her speech in another place, my right honourable friend the Secretary of State for Northern Ireland drew attention to the fact that punishment attacks had continued during the period of the cease-fires and following the signing of the Good Friday Agreement. She made clear that such attacks were not acceptable and that they must stop. If punishment attacks continue, the legislation requires that the Secretary of State take such attacks into account in deciding whether organisations are maintaining complete and unequivocal cease-fires. The Secretary of State will keep under review the list of specified organisations and will not hesitate to add or remove the name of an organisation if that is required.
The early release of prisoners is, for many, the aspect of the Good Friday Agreement which is most difficult to accept. But the agreement is a package and all parts of the agreement must be implemented. The Government will meet their commitments and hold the other parties to the agreement to theirs. I commend the order to the House.
Moved, That the draft order laid before the House on 28th July be approved.—(Lord Dubs.)
7.30 p.m.
Baroness Seccombe: My Lords, we always knew that this order would be the most difficult to accept. As the Minister is aware, we approached the Bill with

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sadness and pain, unable to get out of our minds the atrocities suffered by so many innocent people over the past 25 years.
There is little doubt that the Secretary of State has an awesome responsibility in deciding which organisations are to be specified as "terrorist" organisations for the purpose of the Bill, now an Act. The difficulty for the House is that the Secretary of State's decisions about individual organisations will be based on security advice and briefings. It would not be appropriate for her to share that with Parliament, let alone the outside world.
Nevertheless, I am sure the House will understand why we on these Benches have great concern about why some additional organisations do not appear on the scheduled list of four terrorist organisations. Our concern is that they have been left off for the wrong reasons—not because they have been given a clean bill of health in relation to violence but because the Secretary of State is apprehensive that if such organisations were specified as "terrorist organisations" it would prevent the release of a significant number of prisoners who are known to be supporters of those organisations, and so would lead to the disruption of the progress that has been made since the Good Friday Agreement.
Part of the problem lies in the terms of the Northern Ireland (Sentences) Act itself which requires the Secretary of State only to take into account certain criteria when addressing the issues as to whether or not an organisation has established or is maintaining a complete and unequivocal cease- fire.
The terms of the Act are such that it is possible for the Secretary of State to refrain from specifying the Provisional IRA, the Ulster Volunteer Force and the Ulster Defence Association, despite the fact that it is widely believed in Northern Ireland that all three organisations are still involved in violence associated with terrorism. Those three organisations do have a so-called cease-fire, as the Minister said, but only in so far as there are no high profile attacks. But the killing of one person for sectarian reasons is just as unacceptable.
The so-called cease-fire implies a complete cease-fire but, in fact, it is not. Punishment beatings and intimidation continue unabated, making life on many estates frightening and impossible for ordinary decent people.
We know that the Secretary of State has denounced acts of violence as unacceptable and obscene. The Chief Constable said in a BBC interview on 27th July, when referring to those three organisations which are not mentioned in the schedule:
"If they think because their definition of a cessation of violence is a cessation of military operations they must be disabused of any notion that any other acts of criminality are any more acceptable".
We read with horror of the brutal murder of Andrew Kearney, taken from his flat as he nursed his young baby. He was then knee-capped in a lift and literally left to bleed to death. Then we read of the beating of a peace worker in Belfast—Vincent McKenna. He is a peace worker. It is difficult to believe that such appalling atrocities are continuing.
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It is the people of Northern Ireland who have put their faith in the Good Friday Agreement. They voted for peace in the referendum, being weary of strife and violence. They deserve our care and compassion. We must not forget that the early release decision was criticised by Families Against Intimidation and Terror. I believe that they will find it impossible to accept the inclusion of the three organisations—PIRA, and UVF and the UDA. If the Act is to work, the Secretary of State must have the confidence of all the people of Northern Ireland. As my right honourable friend Mr. Andrew Mackay, the Member for Bracknell, said in another place, it is wrong that those three are not on the list and it would be wrong for their members to be released.
I take this opportunity to praise the First Minister designate on his efforts and courage in tackling so successfully much severe opposition to building the peace process. I doubt that this order will be seen as a reward and I wonder whether the Minister will comment on that.
My right honourable friend and his colleagues in another place voted against the order. In your Lordships' House, the convention is that we do not. We must therefore content ourselves by expressing our grave concern over the contents of the order.
7.38 p.m.
Lord Holme of Cheltenham: My Lords, I should say initially that from these Benches, we intend to support the order for two reasons. First, it is important at this stage of progress in Northern Ireland to support the judgment of the Secretary of State unless there is an overwhelming reason not to do so. The edifice that we are trying to build in Northern Ireland still rests on very shallow foundations. I fear that any over-heated rhetoric either in this House, which we certainly have not had this evening, in another place or elsewhere in Northern Ireland can still too easily turn into a hurricane which will blow down the house of peace.
The second reason that we should support the judgment of the Secretary of State as regards the order is that the order itself does attempt to draw the line which has to be drawn between those who have turned to a new way of doing things and those who still stand steeped in a bloody past. We should take the opportunity in this House to appeal to those organisations which have still made no real effort to turn to the future. I do not think that it is enough tonight to say that they clearly stand on one side of the line. It is essential that they, too, recognise the responsibility that lies on them to help secure a better future for Northern Ireland.
It is absolutely possible for Members of this House and for any citizen to disagree in good faith where the line should be drawn. Indeed, the noble Baroness did so this evening. I accept that. However, one of the things that we ought to do is to look in more detail at PIRA because here, in the order, we have four organisations in the list of proscription, but we do not have the provisional IRA—this is the dog that did not bark. What of PIRA? First, we have the terrible murder to which the noble Baroness referred of Mr. Andrew Kearney;

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and, secondly, we undoubtedly have continued attempts by the Provisional IRA to assert a certain kind of rough supremacy in localities of Northern Ireland by the continuing use of terror in the form of punishment beatings.
However, for the moment I find myself still agreeing with the Secretary of State, although narrowly, that we should afford the benefit of the doubt to Sinn Fein/IRA. There is a slender element of doubt as regards the appalling murder of Mr. Andrew Kearney. I believe that the Chief Constable himself expressed his judgment in very qualified terms. Perhaps I may say, in parenthesis that I think the Chief Constable has in recent weeks earned in every way and at every point the unqualified approbation of all of us who look to a better future in Northern Ireland. Perhaps this would be an occasion to express the greatest confidence that, as long as she is careful to follow the judgments offered by the Chief Constable and by the other security information in balancing the facts as she has to, the Secretary of State will, at the present juncture, be well advised.
Nevertheless, there is a scintilla of doubt about whether Mr. Kearney was murdered by the Provisional IRA. It is well possible that what we are dealing with is an out-of-control cell of some sort. I wonder whether any of us thought, especially those with far more experience of Northern Ireland than I have myself, that this particular army would give up in a totally synchronised and comprehensive way. Yet, of course, give up they now must. Every scrap of authority—or I suppose Mr. Adams would prefer to say "influence"—that Sinn Fein has over the IRA must now be used to stop the killing and the beating for good.
However, more than that, I should stress to the Minister—and I shall be interested to hear his response at the end of the debate—that, before this summer is out, militant republicanism must make its own contribution to confidence-building. For example, those concerned must appoint a representative to General de Chastelain's decommissioning commission which they have yet to do. They must start the process of decommissioning and be seen to do so. Moreover, they must stop these disgusting knee-cappings. If Sinn Fein/IRA do not show the vision and leadership to do these things, I fear that they will be casting a very long and gloomy shadow over the resumption of the new Assembly in September. They will divide the forces of sensible Unionism, perhaps fatally, and prejudice the future reconciliation and working together in Northern Ireland.
Therefore, my attitude in supporting this order is that it represents—indeed, it must represent—a kind of probation for the Provisional IRA to which the leaders of Sinn Fein/IRA, if they are well advised and if they do believe, as we must hope they do, in a different future for Northern Ireland, must now respond.
7.46 p.m.
Lord Mayhew of Twysden: My Lords, it is with considerable regret that I find myself unable to support the Government in bringing forward the order this
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evening. I feel regret because I have a most vivid recollection of the difficulty as regards the decisions that the Secretary of State for Northern Ireland has to take in many fields. Moreover, if I may say so, I also have much admiration and affection for the present incumbent. At the time of the agreement and the conclusion of the talks—sometimes called the Good Friday Agreement—I presumed to write to congratulate her and also the Prime Minister. I am glad that I did so. The Secretary of State is right to interpret the new Act as requiring her to make a decision "in the round", as she put it in a speech last night in another place.
However, I am sad to have to say that, in my judgment, the Secretary of State has got this decision wrong, to an extent that I felt did not permit me simply to take myself away and let it ride. In my opinion, the Secretary of State should have added the Provisional IRA, the UDA and the UVF to the list of organisations which are specified in the schedule to the order. I shall outline the reason why. The practice of administering so-called punishment beatings for political purposes—and this was touched upon in the speeches of my noble friend Lady Seccombe and the noble Lord, Lord Holme—has continued almost unabated since the most recent ceasefires. Each of those three organisations is responsible for some of them. I believe that to be common ground; indeed, it is not an issue as to whether this has been going on, nor is it an issue as to whether or not they are responsible. The issue is whether, notwithstanding that, they should somehow escape specification.
In my view, the significance of that fact lies in this: it disentitles each of those organisations from claiming, first, that it is committed to the use of democratic and peaceful means only to achieve its objectives; and, secondly, that it has ceased to be involved in any acts of violence. They are ruled out from making such claims by definition. Yet such claims represent 50 per cent. of the four Balmoral stipulations with which we are now so familiar and by which it was sought to reassure those of us who were revolted by the idea of accelerating the release of people guilty of hideous crimes. I realise that that sense of revulsion is to be found on all sides.
However, those four stipulations were offered in the Balmoral speech by the Prime Minister and have been held to ever since by Ministers as a reassurance that this benefit was not going to be lightly accorded to people who were guilty of such ghastly offences. So, those organisations fail on 50 per cent. of those grounds and they are the first 50 per cent. in that list of Balmoral stipulations. When we look at the remainder, we see that the first two are surely and undoubtedly the most important. If an organisation is itself employing violence, it matters not whether it is or is not also directing or promoting acts of violence by others. That is the third stipulation.
Finally, that leaves the single question of full co-operation with the decommissioning commission—which is, of course, important but is also, in each instance, a question open to argument. I regret to say that it is not realistic in my view—nor, therefore, credible—to claim that, in these circumstances, any of the three organisations to which I have referred is

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maintaining a complete and unequivocal ceasefire. Yet that is the test, of course, for whether their prisoners are to be eligible for accelerated release.
In conclusion I add three observations. These organisations have sought to claim that punishment beatings should be seen not as military operations, which they have forsworn, but as something called civil administration. I feel that has to be rejected with contempt. I believe that to be common ground on all sides in this House on this issue. We cannot conceivably permit any justification for dreadful things which recently have led to a murder, but are bad enough, in all conscience, when someone receives what is called a "six-pack"; that is, three shots in each knee, or in the leg.
Mr. Flanagan, the chief constable, has already been cited tonight by the noble Lord, Lord Holme, as having drawn attention to this language which is used by the PIRA in particular, and of course rejected it. That is the first observation with which I wish to conclude. The second is that these organisations have shown that when it suits them they can bring violence to a synchronised halt, to use the expression articulated a moment or two ago by the noble Lord, Lord Holme. Before and on the occasion of President Clinton's visit, nothing like this happened, nor before elections. Therefore they have shown that they can stop this. I cannot accept any claim of inability to exercise control.
My third point is that it would not have been necessary to specify these three organisations, or any of them, for a long period. It would have been enough to have specified them and made it clear that if they did once again bring punishment beatings to a halt, but did so in circumstances and in a context in which they could credibly claim that they were demonstrating that a true ceasefire was their intention, an amending order could have been introduced rapidly and their prisoners could have become eligible for the benefits of this extraordinarily difficult Act. Of course if those organisations had been added to the order, they would have been given a credible, powerful and real incentive to bring violence to an end because their prisoners would not have been released, and their prisoners might have been expected to have something pretty powerful to say in that regard.
As I say, I regret that I cannot speak in favour of the Government today and have to speak, in conscience, against them. I do not think that I can be accused of having been unhelpful or forgetful of the difficulties that I experienced for five years. This is the first occasion—I hope it will be the last—when I shall feel obliged to record my dissent from the judgment of the present Secretary of State.
8.3 p.m.
Lord Molyneaux of Killead: My Lords, I find myself in broad agreement with what has been said from the Benches opposite on the part of the noble Baroness, Lady Seccombe, the noble Lord, Lord Holme, and the noble and learned Lord, Lord Mayhew of Twysden, speaking as he does from a great deal of practical, sober
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experience of the realities of the situation with regard to terrorism, as opposed to many of the fancy theories which are put around nowadays.
I find it distinctly odd that the order specifies some sub-contractors, but not the main contractors, although all of them have breached the ceasefire conditions in one form or another. IRA/Sinn Fein spokesmen, alone of all the main contractors, have been issuing veiled threats and warnings in regard to the consequences of their inclusion in what one might term the "dishonour roll". The behaviour of IRA/Sinn Fein has been just as vile as that of other such bodies, not just as regards beatings, knee cappings and all forms of intimidation, but, as has already been mentioned by three speakers opposite—and by the Minister—as regards the recent assassination of Mr. Andrew Kearney. Mr. Kearney was an IRA operator who fell foul of the commander of the third battalion of the IRA based in the Ardoyne who himself ordered the execution of Kearney. Yet this farcical list omits the IRA/Sinn Fein, which the Prime Minister had described earlier as one and the same organisation.
In many ways this order is more repulsive than a general amnesty. There is no point in the Government denying that this is a selective amnesty, applying not to organisations which have ceased terrorist activities, for there has been no real cessation of violence, designed to put the public in fear. That is a phrase borrowed from some of the earlier legislation. This selective amnesty applies to practising bodies, no different in form from those listed in this order—that must be accepted by all of us, and I believe that it has been accepted up to a point—for the simple purpose of bribing them (that is, the organisations not on the "dishonour list") into participating in a structure the like of which has never been devised in any part of the world to my knowledge. That is why on an earlier occasion in your Lordships' House I described it as somewhat exotic. But this evening's order has made it malignant as well as exotic because the bribe is intended to go far beyond entering into participation in the agreement. It will be renewed with bonus every time terrorists threaten to withdraw from the scheme of things.
It is therefore dishonest to imply that if terrorist activities can no longer be ignored, those offending bodies will be added to the four listed in the order. I understand that the Secretary of State has the power to do that. But we have to be realistic—all of us in your Lordships' House have a reputation for being realistic—when we say that nothing of the kind will happen. Weasel words will be used by various people about the quality of proof; about waiting for charges to be laid; then awaiting convictions; and then awaiting numerous appeals without end. We have all of this charade because the already flimsy apparatus might be endangered and we cannot possibly contemplate any such thing happening. It is small wonder that certain elements in government and in government service are admitting that they were forced to go too fast too soon.
The much lauded Good Friday Agreement has brought no comfort or respite to decent citizens residing in many housing estates which are under the heel of paramilitary bodies. We simply fool ourselves and we

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are false to those who are enduring that kind of torture if we ignore that and pretend it is not happening. To their shame, the draftsmen of the agreement—and all those who, with money and improper pressure, not excluding a degree of blackmail—obtained a temporary approval of what was packaged as a master plan for peace. That was how it was sold. That was how it was accepted by a great many people until about three weeks ago and then the tide started to turn. All such salesmen now look the other way and deliberately ignore the brutal treatment of innocent citizens.
I can understand why all this shameful legislation is being rushed. There is a realisation that if the trap is not closed on democratic principles, the accelerating swing in public opinion will, I am afraid, become more and more evident. What the authorities simply do not realise is that, when convicted killers are seen to return to their old haunts—and habits—the tide of public revulsion will sweep away all the sandcastles and make-believe devices.
However, we can take some heart from the evidence that the greater number of Ulster citizens, whatever their faith, and even those who have no faith at all, are devoting their attentions to the further refinement of solid, sensible structures of governance—for there was, and is, an alternative. I have sound reason for believing that the landscape will look very different indeed when your Lordships return from the Recess.
8 p.m.
Baroness Park of Monmouth: My Lords, I have three questions to ask the Minister. The first is factual. Is the Real IRA another name for the 32 Counties movement? If so, should it not be on the list? And why is Direct Action against Drugs—a known IRA front which has carried out many murders—not been included? Or is it covered by the blanket which protects the PIRA?
My second question concerns the IRA itself, the present parent body and only begetter of all the nasty children it has spawned in the shape of the Continuity IRA, the Real IRA and so on. When is a ceasefire not a ceasefire? Only a few days ago, all the evidence, soberly assessed by the RUC and supported, according to the Irish Times, by republican elements themselves, pointed to the PIRA as the murderers of Andrew Kearney. I shall not discuss that murder because other noble Lords have already given the details. There was also a peace worker, Vincent McKenna, who was badly beaten by assailants whom he recognised as PIRA men. In April, the PIRA kneecapped an old man of 79 and left him to die. He was the wrong man, but no one heard them apologise. How much more must the IRA do before the Secretary of State abandons her assessment that PIRA and the UDA and the UVF are "maintaining a complete and unequivocal ceasefire"?
Does a ceasefire mean only what the IRA, which purports to be a military formation with discipline instead of a collection of thugs, would call a military ceasefire? I thought the Prime Minister was equally unequivocal when he ruled out punishment beatings and
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killings and any kind of violence. Certainly, ordinary people thought that that was in the agreement. But, of course, we must not cherry pick. The Secretary of State has, I fear, in this issue—for excellent reasons, I recognise—double standards.
The LVF, like the IRA and equally nasty, has declared a ceasefire and has named a contact with the decommissioning body. But it has, as was pointed out in another place, been responsible for many murders. The Secretary of State says of the LVF ceasefire that "a ceasefire must be demonstrated in acts as well as words", and she "has yet to be convinced that the LVF ceasefire is complete and unequivocal"; and therefore she has specified the LVF. I have no quarrel with that. But why is not sauce for the LVF goose sauce for the IRA gander?
Of course, as the Secretary of State explains, the political party with which PIRA is associated—a delicate way to describe that two-headed hydra, Sinn Fein/IRA—has had discussions with the decommissioning body. Was Sinn Fein explaining how its other half would never decommission even an ounce of Semtex?
Why does the Secretary of State, who actually said on 10th June that the four factors on which her judgments for specification would be based included punishment beatings and the instigation of paramilitary activity, seem to think that, like the European Union in Kosovo, if she says often enough that punishment beatings have to stop, they will go away? They will not—unless and until the IRA has reason to think that every punishment beating delays the remotest possibility of releasing its prisoners.
We have been told that the Secretary of State does not barter prisoners against decommissioning. But surely, negotiating over prisoners in the interests of victims and the population at large, which actually believed that the Belfast Agreement meant the end of violence, is a different matter. Why is she not listening to FAIT (Families Against Intimidation and Terror)? I echo its question: "Are the Government really accepting a definition of a paramilitary ceasefire which allows paramilitary groups to beat, shoot and intimidate people?" The interesting thing is that PIRA did not do that at all during the elections—in the matter of being able to give orders and have them obeyed, the IRA is not deficient. So it is not possible to say that those beatings and killings are unauthorised. They are a calculated campaign on the part of IRA members to remind "their" constituency that nothing has changed, that they are still in charge.
I know that there is nothing we can do to change the Secretary of State's initial choice of those organisations to be specified. However, I beg the noble Lord the Minister to urge her to consider whether her Nelsonic approach to the activity of the IRA, in the interest of preserving the Belfast Agreement, does not risk losing the peace, because ordinary people will feel that their rights and deeds are being utterly ignored. That may be, alas, exactly what the IRA wants.
Finally, I have one other, rather painful point to make. Before making it, I wish to say that I, like my noble friend, respect the Secretary of State very much. But

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I wish to register my incredulous outrage on learning from the debate in another place yesterday that the Secretary of State has seen the McBride family, but not the families of Guardsmen Fisher and Wright, and that she chose to do that, "because they were extremely upset at the possible releases and wished to express their views to me". She then went on to say that that did not bias her one way or the other. She "thought it would do no harm to hear of the pain they felt they would continue to suffer". She evidently thought that that was quite fairly balanced by the fact that the Secretary of State for Defence, who has no standing whatever in the decision to be taken on the guardsmen's case, had talked to the Scots Guards Association. Is that equal? What about Mrs. Fisher and Mrs. Wright? Have they no feelings? Most important of all, does the Secretary of State really think that she can now say, as she did, that she is "reading the facts and making her own judgment, not talking to one side or the other in any way"?
8.7 p.m.
Lord Cooke of Islandreagh: My Lords, I speak in considerable sadness and sorrow. News of this order broke in Northern Ireland on Tuesday at about midday. It was met with incredulity. No one could understand how the order could have been thought up. There was shock on Tuesday. Yesterday, there was much discussion about it and more than concern—depression regarding the effect that it will have in so many directions.
The Secretary of State said that she has judged that the terrorist organisations not specified in the order are committed to maintaining a complete and unequivocal ceasefire. How can she so declare when she admits that the RUC Chief Constable has said that members of both republican and loyalist organisations have recently been involved in violent criminal acts. She was also aware that the RUC assumed that the recent murder of Andrew Kearney was committed by the IRA. The man in the street knows it. I doubt whether one law-abiding citizen in Northern Ireland will accept the Secretary of State's judgment. Everyone knows that the IRA murdered him. How can she ignore that?
In another place last night, the Secretary of State repeated that her judgment was "in the round". I wonder what that phrase means or how it is relevant to this matter. This was a very specific judgment. After this, I am afraid that I do not expect any law-abiding citizen in Northern Ireland to have respect for our Government.
I feel it necessary to list some of the damage that is almost inevitable. This order will make it even more difficult to get the assembly off the ground, unless, as I hope, the Secretary of State changes her mind and makes a revision of the order very shortly. Everyone now knows that the Secretary of State will say, unless she changes her mind quickly, that to be consistent with this provision members of Sinn Fein are entitled to become Ministers in the Assembly. Unionists cannot possibly be expected to sit in the Assembly with unreconstructed terrorists.
This order will make it even more difficult for the first minister designate to deal with his critics because they have been proved right. They have been saying all
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along that this would happen. I am afraid that some of us were perhaps innocent and believed that it could not happen in this way.
Sinn Fein/IRA will hail the order with delight. They know that it will put the pro-Union parties in turmoil and that has always been one of their objectives. Now our Government are helping them. Sinn Fein/IRA, in the view of everyone, has so far made no effort to show its commitment to peace. Surely the Secretary of State, by designating all the terrorist parties in her order on the 28th, should have sent out a strong message to Sinn Fein and the others that they must do much more to persuade her and other people that they must commit themselves to peace and stop all punishment beatings.
I wonder whether it is possible to realise how much, at home in Northern Ireland, there is a complete state of revulsion against these so-called punishment beatings. They must stop before anyone will believe that these groups are committed to peace. As the noble and learned Lord, Lord Mayhew, said, they can stop when they want to and they have proved it. They can do it again if they want to.
I believe that this order is almost a disaster in its present form. It has sent entirely the wrong signal and no one can understand why on earth it should have been made. I fear for the summer. I hope that the Minister will take back to the Secretary of State a plea quickly to find good reason to amend the order.
8.12 p.m.
Lord Dubs: My Lords, the noble Baroness, Lady Seccombe, got it right, I think. One of the first things she said was that the Secretary of State has an awesome responsibility under the legislation. It is an awesome responsibility and probably the most difficult one that any Minister in any government has had to exercise for many years.
What we are considering tonight is the way she has felt she has to exercise her judgment as regards a number of specific organisations. I appreciate that some noble Lords feel that she has not exercised her judgment in the way they would wish. Some noble Lords wish that she had included one or perhaps even three organisations in the list covered by the order.
I have to say that the Secretary of State has to make judgments on the basis of information based on advice from the chief constable and security information. She has to make those judgments based on information which by its very nature cannot be made readily and publicly available. She has, therefore, to make decisions which may on the face of it seem hard to understand. But she has the information. Previous Secretaries of State, like the noble and learned Lord, Lord Mayhew, will have been in the same position. They had to make judgments based on information which they alone possess. I remind the House that under the last government, the Labour opposition fully respected the judgments made by the government at the time about those issues. We respected the judgments made and we accepted on trust that if the Secretary of State felt that he was making the right judgment about releases of prisoners and similar matters, as an opposition we had

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to go along with it as an act of faith because he was in a better position to know. I only ask whether a similar way of looking at it could apply today. All I ask is that we should be judged as a government with the same confidence in the difficult decisions as we gave the previous government.
Baroness Park of Monmouth: My Lords, I of all people fully recognise that there must be a great deal of intelligence that cannot be revealed. But we are talking about what everyone sees happening. It does not require any intelligence to inform people that citizens are being murdered. That is the point I was making. I entirely accept that there may be a great deal of other knowledge which it would be quite improper for us to expect to know. But it is what the public sees.
Lord Dubs: My Lords, I understand that. The murders that have taken place are to be utterly condemned, whoever committed them. I understand that there is and has been for a long time an utter disgust in people in Northern Ireland and all parts of the United Kingdom at some of the dreadful murders and other acts of violence—punishment shootings and beatings—that have taken place.
However, the Secretary of State will still have more information. It is not sufficient to say that there has been a murder because it must also be a murder in relation to political purposes. That is not in the legislation, but I think it is the way one may describe it colloquially. Indeed, there was the expression of the noble and learned Lord, Lord Mayhew, when he talked about punishment beatings for political purposes. Again, the Secretary of State has to depend upon advice that she is given, not just as to the facts of the punishment beating or punishment shooting but as to who did it and perhaps even the motive behind it. I suggest those are difficult decisions to make.
Perhaps I may try to deal with the specific points but not necessarily in the order in which they were made during the debate. The noble Lord, Lord Molyneaux, said that the legislation was being rushed through. We are not rushing it through for the sake of public opinion, as he believes, but simply because as part of the Good Friday Agreement certain undertakings were made as to getting the legislation through quickly. The date has gone, it was supposed to be done by June. We did our best to do it as quickly as we could and it was to meet our obligations under the agreement, not because we are trying to do something as regards public opinion.
I turn to the opening speech of the noble Baroness, Lady Seccombe. I now refer to satisfying some of the factors, the tests, which I believe she commented on. She suggested that some of the organisations might remain off the list even if they failed to satisfy some of the factors indicated. The test is the test in the agreement. That is: whether an organisation has established and is maintaining a complete and unequivocal ceasefire. The factors are relevant to that assessment but do not determine the assessment. It is taking all of them together that is the basis of the decision the Secretary of State makes.
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Perhaps I may deal with the IRA, the UDA and the UVF, to which reference was made. Those organisations are not named in the order. In each case, my right honourable friend considered whether the organisation should be specified on the basis of the test in the legislation. She considered the information available in relation to the four factors which she was required to take into account. In each case noble Lords have said that there are failings. For example, although there have been discussions with the Decommissioning Commission, there has been much less progress than is desirable. As everyone has acknowledged, the punishment attacks have regrettably continued. But viewing the matter in the round, as the Secretary of State is required to do by the Act, she has concluded that all three of the organisations are maintaining complete and unequivocal ceasefires. It is on the basis of that judgment that she has decided that those organisations should not be specified in the order.
I turn to the appalling murder of Andrew Kearney. The RUC has said that it is pursuing a line of inquiry which assumes that the recent brutal murder of Andrew Kearney was committed by the Provisional IRA. As is widely acknowledged, that murder was an utterly barbaric act which has no place in civilised society. I join all noble Lords in utterly condemning it.
The Secretary of State has had to take into account the information she has available about the murder in deciding whether to specify the Provisional IRA. However, as I indicated, on the basis of all the information available to her—"all the information"—she decided not to specify PIRA. That is a decision which must be made in the round. The Secretary of State is required to take account of such punishment attacks in keeping under review the list of organisations that are specified. As noble Lords will know and as I indicated, her criteria and her judgments will become more rigorous as time goes on. It is an ongoing process, not a one-off decision.
Baroness Seccombe: My Lords, perhaps the Minister can help me. If one person or more than one person who is a member of PIRA is charged with the murder of Andrew Kearney, will that mean that PIRA will be placed on the schedule?
Lord Dubs: My Lords, it is not appropriate for me to answer that question. The Secretary of State is required to take all the factors into account. The noble Baroness indicated one specific factor; there may be others. It would not be proper for her to say that if one thing happened, that will determine whether or not an organisation appears on the list. The Secretary of State has a wider responsibility, under the legislation. It is a difficult responsibility but it would not work in precisely the way indicated by the question of the noble Baroness. That is not the way the Secretary of State would make such a decision. Of course that factor would be taken into account, but other factors also would have to be taken into account.
The noble Lord, Lord Holme, asked whether PIRA and Sinn Fein should engage in confidence-building before the summer is out. I see the force of the noble

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Lord's point. I hope I was clear in my speech that we look at PIRA and the other organisations which have not been specified to make progress, to build confidence, on decommissioning, on the ending of punishment attacks and in other ways. We look to Sinn Fein and the other parties to meet all their obligations under the agreement. They must do that. That is part of the agreement and part of the commitment entered into by Sinn Fein—and all the other parties that signed the agreement—and we expect them to stick to that. We look forward to progress on that.
The noble Lord, Lord Holme, made another point in relation to the murder of Mr. Kearney. He was correct to draw attention to the fact that that murder may not have been sanctioned by the leadership of the IRA. However, such organisations cannot divest themselves of responsibility for acts carried out in their name. That would not be an excuse—if one can use the word "excuse"—for such a brutal act. There is a responsibility of the kind I have described. Organisations cannot divest themselves of responsibility for acts carried out in their name.
Lord Holme of Cheltenham: My Lords, I am grateful to the noble Lord for giving way. I am trying to reconcile what he said and the question asked by the noble Baroness, Lady Seccombe, a moment ago. If the test is a complete and unequivocal cease-fire, and it is proved that there was not a complete and unequivocal cease-fire because members of the Provisional IRA were convicted of murder (if that proved to be the case), in taking factors in the round, as the Minister said, the Secretary of State would not be able to say that this was a breakaway faction—I hope I am following the Minister's logic—but would be absolutely and unequivocally a breach of the cease-fire and therefore it would be difficult to sustain the exclusion of PIRA from the list.
Lord Dubs: My Lords, as I said in answer to the earlier question, the Secretary of State would take that fact and all other facts and information into account in making a decision. It is not appropriate for me to say that the Secretary of State would make her decision in a specific way based upon, for example, the instance given by the noble Lord. I cannot suggest that that is the way the Secretary of State will decide. She will decide it on the basis of all the information available to her and of course she will take specific instances into account. I do not want to leave noble Lords with the impression that a specific event or incident in itself could determine the Secretary of State's decision. It would not be proper to leave the House with that impression.
The noble Lord, Lord Holme, paid tribute to the chief constable, which I totally endorse. The chief constable has done an amazing job in Northern Ireland. He is widely respected for his conduct in a very exacting post. The noble Lord asked whether the Secretary of State will follow the judgment of the chief constable. The Secretary of State will consult the chief constable, but the decisions under the Act are for the Secretary of State alone to make.
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The noble Lord, Lord Molyneaux, talked of specified sub-contractors but not the main contractors in terms of the organisations. The Secretary of State has considered which organisations to specify and, in doing so, had to consider whether organisations are separate organisations or part of the larger whole. She has done so and made her judgment on the order on that basis.
The noble Lord asked also about a selective amnesty. This is not an amnesty. The legislation sets out tests which must be applied by the commission before a declaration is made. We do not see that as an amnesty.
The noble Baroness, Lady Park, asked about the 32 County Sovereignty Committee. That is a political manifestation of the Real IRA. They are both covered by the order. The noble Baroness asked also about Direct Action Against Drugs and why it is not on the list. The Government have said that they consider Direct Action Against Drugs to be part of the IRA.
The noble Baroness asked also why the Secretary of State had been to see the McBride family. The Secretary of State saw the McBride family following the announcement of a further review of the cases of the two guardsmen, Fisher and Wright. She has made it quite clear that meeting them will not in any way affect her judgment as to how she will proceed. It was only after she decided that she would embark on a further review immediately that she felt it appropriate to see the family. But that will not make a difference to the way in which she arrives at her decision.
I understand the difficulties felt by many Members of the House about both the wider legislation and this order specifically. Of course it is difficult. But I repeat: the Secretary of State has had to make difficult judgments based on information which is not in the public domain. The order is required to ensure that prisoners who support organisations that are not established or are not maintaining a complete or unequivocal cease-fire are not released under the sentences Act. It is an important part of the operation of that Act and one of the many safeguards.
Lord Mayhew of Twysden: My Lords, I hesitate to interrupt the noble Lord and am grateful to him for giving way. I sensed a certain reproach. He was being as reproachful as his generous nature permits him to be when looking in my direction and kindly dealing with some, though not all, of the points that I made.
Perhaps I can ask him this. We all accept that there are matters of intelligence which must not be divulged. But there is one matter which is wholly in the public domain and many noble Lords adverted to it tonight; that is, that there are instances in the past where the Provisional IRA demonstrated their ability to turn off punishment beatings when it suited them. Do the Government accept that that is the case? If so, what conclusion do the Government draw from the fact that

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it has not chosen to exert that power in the present circumstances? Do the Government accept that punishment beatings are continuing virtually unabated?
Lord Dubs: My Lords, the noble Lord poses a difficult question. In so far as my words were words of reproach, they were couched in the gentlest possible terms.
As regards the substance of the question, there have been times when punishment beatings have declined and times when they have happened more frequently. But it is not easy to draw from those facts the conclusion that somehow on one occasion the IRA stopped them happening and on another it turned a blind eye or sanctioned them. I cannot go along with the noble Lord in drawing that conclusion. These are more difficult judgments than are susceptible simply to the statistics of these very regrettable incidents.
We have probably exhausted all the arguments. I thank noble Lords for their contributions to the debate. This is a very, very important piece of legislation; it is intrinsic to the agreement. The Government are optimistic that this agreement will lead to peace in Northern Ireland. We are taking an important step along that path tonight. I beg to move.
On Question, Motion agreed to.

Scotland Bill
8.30 p.m.
House again in Committee on Clause 61.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 275B:
Page 27, line 6, at end insert—
("( ) No payment shall be made under subsection (2) unless the Secretary of State is satisfied that appropriate rules have been made under section 66(1) for each of the purposes described in that provision.").
The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 275C.
These amendments refer to Clause 61, which deals with the Scottish Consolidated Fund. We have moved away from the discussion of how it will be arrived at—the actual total—and are moving into what should be done with it. As the Bill says, the Secretary of State will make payments into the fund out of money provided by Parliament. Amendment No. 275B makes clear that no payment should be made unless the Secretary of State is satisfied that all the proprieties in Clause 66(1) are in place.
These proprieties are that proper accounts should be kept, that the Auditor General for Scotland should ensure that the funds are being properly spent on proper purposes, and all the like things that go with proper financial control. We will come to that in greater detail later. By the nature of things we have come to it before the main portion of this matter, which comes in Clause 66.
I am suggesting that the Secretary of State should be satisfied that all these proprieties are in place. Why the Secretary of State? Because he is the man who is handing out the money. He is the man or woman who is part of the Government which will raise the money, so he has some responsibility for its spending. By that I mean not how it is spent but that it is spent properly; that proper accounts are kept and that it is looked after properly.
Amendment No. 275C states that no payment should be made by the Secretary of State unless he has a report on the expenditure proposals. This is necessary not so that he can control them or double guess them, but so that he can lay a report before Parliament prior to Parliament voting the supply. At present, I think that the detailed supply estimates that go to the Scottish Office cover some 10 Votes and 73 line items.
We have to accept that the other place will have to continue to vote supply. They will, I assume, be able to ask questions about that vote. We cannot ask the other place to just vote £14 billion and ask no questions about how it is being spent or whether it is being properly spent. We cannot expect the House of Commons and its Public Accounts Committee simply to rubber stamp the sums that are being sent to Scotland. There has to be an accountability for the money. I suggest that it must remain with those who raise the money. They must therefore have some detail.
As the Bill is drafted, the Secretary of State is just about a postman. He picks up £14 billion from the Treasury and passes it on to the Scottish executive. Amendment No. 275B would hold the Secretary of State to account if there were no proper accounting or auditing rules. I am not interested in whether or not it has made a decision to spend more on health or less on education, or whatever decisions they take about money. I am concerned about the accounting procedures and the auditing rules. The House of Commons needs this information in order to judge; it can only get it from the Secretary of State; and he can only get it from the Scottish parliament.
These two amendments are suggested ways by which we might link the Scottish parliament and executive into the House of Commons and into the monitoring that the House of Commons does, through the Comptroller and Auditor General and the Public Accounts Committee, of the amount of money spent. Although I will try other methods, the only person available to make sure that the proper accounting and auditing procedures are in place to satisfy the House of Commons before it dishes out £14 billion, is the Secretary of State. I beg to move.
Lord Sewel: Amendment No. 275B is designed to ensure that the Secretary of State is satisfied that appropriate arrangements are in place for accounts and audit matters before he makes any payments to the Scottish Consolidated Fund.
I agree—particularly as a former member of the Accounts Commission for Scotland—that it is important for the parliament to legislate to put in place its rules for accounts and audit as early as possible, but it must be for the parliament to decide for itself what the proper

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arrangements should be, subject to the requirements in Clause 66. It would not be appropriate for the Secretary of State to decide whether these arrangements are proper.
As well as that, it is also important that there is a smooth transfer of audit responsibility from the current arrangements for the Scottish Office to the new arrangements provided by the parliament. That will be all the more essential as there is to be a transfer of functions during the course of a financial year.
The transitional provisions that the Government will bring forward under the Bill will deal with this important point and set out rules for the transitional period until the parliament has put in place its own legislation under Clause 66, which it is required to do. We expect this to be in place for the financial year beginning 1st April 2000, but if it is not the transitional arrangements will continue. With this reassurance, I hope the noble Lords will withdraw this amendment.
Turning to Amendment No. 275C, this suggests that the other place should receive a report of the spending proposals of the executive before it votes the supply for the grant the Secretary of State will make to the Scottish Consolidated Fund.
The amendment is very specific. It states:
"The Scottish Executive has submitted to the Secretary of State a report containing particulars of the expenditure proposals to which the payment relates".
So it is asking for the fine details of the Scottish executive budget. That would amount to the UK Parliament being asked to approve the Scottish parliament's spending proposals. That is at oddsfundamentally—with the whole essence of devolution. The allocation of resources, within the overall budget, is quite clearly a matter for the parliament. Indeed, it is also a matter for the parliament whether or not to vary the amount of that budget, upwards or downwards, using its own tax raising power.
The UK Parliament will continue to have a strong locus in that it will grant, by the normal means of approving Estimates, the sums to be paid by the Secretary of State into the Scottish Consolidated Fund. There are also provisions in relation to the accounting and auditing arrangements of such sums paid to the Scottish Consolidated Fund. Under Clause 62, rules will have to be made by or under an Act of the Scottish parliament in relation to payments out of the Scottish Consolidated Fund; and under Clause 66 in relation to accounting and auditing arrangements. It is right and proper that these matters should be for the Scottish parliament itself. Indeed, I believe that to accept the noble Lord's amendments would provide a recipe for ongoing friction between the two parliaments as well as cutting across one of the key features of devolution—that the Scottish parliament makes its own decisions in relation to devolved matters.
The noble Lord assumed that the other place could ask questions when it came to voting supply for the Scottish parliament. The theoretical position is clear. The answer is yes. However, the proceedings are purely formal in a way and I think that the convention will
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quickly develop that it would not be appropriate for the other place to question the details of the budget of the Scottish parliament. If we were to get into the position of detailed questioning in relation to the granting of supply, we would get very much into second guessing, which would be a recipe for friction and conflict between the two parliaments.
I hope I have said enough on the first amendment to indicate that there is a safeguard in the transitional arrangements which will be required to ensure proper auditing and scrutiny of accounts and that those transitional arrangements will remain in force until proper arrangements are put in place by the Scottish parliament. On that basis, I hope that the noble Lord will feel able to withdraw the amendment.
The Earl of Mar and Kellie: A point comes to my mind which the Minister may like to straighten out now. Does the Bill allow the United Kingdom Parliament to withhold supply from the Scottish parliament?
Lord Sewel: At the extreme edge of theoretical possibility, the answer must be yes. But I cannot imagine a situation where that would even begin to come into the realm of practical politics.
The Earl of Mar and Kellie: That means that the devolution scheme is based on good will.
Lord Mackay of Ardbrecknish: I understand the points that the Minister has made to me. It is something of a dilemma but it is a quite difficult dilemma to resolve. The other place will be raising the money and voting the supply, but someone else will be spending it. In the other place Back-Bench Members can, by using various methods, raise questions when they vote supply. Normally, the debates are of a fairly general nature. Members, in the usual way that the other place works, take part in a raffle to see who should be allowed to speak. They can speak about any matter, as long as it falls within the broad aspects of whatever government spending is being voted.
I am in some difficulty when it comes to accepting the Minister's point that these matters will not be raised in the other place. I think that they may be raised. My problem is that I am not entirely sure how the Treasury—it would probably be the Treasury—would answer unless it had some information. I equally see the problem that one could be led into the accusation of double guessing the parliament. I am not in the business of doing that. I am just concerned about the tie-up between the parliament which raises the money and the other parliament which spends it.
I am pleased to hear from the Minister that the Government will make transitional rules about accounting and auditing and that those rules will continue in existence until the parliament substitutes them with its own rules. We shall come later to how the parliament will do that and who must agree the rules that it makes. That brings me back to the problem, which is a real one, of the difference between those who raise the

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money and those who spend the money. However, I am pleased to hear about the transitional arrangements. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 275C not moved.]
8.45 p.m.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 275D:
Page 27, line 11, leave out subsections (5) to (7).
The noble Lord said: This is very much a probing amendment. I am suggesting in my amendment that subsections (5) to (7) of Clause 61 are left out, but I do so more as a means of asking what they mean. Subsection (5) states:
"The Treasury may, after consulting with Scottish Ministers, by order designate receipts of any description specified in the order which are payable into the Fund".
Where will the receipts come from? Are these receipts other than the block grant? I am going to have some trouble not calling it the block grant despite the fact that I am supposed to say departmental expenditure limits. I think that I shall go on calling it the block grant for the remainder of the proceedings on the Bill. Presumably, this will involve receipts other than the block grant which will go into the Scottish consolidated fund. I wonder what is envisaged there.
Will it be the proceeds of privatisation, if I may whisper that to the Government? Will it be the proceeds of the privatisation of the air traffic control service, which I gather the Government are going to privatise? There is a Scottish part to that service. Will the consolidated fund get a share of the privatisation proceeds of the air traffic control service? What about the Tote? Some of the Tote shops are in Scotland. A percentage from the privatisation proceeds of the Tote might have to be paid. I really wonder what is envisaged. What might be paid in other than the extra 3p? If that is it, then that is the answer. But, from the way the provision is drafted, it does not sound like the extra 3p. I should like to know what is envisaged there.
In subsection (5) we have Scottish Ministers paying into the fund and in subsection (6) Scottish Ministers may be paying to the Secretary of State—back to the UK Government—the money from certain designated receipts. What do the Government envisage there? What money would the Scottish consolidated fund and the Scottish executive be collecting that they would then need to remit to the Parliament at Westminster? I am a little puzzled. I am sure that there are perfectly good explanations and I look forward to hearing them. I beg to move.
Baroness Ramsay of Cartvale: This amendment would have the effect of overturning the provisions in Clause 61 which deal with certain receipts payable to the Scottish consolidated fund. Under these provisions receipts designated by the Treasury are to be paid to
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the Secretary of State and on to the UK Consolidated Fund. These provisions provide for the continuation of the current position.
At the moment certain receipts are surrendered annually by the Scottish Office to the UK Consolidated Fund. I am advised that the receipts affected consist primarily of court fines and interest payments; mainly from NHS trusts. One of the key principles of the devolution settlement is that the financial framework should be based on existing block arrangements. As these receipts do not add to the Scottish Office's budget at the moment, they should not add to the parliament's in future. The provisions in question merely provide a statutory framework for surrender.
The noble Lord, Lord Mackay of Ardbrecknish, asked about the Tote and the air traffic control service. The answer is no. Neither of those comes under devolved headings. I hope that my explanation was sufficient. I ask the noble Lord to withdraw his amendment.
Lord Rowallan: May I ask a very stupid question? I thought that court fines went to the local authority. Are we talking about the High Court as opposed to the sheriff courts?
Lord Hardie: Perhaps I may assist. District court fines would go to the Consolidated Fund although a proportion is retained by the local authority for administrative purposes under an arrangement with the Treasury. Sheriff court fines and High Court fines all go to the Consolidated Fund.
Lord Mackay of Ardbrecknish: I am grateful to the noble Baroness, Lady Ramsay of Cartvale, for explaining to me the provisions of subsections (6) and (7) on court funds and interest from NHS trusts. I am not entirely sure what that means, but I accept it in good faith. I understand that they are not part of the Scottish Office budget at the moment; they are transferred to the UK Consolidated Fund. I can follow that. I am not sure, however, whether the noble Baroness gave me any examples about subsection (5) on designated receipts which, if I read the provisions correctly, would go into the fund and stay there. Perhaps I am not reading it correctly. Perhaps those receipts go into the fund and then, under subsection (6), are paid out. Is that what is meant? I believe that it may well be, and if that is what is meant by the provisions, I am satisfied. If it is not what is meant, perhaps somebody will write to me.
Baroness Ramsay of Cartvale: The answer is yes. That is what is meant. However, if by any chance I am not correct, I shall immediately write to the noble Lord to correct what I have said.
Lord Mackay of Ardbrecknish: I am most impressed by the confidence of the noble Baroness and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 61 agreed to.
Clause 62 [Payments out of the Fund]:
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 275E:
Page 27, leave out lines 32 and 33.
The noble Lord said: Amendments Nos. 275E and 275F are probing amendments. I understand from Clause 62(2)(a) that the purposes are,
"meeting expenditure of the Scottish Administration".
However, I should like an explanation of paragraph (b) on lines 32 and 33.
Amendment No. 275F is perhaps a little more than a probing amendment because it enshrines the concept of a balanced budget. It states that the Scottish parliament will not be able to pay out any more in any year than it receives. I could wax fairly eloquently about the need to ensure that the Scottish parliament balances its budget. I suspect that I shall be told that I need not worry because elsewhere in the Bill are provisions which mean that the Scottish parliament could not go out of balance by more than the £500 million which it is allowed to borrow. I should be grateful for a quick explanation of what sort of mechanism will be put in place by the UK Parliament, which, after all, will have to pick up the tab, to make sure that the Scottish parliament will not go out of balance and go very much into the red.
My obvious fear is that, having seen what has happened in some parts of Scotland, I am not entirely convinced that we can be utterly confident that those elected will be responsible with the money that they receive from this Parliament. I believe that this Parliament should have at least some oversight. I must not use the word "oversight" because it suggests the nanny state and the Government Benches, I am happy to say, no longer believe in the nanny state. I do not want to be able to double-guess the Scottish parliament, but I believe that we should include in the Bill some provisions to ensure that we do not have to oversee the parliament. The Bill needs provisions to prevent the budget going badly into deficit and which will ensure that that parliament will not expect this other place to pick up the bill. That is why I have tabled Amendment No. 275F. I beg to move Amendment No. 275E.
Lord Sewel: Amendment No. 275E has the effect of deleting Clause 62(2)(b) which allows sums to be paid out of the Scottish Consolidated Fund to meet expenditure payable out of that fund under any enactment, including the Bill. If we were to accept the amendment, we would find ourselves in the strange position such that expenditure in relation to a whole myriad of activities, which would rightly fall due to the Scottish Consolidated Fund, would not be competent since they would not be caught by the other provisions of Clause 62 relating to expenditure of the Scottish administration and sums charged on the fund. Clearly, that would not be acceptable. It would, for example, rule out expenditure of such bodies as the Scottish parliamentary corporate body, the expenditure of which is payable out of the Scottish Consolidated Fund by virtue of Clause 27.
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It would also mean that the salaries and allowances of members of the parliament could not be paid unless the parliament made them a statutory charge on the Scottish Consolidated Fund or provided for them to be paid by the Scottish Ministers. None of those functions can properly be described as expenditure of the Scottish administration and would therefore not he included under the provisions of Clause 62(2)(a).
Moreover, the parliament would be unable to vote money directly to the Auditor General for Scotland and his office but could only arrange for him to be paid by the administration or for his expenses to be a charge on the fund. That, of course, would undermine his independence. On reflection, it can be seen that we would be heading quickly for a rather chaotic situation if we went down that route.
Turning to Amendment No. 275F, the effect of this amendment would be to require the Scottish parliament to ensure that sums it proposes should be paid out of the Scottish Consolidated Fund in any financial year do not exceed the sums expected to be paid into that fund for the same financial year.
First, the Scottish parliament could not effectively budget to live outwith its means since, as the noble Lord observed, the Scottish executive will have no borrowing powers on its own account other than the short-term borrowing provided for in Clause 63; nor can the parliament grant the executive further borrowing powers—subsection (4) ensures that. Thus, it would simply not have the cash to finance a budget it could not afford. Moveover—this is a bit of a sting in the tail—even the short-term borrowing is repayable under such terms as the Treasury may determine; and this includes the timescale for repayment.
The noble Lord hinted about the possibility of the Scottish parliament acting almost deliberately irresponsibly and setting itself on a collision course with the UK Parliament over its budget. I genuinely believe that that possibility is remote. We have no reason to believe the parliament will act in anything but a mature and responsible manner. With devolution comes responsibility and freedom to determine its own affairs. If the parliament were determined to act in such a way as to break the devolution settlement, this amendment would not prevent it from doing so.
There are a number of ways for the devolution settlement to be broken if that is the wish of an immature and irresponsible parliament which is set on a collision course. It would be impracticable to legislate for all of those opportunities. Again, I do not believe that we have any grounds for believing that the parliament will act irresponsibly in such matters. In the unlikely event that the Scottish parliament did propose to budget outwith its means, that would become apparent since its expenditure proposals would be in the public domain. It would be clear that that was the course of action upon which the parliament was intent. That would undoubtedly create a political crisis. However, in those circumstances, the UK Parliament could legislate for a remedy.
The other more practical objection to the noble Lord's amendment is that if its provisions were to be applied the Scottish parliament would be unable to carry

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forward unspent balances. That would, in turn, mean that it would be unable to enjoy the sort of end-year flexibility arrangements which government departments normally have. In some ways, those arrangements are to be encouraged to ensure the more effective and efficient use of resources. On the basis of that explanation, I hope that the noble Lord feels assured and able to withdraw his amendment.
Lord Mackay of Ardbrecknish: On Amendment No. 275F, I understand the noble Lord's point about the importance of the parliament and the government being able to carry forward unspent balances rather than having what I have always considered to be the rather silly practice of spending money as if there was no tomorrow just because it is March.
If I were a member of another political party which shall remain nameless but which is not represented in your Lordships' House, I might be attracted by the idea of spending more money than I received in order to underline the point that I was not getting enough. I am impressed by the confidence of the noble Lord that that will not happen. Given the opinion polls, I do not share his confidence. But his suggestion that if that happened the United Kingdom Parliament could take very quick steps to legislate to put an end to it fills me with a degree of confidence. Therefore, when the Committee comes to Amendment No. 275F I shall seek leave to withdraw it.
I turn to Amendment No. 275E. I now understand what Amendment No. 275B means. Obviously, I did not think about it for long enough. The attraction of seeing how many people would stand for this parliament if there was no power to pay them almost tempts me to call a Division. However, as I do not believe that the noble Lord, Lord Sewel, even if he were not a Minister, the noble Lord, Lord Steel of Aikwood, and perhaps my noble friends Lord Selkirk of Douglas and Lord Sempill, to name but four or five, would join me in the Lobby, I shall resist the temptation and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 275F not moved.]
Clause 62 agreed to.
Clause 63 [Borrowing by the Scottish Ministers, etc.]:
9 p.m.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 275G:
Page 27, line 36, at beginning insert ("Subject to the approval of the Chancellor of the Exchequer,").
The noble Lord said: This is a short matter. I regret that the noble and learned Lord, Lord Simon of Glaisdale, is not present because he would have applauded the Minister on the drafting of this Bill. I have suggested the wording,
"Subject to the approval of the Chancellor of the Exchequer, the Scottish Ministers may borrow from the Secretary of State any sums required".
In Amendment No. 275H I suggest that "Treasury" should replace "Secretary of State". Interestingly enough, in the Government of Wales Bill when a
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proposal was made to delete references to the Treasury and the Chancellor of the Exchequer the noble and learned Lord, Lord Falconer of Thoroton, the former Solicitor-General—he has now gone on to be the great enforcer—vigorously defended these words and the drafting practice. It was said that every time one saw the word "loans" it had to be with the permission of the Treasury. It was said to be a long-held drafting tradition and it was absolutely essential. He put up a very serious defence. The noble Lord, Lord Simon of Glaisdale, believed that the words were quite unnecessary, but his noble and learned friend was not prepared to agree with him. The Government refused to budge. I simply ask that if this is good enough for the Welsh why is it not good enough for the Scots, or is this a change in drafting procedure since the introduction of the Government of Wales Bill?
Lord Hardie: I have been asked to reply to this amendment in view of the fact that my noble and learned friend the former Solicitor-General dealt with the equivalent Welsh provision. Amendment No. 275G would require the Scottish Ministers to seek the approval of the Chancellor of the Exchequer in relation to sums borrowed by the Secretary of State. Amendments Nos. 275H and 275J would mean that the lender under the short-term borrowing power would be the Treasury rather than the Secretary of State. Under this clause all borrowing is subject to the provisions of Clause 64. This 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. I am advised by our draftsman that this is the usual formulation for National Loans Fund lending provisions of this kind and acknowledges in an appropriate way the Treasury's role in controlling access to that fund.
Clause 63(3) was referred to by my noble friend Lord Sewel in his previous answer. That provides that borrowing is to be repaid to the Secretary of State on terms determined by the Treasury. This includes such matters as timescale, methods of repayment and the rate of interest. I am satisfied that these provisions provide the Treasury with robust powers in relation to such short-term borrowing under Clause 63. I ask the noble Lord to withdraw his amendment for the reasons that I have given. As I have explained previously, I do not believe that comparisons between this and the Government of Wales Bill are necessarily apt.
Lord Mackay of Ardbrecknish: They may not be apt but clearly the same dead hand of the Treasury is in both of them. I had thought for one moment that Scottish Ministers and the Secretary of State had escaped, but as the noble and learned Lord the Lord Advocate has pointed out, the Treasury is still there. I am not sure whether I am relieved by that. In any event the noble and learned Lord, Lord Simon of Glaisdale, will be disappointed to learn that the phrase "the Treasury" still figures in legislation wherever loans appear, even if as in this case it figures in another clause. I am grateful to the noble and learned Lord for that explanation and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 275H and 275J not moved.]
Clause 63 agreed to.
Clause 64 [Lending by the Secretary of State]:
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 275K:
Page 28, line 14, leave out ("increased").
The noble Lord said: Clause 64 allows the Secretary of State to borrow for the parliament up to £500 million. Under subsection (3) we see that,
"The Secretary of State may by order made with the consent of the"—
I am happy to see—
"Treasury substitute for the amount (or substituted amount)"—
I am never sure what the words in brackets mean but I am not asking about that—
"specified in subsection (2) such increased amount as may be specified in the order".
I have suggested the deletion of the word "increased" so that it simply reads,
"such amount as may be specified in the order".
I do that because it is possible that the Secretary of State may decide to cap this amount at a lesser figure than £500 million, especially once the parliament is up and running. I appreciate that this is something the parliament will need to get off the ground before the whole system comes into play. I believe it would be wiser to leave out the word "increased" to allow for decrease or increase. My amendment would allow both possibilities. I do not say that there must not be an increase, but that the Secretary of State has to be able to decrease it as well as to increase it.
The Earl of Balfour: I was very interested in the equivalent Welsh Bill, when I put down an amendment in similar terms and was told that this limit was for emergency purposes and that it would not ever be likely to be decreased. I am therefore intrigued as to the answer we may now receive.
Lord Hardie: This is the one occasion on which I would certainly adopt the position on the Welsh Bill. The ceiling is indeed for emergencies; the £500 million specified is intended to be an upper limit. We would expect the borrowing to be well within that limit for the majority of the time. Clause 64(3) enables that amount to be increased, but only with the agreement of the House of Commons, should it be necessary to meet special unforeseen circumstances.
To put this in context, £500 million represents a small proportion of the parliament's likely budget. I am advised that it represents approximately two weeks' money and is fairly modest in comparison with other similar arrangements. For example, the equivalent figure for the Scottish water authorities is £3 billion.
With that explanation, I would invite the noble Lord to withdraw the amendment.
Lord Mackay of Ardbrecknish: Unless my arithmetic is very askew this evening, I find £500 million
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to be a significant portion of £14 billion. I certainly would not reject an offer of £500 million. It is a considerable sum of money with respect to the parliament.
I will not argue about that, however. I still think it might be better if the position were open so that "decrease" could go as well as "increase"; but I am content with the explanation. I understand why the money may be needed. In the eventuality of something very serious happening in Scotland, a lot of money might be needed in order to deal with an emergency, and this would be one way to do it. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 64 agreed to.
Clause 65 [Borrowing by public bodies]:
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 275L:
Page 28, line 24, leave out from ("sterling") to end of line 25.
The noble Lord said: My amendment is grouped with an amendment tabled by the noble Lord, Lord Sewel, and it will be interesting to hear what he has to say. My amendment is simply a probe. The subsection says,
"A body established under any enactment shall not, in pursuance of a power conferred by virtue of an Act of the Scottish Parliament, borrow money in a currency other than sterling except with the consent of the Scottish Ministers given with the approval of the Treasury".
I suppose I will be told that there is a double armlock on this; but I wonder in what circumstances the Government envisage, even with the consent of Scottish Ministers and the approval of the Treasury, that the parliament might be borrowing in a currency other than sterling.
I find it hard to believe that the parliament will be borrowing from abroad. I find it even harder to believe that the parliament will be indulging in a bit of currency speculation. I would not have thought it was the best idea for the Scottish parliament to start borrowing from overseas banks, given the experiences of the Western Isles with BCCI. I wonder why the Government feel it necessary therefore to include this proviso which seems to allow the parliament, in very tightly constrained circumstances, to borrow any money other than sterling?
Baroness Carnegy of Lour: Is it anticipated that it might borrow in euros?
Lord Thomson of Monifieth: May I ask a question which puzzles me about the language of the clause, and indeed some other clauses? It says that a member of the Scottish executive "may borrow money". Is it not only the Scottish Ministers as a collective, the Scottish executive as a whole, that can authorise lending or borrowing money? It rather reads as if an individual Minister could go off and do something rather odd—subject of course, as always, to the consent of the Treasury.
Lord Sewel: Amendment No. 275L would prohibit non-sterling borrowing by public bodies completely.

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That is too inflexible. While we do not expect any great demand for this facility, it is nevertheless necessary to allow such borrowing should it be required.
But, given that non-sterling borrowing can have macro-economic consequences, it is only right and proper for any bodies that wish to take advantage of such borrowing first to obtain the consent of Scottish Ministers, who in turn must seek the approval of the Treasury. As noble Lords will know, macro-economic concerns are reserved matters.
The noble Baroness, Lady Carnegy, has spotted it! It is not beyond the bounds of possibility that in advance of any decision by the United Kingdom to join the single European currency, some public body might want to borrow from a European Union institution, and any such borrowing may be available only in euros. That would be possible with the approval as the Bill is presently framed. That is the gem that is hidden away there. I hope that the noble Lord can accept it.
9.15 p.m.
Lord Lyell: My noble friend and neighbour Lady Carnegy raised the point about euros. I thought the Minister's reply was good and gave flexibility for what a properly run council might wish to do. However, assuming that the euro, or the currency being borrowed, was not at a fixed exchange rate against sterling, if the council did well and perhaps made a profit on exchange, would the payments in euros, deutschmarks or perhaps dollars affect the limit? I presume that there are overall limits. Would there be a question against the limits, which are expressed in sterling?
Lord Sewel: Maybe. It is worth clarifying. I shall write to the noble Lord.
This borrowing is extremely limited. I imagine that with the euro the issue would arise only in the run-up to entry into the euro, when one would have effectively a fixed exchange rate. It is subject to the double armlock indicated by the noble Lord, Lord Mackay of Ardbrecknish, of approval by Scottish Ministers and the Treasury.
It may be helpful if I speak to government Amendment No. 275M. This inserts a new subsection in Clause 65 making it clear that the reference to "enactment" includes the Bill and subordinate legislation made under it. It is a purely technical amendment to ensure consistency in references to "enactments" throughout the Bill.
Lord Mackay of Ardbrecknish: I am grateful to the Minister for that answer. My noble friend Lady Carnegy may have provided him with a better answer than he had originally. But I am still not convinced. If we ever decide to join the euro, there will have to be an Act of Parliament. One of the clauses will state something like, "In every other previous enactment where it says `sterling' read 'euros'". The provision will not be nearly
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as simple as that because the lawyers will have got at it to make it more complicated. Therefore I do not think it necessary to have this little omission.
Lord Sewel: For clarification, I am envisaging the period immediately prior to joining, where there most likely will be a great deal of trading in and borrowing of euros in this country. On that basis, I agree that there would be a period where there would not be an Act of Parliament stating, "For euros read sterling", but effectively one would have a fixed exchange rate between the two.
Lord Mackay of Ardbrecknish: I suspect that if we were to decide to join the euro within some specified timetable, we would need an Act of Parliament almost immediately to change everything. It would be more than just this legislation which would be influenced in that way.
However, I am not prepared to argue about that. I am grateful to the Minister. I strongly suspect that the approval of the Treasury will never be given to the Scottish parliament to undertake a little currency speculation. If it does, I might obtain the answer as to which receipts must be paid into the Consolidated Fund and promptly paid back to the Treasury.
I am content with Amendment No. 275M. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Sewel Lord Sewel moved Amendment No. 275M:
Page 28, line 25, at end insert—
("( ) In this section "enactment" includes an enactment comprised in or made under this Act.").
On Question, amendment agreed to.
Clause 65, as amended, agreed to.
The Earl of Balfour The Earl of Balfour moved Amendment No. 276:
After Clause 65, insert the following new clause—

STATEMENT OF PROPOSED EXPENDITURE ETC
(" .—(1) The Scottish Executive shall after the first financial year of the Parliament make an annual written statement showing—

(a) the total amount of the expenditure which it proposes to incur for that year; and

(b) on what it proposes to incur that expenditure,and shall present it to the Parliament for approval.

(2) After the Parliament has approved the proposed expenditure for that year, a statement under this section shall be published by the Parliament as soon after being made as is reasonably practicable.").
The noble Earl said: The idea behind the new clause is to make quite certain that the Scottish parliament, after its first year in office, produces a budget of its expenditure similar to that produced by the Chancellor of the Exchequer in another place. In my experience of legislation in respect of local government there has always been a surprising difference between my friends in local government in England and those in Scotland. Those in England always ask for more accurate forecasting of what the local authority wishes to spend than appears to be required by Scottish local authorities.
It is important that local authorities should be able to give an accurate forecast of their proposals. The budget can then be discussed and alterations may then be required. I see nothing in the Bill covering the point I am raising. I beg to move.
Lord Selkirk of Douglas: My question relates to emergencies. I vividly remember the night of the appalling tragedy at Lockerbie and travelling North with Mr. Donald Dewer. Apart from the terrible scale of the tragedy, there was the immediate problem that the local authority did not have the funds to deal with such an emergency. I believe that application was made to the contingency reserve and funds were provided independent of the local authority.
Will the Minister give a reassurance that there is nothing in the legislation to prevent the Scottish executive applying to the contingency reserve if there is an emergency, which I sincerely hope never again happens in that form?
Baroness Ramsay of Cartvale: Amendment No. 276 would place an obligation on the Scottish executive to make a statement of its proposed expenditure to the Scottish parliament. There is a similar provision in the Welsh Bill and the noble Earl may well have had that in mind when he tabled this amendment. However, there are two important differences between the Scottish parliament and the national assembly for Wales in this respect. The national assembly does not have a separate executive, nor can it enact primary legislation. In this particular case, those are crucial differences. It is the Scottish parliament that will hold the executive to account and it will legislate for that.
Clauses 62 and 66 provide that the Scottish parliament has to make legislation covering the circumstances that payments may be made out of the Scottish Consolidated Fund as well as the arrangements for financial control, audit and accounting. I have no doubt that the parliament's procedures will meet all the essential points made by the noble Earl. But we should not attempt to tie it down to such detailed arrangements.
I assure the Committee that the Government are satisfied that the Bill strikes the right balance through providing a framework for the parliament to make robust financial arrangements while leaving it the scope to decide its own affairs. Only in that way do we believe that the parliament can really take ownership of its procedures and, it is hoped, ensure their success.
I can give the noble Lord, Lord Selkirk of Douglas, the reassurance that he seeks. There is nothing in the Bill to stop what he has spoken about. I am sure that all Members of the Committee will join with him in hoping that such a terrible event never happens again, but there is nothing in the Bill to prevent the procedure that he described. I ask the noble Earl to withdraw his amendment.
The Earl of Balfour: Once again, I am most grateful to the noble Baroness, Lady Ramsay, for her explanation. I am satisfied that my wishes are covered in the Bill. Perhaps I did not pick up all the points, even when I read the Bill.
Amendment, by leave, withdrawn.
Clause 66 [Financial control, accounts and audit]:
The Earl of Balfour moved The Earl of Balfour moved Amendment No. 277:
Page 28, line 26, at beginning insert ("Subject to directions given from time to time by the Treasury,").
The noble Earl said: Once again, I have always felt that the Treasury must have the last say. That is why my amendment provides:
"Subject to directions given from time to time by the Treasury".
Also in this group is Amendment No. 278 which stands in my name. I believe that the presentation of the accounts produced by the Scottish parliament must be such that the Treasury is satisfied in the way in which those accounts are kept.
I know from my limited experience in business that sometimes there has been an awful row between the auditor of the accounts and the company secretary that the two accounts are not being kept to the satisfaction of either of them. Such a tragedy can sometimes happen and create a great many difficulties. That is the basic reason behind my amendment. I beg to move.
Lord Mackay of Ardbrecknish: I have two amendments grouped with the amendments to which my noble friend has just spoken. My noble friend and I are looking at the same issue and perhaps approaching it in a slightly different way. I suggest the removal of Clause 66(3) which simply states:
"Standing orders shall provide for the consideration by the Parliament of accounts and reports laid before it in pursuance of subsection (1)(f)".
I am including rather firmer proposals which are much more detailed and outline some specifications for the accounts. Like my noble friend, I agree that the Treasury should have the right to give any directions from time to time.
I suspect that we shall have to return to this matter on Report because I am not entirely convinced that my amendments achieve what I want them to achieve. That is one of the problems of being in opposition. However, sometimes the Government have clauses which do not achieve what they want them to achieve. The Minister has, in fact, deleted a couple of clauses from his own Bill. Therefore, I am not too ashamed that my amendment does not do exactly what I should like it to do.
There was considerable debate about this problem in the other place which was led by my honourable friend Mr. David Davis who is the chairman of the Public Accounts Committee. I wondered about putting anything down at all on this matter, because it is very much a House of Commons matter. But, in fact, when it was left in the other place, Mr. David Davis expressed the hope that Members of this Chamber would explore the issue. That is what we are doing.
In the other place there is a very well-honed system consisting of the Public Accounts Committee and the Comptroller and Auditor General. Indeed, the Public Accounts Committee is, arguably, quite the most fearsome of all the committees in the other place. It is always chaired by a Member from the main Opposition

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party. That is why my honourable friend, David Davis, is currently the chairman and why the Member so assigned in the last Parliament was a Labour Back-Bencher, and a very powerful one at that with considerable Treasury experience behind him.
Therefore, the other place has a system whereby it can call into account all the expenditure of departments, and so on. It ensures that, if the Comptroller and Auditor General reports adversely, the Treasury Committee will hold hearings. Indeed, I believe that has been happening during the past few days as regards my former department on the subject of benefit fraud, which, if I recall, was not supposed to exist when we said it did. However, I am glad to see that everyone now accepts that it does exists and that we must try to get rid of it. Nevertheless, I should point out to the Government that that is easier said than done.
However, this is an extension of the earlier debate that we had in which I suggested that the Secretary of State ought to be satisfied that proper controls were in place in order to check and audit the expenditure in exactly the same way, or in a similar way, to the way in which the Comptroller and Auditor General and the Public Accounts Committee do in the other place. Therefore, my amendment would firm up what subsection (3) talks about in two lines. It would be much more specific than just saying that, "standing orders shall provide".
Clause 66 specifies a limited framework of accountability, if one reads through the first section and the various subsections that follow. It sets out in a limited way the accountability and scrutiny which the Scottish parliament must adopt, but the parliament will remain largely free to devise its own procedure. I will probably be told by the Government that I should leave this to the good sense of the parliament. Indeed, that is the response I get when I suggest that something should go into the legislation. However, when I suggest that perhaps something should come out, as I did with the Liberal Democrat Benches on the last day of Committee, I am told that it must be left in. It is all very complicated and I make no apology for weaving a bit, because the Government are also weaving around on this issue as regards what should and should not be specified.
I accept that it will be up to the parliament to devise its own procedures. However, my amendment would give the Treasury the power to make directions in such matters if it thinks it needs to do so. I suspect that what will actually happen, even without my amendment, is that the Scottish parliament will discuss these matters informally with the Treasury and that the procedures established will be perfectly satisfactory. But, if they are not perfectly satisfactory, I believe that the Treasury should have some power to insist. My reason is the same one as I used earlier; namely, that the £14 billion will come from money raised by the Treasury at the instruction of Parliament—in other words, it will come from British taxpayers—but, as we have already heard, the procedures down the corridor for overseeing expenditure by government departments will not cover
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that money. It seems to me to be right and proper that the Treasury should be satisfied that proper monitoring and control is in place in Scotland.
The second half of my amendment, Amendment No. 278B, relates to the Auditor General for Scotland. However, I believe that I ought to have tabled an amendment to remove subsections (4) and (5) from Clause 66 because the second part of my amendment would replace those subsections. I hope that the Minister will accept an apology from me in that respect. Nevertheless, I am quite sure that he and his officials saw clearly what I was trying to do.
Amendment No. 278B would set up the appointment of the Auditor General, who would be an independent person and appointed by Her Majesty. It also specifies the way that he or she should be removed. However, there is one significant difference; namely, that the removal contains no specification as to the majority, whereas the Government have a qualified majority of two thirds in the Bill. Subsection (5) provides that,
"the number of members voting in favour is not less than two-thirds of the total number of seats for members of the Parliament".
We do not have such qualified majorities here. Indeed, we have never felt that they were needed. The other place operates on a simple majority, as does this Chamber. I wonder why the new parliament requires a qualified majority.
I may be told that we should not necessarily ape Westminster, but if we are being consistent as regards the usual explanation that we should trust the parliament, we ought to be able to trust it with a straightforward ordinary majority. Before the Government Ministers tell me how important qualified majorities are, I remind them of the scathing dismissals I received from the Government Front Bench when I suggested that referendums ought to have qualified majorities. It seems to me that if the Government think that a totally unqualified majority in a referendum is good enough, I suggest that the Auditor General could be dismissed on an ordinary straightforward majority without qualification.
9.30 p.m.
The Earl of Balfour: I support my noble friend in respect of the auditors. I know that some quite big companies can change their auditors almost by a simple majority. I do not say that we quite want that, but is it wise to have this larger majority—two-thirds—to change an auditor? I should have thought not.
Lord Sewel: I offer a rough and ready rule of thumb on this business of what is "in" and what is "out". Basically, we would make far quicker progress if we accepted that what is in should remain in, and what is out should remain out. I would move an amendment to that effect to cover the whole of the Bill, if need be.
Amendments Nos. 277 and 278 would require the Scottish parliament, in setting out its detailed rules for the effective control and scrutiny of spending of the Scottish executive, to do so in accordance with directions made by the Treasury from time to time. The difficulty is, of course, that, essentially, that strikes at

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the essence of devolution and cuts across the guiding principles behind Clause 66; namely, that the detailed procedures which the Scottish parliament makes to control and scrutinise the spending of the Scottish executive should be a matter for the Scottish parliament itself. Only in this way can the parliament take full ownership of its own procedures and so be committed to ensuring their success.
Furthermore, if the parliament is to hold the executive to account, it follows that it, not some external source, should decide on the details of the accounting. I am satisfied that the provisions in the Scotland Bill strike the right balance between prescription in relation to the matters the parliament must make provision for, while leaving it the maximum degree of freedom.
Of course we shall ensure that the parliament and the executive are given the best possible advice in these matters. That is why we set up the consultative steering group and the financial issues advisory group. Therefore they will not approach this matter "cold"; there will be much experienced professional advice not just available to them, but—not to beat about the bush—virtually rammed down their throats. On that matter they will be in a position to make the proper decisions on the basis of those recommendations. However, it is still an important point of principle that they should make the decisions for themselves. In that way they are committed to them; they accept ownership of them; and they will want to ensure that they are a success. On that basis I hope that the noble Lord feels it possible not to press his amendment.
As regards Amendment No. 278A, I am slightly puzzled as the amendment seeks to delete Clause 66(3) which makes provision for consideration of accounts and reports by the parliament. Clearly we shall return to the point slightly later in our proceedings. I look forward to the explanation.
Amendment No. 278B, covers a number of issues which I shall now turn to. The first concerns the form of the accounts, and suggests that these should be directed by the Treasury. That undermines the principle of devolution. It is important to realise the nature of the parliament we are establishing. It will be a legislative body with law-making powers, and—crucially in this context—it will have a clearly defined and separate executive. In these circumstances, it is the right, indeed the duty, of the parliament to hold the executive to account. It follows that it, not some external source, should decide on the details of the accounting.
As I have said, we shall ensure that the parliament and executive are given the best possible advice in these matters. However, it will be up to the parliament to decide for itself on the basis of the advice it has on the final shape of the arrangements.
The second point relates to the accountability of other bodies. In this respect it is important to realise that the Bill leaves underlying legislation regarding the accounting and auditing of other bodies such as health service bodies, non-departmental public bodies and local authorities substantially in place. It may modify the auditing by transferring it to the Auditor General for Scotland, and provide for reports to be made to the
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Parliament. But the essentials are the same. The parliament may, of course, modify those provisions, but it need not do so. Government Amendment No. 278AA clarifies that it may do so even where the body deals with both reserved and devolved matters but is funded from the Scottish Consolidated Fund. That is there to cover that eventuality.
The third also proposes the designation of accounting officers, and the fourth arrangements for the appointment of the independent auditor by Her Majesty along with certain safeguards in relation to that person's removal from post. I must admit to being confused by the noble Lord's suggestion. As he will no doubt know, similar amendments were proposed by the right honourable Member of Haltemprice and Howden, Mr. Davis, in the other place. In response to the concerns the honourable Member expressed, my right honourable friend the Secretary of State for Scotland tabled amendments which make provision for these matters. These fulfil the commitment given to the right honourable Member for Haltemprice and Howden that we would consider ways to strengthen the independence of the head of the audit service and for the appointment of accounting officers. The new sections can be found at Clause 66(1)(e), which refers to the appointment of accounting officers, and at Clause 66(4) and (5) covering the matter of the appointment and removal of the Auditor General for Scotland by Her Majesty.
At the risk of inviting the noble Lord, Lord Mackay of Ardbrecknish, to return to the referendum debate and bring in various members of his family, I do not think that the issue of qualified majorities in relation to a referendum and the need for a qualified majority to ensure a degree of protection and independence to an officer such as the Auditor General are comparable. I ask the noble Lord to withdraw his amendment.
Lord Mackay of Ardbrecknish: Before my noble friend decides what to do with his amendment, I am grateful to the Minister for his explanations. We shall study his amendments when we see them as a unified part of the Bill. They go a little way, but not very far, towards satisfying some of the problems that were raised.
It is the raising of moneys that is the problem. It is not an independent parliament which raises its own money. The problem is that it will be the other place that will still be raising the money. The question mark is over the ability of the raiser of the money to check that the auditing and accounting procedures etc. are properly in place. So perhaps I should not have included the Treasury—perhaps it should have been the House of Commons, the Public Accounts Committee or even the Comptroller and Auditor-General, to make sure that there is, as it were, a trace between the £14 billion raised through supply and its actual spending.
I can understand the difficulty of creating that trace when we want to ensure that the parliament looks after itself responsibly. Equally, I do not think we can ignore the fact that the other place has to raise the money. That is the problem to which I return. Will the Minister say what role he envisages the Public Accounts Committee in the other place will have as regards the £14 billion

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or the Comptroller and Auditor General? Will they rely entirely on scrutiny in the Scottish parliament? If so, we must find a way for them to be satisfied that they can rely entirely on the procedures in the Scottish parliament. If the Minister can give me some assurances on that, I would be more than content. However, I can understand that it is a complicated area and he may prefer to write to me before we get to Report.
9.45 p.m.
Lord Sewel: I am grateful for the spirit in which the noble Lord offered those comments. I shall take advantage of his invitation to write to him on those matters and ascertain what progress can be made.
Baroness Carnegy of Lour: Before my noble friend Lord Balfour decides what to do with his amendment, I do not believe I heard the Minister say what I understood to be the case. The auditor general in Scotland is not the auditor of the Scots parliament. He is not its auditor; he is an independent person appointed by Her Majesty to do the job independently. That is why the two-thirds majority recommendation is set. Is that right?
Lord Sewel: I am afraid that Her Majesty, knowledgeable as she is, would not act independently to appoint the auditor general. She would act on the basis of advice received in Scotland. The protection is there and there are examples from the local authority background. I believe it was the old sanitary officer who could only be sacked subject to a complicated arrangement. It is simply to protect that particular official, to give him a degree of protection, to secure his independence. The parliament would have to cross a significant barrier in order to dismiss him. It could not be done on the basis of a slight political whim.
Baroness Carnegy of Lour: Does the parliament then have to approve the name of the auditor general? I have not seen that anywhere. The noble Lord said that it has to be on the advice of someone in Scotland. How does a person become appointed? The independence is quite important. I do not wish to hold up matters, but it seems to me that there must be a reason for the two-thirds majority.
Lord Sewel: The parliament appoints him. It is difficult to see who else would appoint him; it would be inappropriate for the executive to do so. It is the parliament that appoints him and, having once appointed him or her, it is necessary to give him a degree of protection.
The Earl of Balfour: I am glad I initiated the discussion because it has cleared my mind a great deal. I should be most grateful if the Minister could send me a copy of the letter on this point as well. Otherwise, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Sewel Lord Sewel moved Amendment No. 277A:
Page 28, line 33, leave out ("independent").
The noble Lord said: There is a somewhat daunting list of amendments in this group: Amendments Nos. 277A, 277B, 278AA, 278AB, 278AC, 278C to 278J and 294ZZA. They are mainly technical. The substantive point about the amendments concerns cross-border public authorities which receive part of their income directly from the Scottish Consolidated Fund. In practice they are likely to be two bodies: the Forestry Commission and the proposed food standards agency. In these cases the current provisions in the Bill could very well mean dual accounting and dual auditing. Obviously, it would be sensible for such bodies to provide only one account with, if necessary, an apportionment to Scotland as well as the other parts of the United Kingdom and for that account to be audited only once; for example, by the Comptroller and Auditor-General. It could well be that such an arrangement would suit the needs of both this Parliament and the Scottish parliament.
The effects of Amendments Nos. 278C to 278F are to make it possible for such an arrangement to be made, probably under an order under Clause 84 of the Bill. The other amendments in the group clarify the provisions regarding the Auditor-General for Scotland and the competence of the Scottish parliament to provide for the accountability of persons receiving sums derived from the Scottish Consolidated Fund, even where those sums are used for functions in relation to reserved matters. I beg to move.
Lord Mackay of Ardbrecknish: I am grateful to the noble Lord for his explanation of these clauses. I am brought to my feet more by a mention of the Food Standards Agency and the Forestry Commission. In some way I managed to omit an amendment to allow us to discuss the Forestry Commission and I shall not use the Minister's mention of it to introduce a debate on it. To some extent I failed to see the wood for the trees when tabling the amendments. However, I am interested in that subject and the Minister must be slightly surprised that there was not an amendment in relation to the Forestry Commission. That will be rectified on Report.
I rise to say to the Minister that this is quite a change and it is difficult to read one's way through it. Normally, if everything had gone to plan we would be having our last day today and over the Recess would be in possession of a reprint of the Bill for Report. For a number of reasons of which everybody is aware, we are not finishing today and will have a day in the overspill. Is it possible for the Minister to send me a letter containing the new clause as it will appear in the reprint which we would receive in October after the last day? I would find that handy in the Recess—not that I intend

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to work much in August, so the noble Lord need not hurry, but perhaps by September I may wish to turn my attention to the matter again.
Lord Sewel: The noble Lord, Lord Mackay of Ardbrecknish, is eminently reasonable in his request, as always, and we will endeavour to meet it.
Lord Hope of Craighead: As the Minister said, this is a formidable list of amendments. It is the two simplest which caught my eye—Amendments Nos. 277A and 277B. Perhaps he could give a word or two more in explanation.
Amendment No. 277A takes out the word "independent" from Clause 66(1)(c). The Auditor-General of course is an independent person. The clause gives him power to allow other persons to exercise the functions. I am not sure why the word "independent" is being taken out. Perhaps an explanation could be given.
The other point relates to Amendment No. 277B, which deletes from Clause 66(2)(d) the words,
"or by the Scottish Ministers".
I can see that on one view those words are unnecessary because Clause 66 deals with movement of money in and out of the Consolidated Fund. I assume that if money is being given to other persons from the fund, one of the channels by which that will happen is through the hands of Scottish Ministers. It may be that that is the reason why these words are being deleted.
If that is being done, I am not sure why the wider phrase "their resources" is used in subsection (1)(c) where the function extends to looking at the use by Scottish Ministers and the Lord Advocate not simply of moneys obtained from the Consolidated Fund but also of resources.
It is late in the night to expect an answer to those questions. Perhaps the Minister will look a little more carefully at the relationship between subsection (2)(c) and (d). My essential point is that as I understood the clause as a whole it was concerned only with the consolidated fund. The use of the words "their resources" raises a slight concern that the functions of the auditor may extend more widely than the movement of monies in and out of the consolidated fund.
Lord Sewel: I can clarify at least part of the points raised by the noble and learned Lord. Amendments Nos. 277A and 277B are consequential to Amendments Nos. 278AC and 278AA respectively. I doubt that that adds any clarification whatever.
Amendment No. 277A ostensibly has the effect of no longer requiring that persons appointed by the Auditor-General for Scotland to undertake audits of value-for-money studies need be independent. That is not the case. The independence of such people is provided for in government Amendment No. 278AC. This amendment is consequential to it. I hope that deals with that.
Amendment No. 277B is consequential on government Amendment No. 278AA. Amendment No. 278AA makes it clear that the parliament can legislate to ensure that persons receiving money
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indirectly from the Scottish Consolidated Fund for example, through a grant from the Scottish Ministers—are accountable to the parliament for the functions for which those sums are received. These functions could relate to reserved matters—for example, in the case of a Scottish public authority—with a mix of devolved and reserved functions such as the local authorities. The purpose of the amendment is to clarify that the parliament can legislate on the accounting and auditing arrangements when non-departmental, public or similar bodies undertake reserved functions using monies from the Scottish Consolidated Fund. I hope that goes at least part of the way.
Lord Hope of Craighead: I am most grateful for that explanation.
On Question, amendment agreed to.
Lord Sewel Lord Sewel moved Amendment No. 277B:
Page 29, line 12, leave out ("or by the Scottish Ministers").
On Question, amendment agreed to.
[Amendments Nos. 278 and 278A not moved.]
Lord Sewel Lord Sewel moved Amendment No. 278AA:
Page 29, line 16, at end insert—
("(3A) Scottish legislation may make further provision for the purpose of ensuring that persons who receive sums derived from the Fund are accountable including, in particular, provision for any person to whom subsection (1)(a) does not apply to be accountable for his expenditure and receipts in respect of functions for which he receives sums derived from the Fund.").
On Question, amendment agreed to.
Lord Sewel Lord Sewel moved Amendment No. 278AB:
Page 29, line 18, leave out ("independent person") and insert ("individual").
On Question, amendment agreed to.
Lord Sewel Lord Sewel moved Amendment No. 278AC:
Page 29, line 25, leave out subsection (6) and insert—
("(5A) The Auditor General for Scotland shall not, in the exercise of any of his functions, be subject to the direction or control of any member of the Scottish Executive or of the Parliament.
(5B) Subsection (5A) does not apply in relation to any function conferred on him of preparing accounts.
(6) Persons (other than the Auditor General for Scotland) charged with the exercise of any function mentioned in subsection (2) or other like function conferred by Scottish legislation shall not, in the exercise of that or any ancillary function, be subject to the direction or control of any member of the Scottish Executive or of the Parliament.").
On Question, amendment agreed to.
[Amendment No. 278B not moved.]
Lord Sewel Lord Sewel moved Amendments Nos. 278C to 27811:
Page 29, line 28, leave out from beginning to ("requires") in line 29 and insert ("Scottish legislation may not require any cross-border public authority to prepare accounts if any other legislation").
Page 29, line 30, leave out from ("of") to second ("and") in line 31 and insert ("its expenditure and receipts").
Page 29, line 33, at end insert (", the Comptroller and Auditor General or a person appointed by either of them; and in this subsection "other legislation" means any enactment (including one made under this Act) other than Scottish legislation.").
Page 29, line 40, leave out ("the") and insert—
("(a) any").
Page 29, line 41, leave out ("the") and insert—
("(b) any").
Page 29, line 42, at end insert ("which are required to be examined, certified and reported on by the Auditor General for Scotland or any person appointed by him,").
On Question, amendments agreed to.
On Question, Whether Clause 66, as amended, shall be agreed to?
Lord Lyell: Amendment No. 278J is in the happy list of groupings, but seems to be informal. The noble Viscount, on the advice of the Minister, stopped at Amendment No. 278H. Have I been asleep and missed out? What happened to Amendment No. 278J?
The Deputy Chairman of Committees (The Viscount of Oxfuird): The noble Lord will realise as he studies the briefing that we stop at Amendment No. 278H to put the clause. Then we follow it with Amendment No. 278J, which also applies to Clauses 67 and 68.
Clause 66, as amended, agreed to.
Lord Sewel Lord Sewel moved Amendment No. 278J:
Divide Clause 66 into two clauses, the first (Auditor General for Scotland) to consist of subsections (4) to (5B) and the second (Financial control, accounts and audit) to consist of subsections (1) to (3A) and (6) to (10).
On Question, amendment agreed to.
Clauses 67 and 68 agreed to.
[Amendment No. 279 not moved.]
Clause 69 [Power to fix basic rate for Scottish taxpayers]:
10 p.m.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 279A:
Page 30, leave out lines 36 to 38.
The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 281BA. We have made some good progress in the past hour or so. I suspect that we shall now slow up because we now come to the part of the Bill dealing with the tax varying powers. I firmly believe that this requires a great deal of examination and questioning.
I am bolstered in that view by a letter which my noble and learned friend Lord Mackay of Drumadoon received from the Institute of Chartered Accountants of Scotland. The letter is written by Charlotte Barber, the institute's assistant director on taxation. I shall not quote the whole of the letter but I wish to give the Committee the flavour of some of it. It underlines the need for some serious thought to be given to the way the next few clauses, including the one we are discussing, are drafted and the
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approach the Government have taken with regard to the tax varying powers. I am not arguing whether or not there should be tax varying powers. That was decided in the referendum. I am looking at how the Government are delivering the tax varying powers.
The letter from the institute states:
"However, we remain concerned about the quality of the proposed legislation in the following respects. We are strong supporters of the tax law rewrite project and question why this approachable technique has not been used here. The financial provisions in the Scotland Bill do not make easy reading".
If I asked how many of your Lordships were content with that, I think the answer would be all content and no one not content. That would be pretty much the view of all noble Lords.
The letter goes on to state:
"Although we welcome the Inland Revenue consultation document about the Scottish variable rate, it runs to some 44 paragraphs of explanation—about seven clauses in the Bill—and is not even intended to be comprehensive. It seems quite wrong that such an amount of explanation is required and suggests that the underlying legislation lacks clarity".
Those noble Lords who have tried to wade their way through the 44 paragraphs, unless they happen to be members of the Institute of Chartered Accountants, probably became as lost as I did. I understood a few of the paragraphs but I failed miserably to understand a few others.
The letter continues:
"The commentary provided by the Revenue seems to be contrary in parts to the underlying legislation. For example, in the commentary there are instances where the Inland Revenue has decided to forgo its power of collection as a commercial decision because collection would cost more than the money involved. This is sensible and is not to the detriment of the taxpayer. However, the Inland Revenue does not have the prerogative to deny a taxpayer relief to which he is entitled nor, for administrative convenience, to reduce another person's income. We question the approach taken to charitable covenants, particularly the impact this approach may have on Scottish-based charities such as the Church of Scotland and the SSPCA, to name but two".
I shall come to that on another amendment.
The letter continues:
"We are of the opinion that the principles of constitutional change should be clearly implemented. Underlying the Scottish variable rate is the principle that the electorate of Scotland has accepted a degree of fiscal responsibility. The fiscal discretion may only be marginal but the objective of the SVR is to ensure that the Scottish parliament is accountable to its electorate for the spending decisions which it makes. We recommend that there should be further consideration of these fiscal clauses to ensure that the defects apparent are corrected. Of equal concern, the cost of maintaining the register of Scottish taxable persons and the costs of collection of tax would appear to be substantial and disproportionate to the compliance costs of other forms of taxation. The tax may increase in the future or the legislation could be used as a prototype for other regional assemblies. Either way, the legislation should be clear and comprehensible".
The letter then goes on to something with which some Members of the Committee may have a great deal of empathy. It states:
"The state has a fundamental duty to the taxpayer who must self-assess to specify clearly any tax liability. There appears to be no reason why the financial provisions need to be rushed at this stage given that it will be a number of years before the tax is to be levied. Surely now is the time to consider carefully and fully how the Scottish variable rate can best be implemented. In our experience

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with Finance Bills, there is very rarely sufficient parliamentary time to revisit unsatisfactory tax laws at a later stage; nor is a series of Revenue explanatory papers a solution, as discussed in Pepper v. Hart".
I have read that out to underline the fact that the professional bodies are not very happy with these clauses. If they are not very happy, I am sure that that leaves those of us who are laymen in these matters even less happy.
I recall when I spoke from the Government Benches on behalf of the Treasury taking part in a hugely interesting debate one Friday about writing simple legislation. We had an example of sections of a Finance Bill written simply. The difference between what we write now and what the group suggested that we could write in the future was the difference between chalk and cheese. I see the noble Lord, Lord Borrie, assenting. I am not sure whether he was present for that debate, but the example given was remarkable. I fully endorse the idea that we could write these seven clauses more simply.
I come now to my amendment, having discussed the background to the next few clauses. I am sorry to have gone on a bit, but these are important matters. The Government's problem is this: it all seemed so simple at the start. Paragraph 7.13 of the White Paper stated:
"The Scottish Parliament will have the power to increase or decrease the basic rate of income tax set by the UK Parliament by a maximum of 3p. This is consistent with the recommendations of the Scottish Constitutional Convention. Since each 1p change would currently vary revenue by around £150m, the Scottish Parliament would be able to levy or to reduce income tax for basic rate taxpayers in Scotland by up to around £450m. It is of course possible that future changes to the UK income tax structure might reduce the value of the product of the Scottish Parliament's tax-varying power".
I bet that they sometimes wish that they had never written the next sentence:
"In these circumstances, the Parliament's ability to raise or forgo up to £450m through the tax system will be preserved".
That is the rub.
When the Secretary of State discussed these matters in the other place, he explained the same thing in slightly different words. He said that the Government were trusting the people of Scotland to make choices on their own behalf and that they must therefore face the real financial choices. He said that the 3p in the pound variation was devised to do that. He went on to say that if the parliament's power to raise the £450 million, which would be index-linked to preserve its real power, were eroded at some hypothetical future date by changes in the UK tax structure, an alternative base with the same sort of impact in terms of distribution would be provided by the Treasury. That explains why we have Clause 72, which is hugely complex.
Reading the debate in the other place, it is quite clear that the Government had no clear idea how any difference would be made up. If some day in the future the basic band were to be reduced in range and size, naturally the take from a penny rate in Scotland would reduce. We all follow that. Let us assume for a moment that the parliament increased it—"decreased" is far too fanciful and complicated—by 3p, which is the maximum, and it did not bring in the £450 million.
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The question that is asked again and again is how that gap would be bridged. No answer, good or bad, has been given. Clause 72 more or less says that it should all be left to the good sense of the Treasury. It is fairly heavily hedged about with expressions such as "if the Treasury thinks", "if the Treasury sees fit", and so on. I do not believe that that is satisfactory.
I notice that in his Second Reading speech the Minister changed the £450 million of Holy Writ—the White Paper and the constitutional convention—to £400 million. I am puzzled as to what calculation has been made that results in the loss of £50 million from the ceiling. We must be clear as to exactly how much money we are talking about. As it stands the Bill refers later to the amount raised in relation to the year 1997–98. If that is less than £450 million it is at variance with the recommendations of the constitutional convention and the White Paper.
If I committed an offence of that severity and went against both the White Paper and the constitutional convention I would be given a serious dressing down by whichever government Minister replied. The problem is that the Government tried to link 3p and £450 million. They should have specified 3p or up to 3p. If those who examined the legislation asked the Government what would happen if the Chancellor reduced the basic rate band, or something else occurred to reduce the take, Ministers would say, in their usual elegant and well-argued manner, "hard luck".
The alternative is to take the £450 million and say that that is the figure that can be raised or lowered on the basis of the basic rate. The Scottish parliament would then have power to pass a resolution changing the basic rate, perhaps by 3p or 3½p. I doubt that it would be more than 4p in any conceivable circumstances. That is exactly what my two amendments seek to do. They would remove the necessity for some of the subsequent clauses. I offer them in good faith. I may be accused at some future date of making the Scottish variable rate 3½p or 4p. I am prepared to put on my devolutionary hat and stand shoulder to shoulder with the Minister and the noble Lord, Lord Steel of Aikwood, to defend that position. I believe that that is much simpler.
However, £450 million will be taken away from Scottish taxpayers by one means or another. I believe that it is much more sensible to take it away by the one means available in the Bill; namely, the Scottish variable rate. If the Government accept my amendment, Clause 72 could be deleted. That would delight everyone, including I suspect the draftsman who is perhaps less than confident about exactly what the provision would deliver. My amendment may be defective, although I have had it drafted by people who take a good deal of interest in finance Bills and who draft amendments to such Bills. Even if it is defective I believe that the principle is more open and allows the Government to re-write this part of the Bill to make it much simpler. It will also deliver to the Scottish parliament what that body and the Scottish people believe they will get; namely, an increase or decrease of up to £450 million, to be achieved through varying the basic rate of income tax.
I hope that the Minister accepts this amendment in the way intended. I believe that it is a method of simplifying a horribly complicated way of collecting no more than £450 million. I beg to move.
10.15 p.m.
Lord Lyell: I am delighted that the county of Angus is here and that my noble neighbour the noble Lord, Lord Mackie, is leaping to his feet. I too have received extensive briefing from the chartered accountants of Scotland. The noble Lord, Lord Mackay of Ardbrecknish, has very considerably shortened any remarks which I may wish to make now or at a later stage.
The Minister may remember, as I am sure the noble Baroness, Lady Ramsay, remembers, that I asked exactly these questions a year ago when we discussed the White Paper—£450 million and 3p. If the combination of these sums did not come out, where would the sum come from? The Minister had extensive cunning and it was the noble Lord, Lord Williams of Mostyn, who fielded the high up and under; whether or not he made direct touch, I am not sure.
Happily I have the Inland Revenue paper to which my noble friend referred. It has completely stunned me, though one could not quite perform major surgery on me. I draw the attention of my noble friend to paragraph 12 of this Inland Revenue press release. It refers to something I have not yet heard of, and this is just a preliminary paper. It does not refer to any of the major clauses that I may wish to come to later. There is reference to a splendid thing called a RAT, a rate applicable trust. In paragraph 21 there are UUTs, which I thought had something to do with Ulster Unionists but which is an unauthorised unit trust. This is very helpful and very helpful possibly to chartered accountants and others; but I think one could count them on the fingers and toes of one or two of your Lordships here in the Committee tonight. I do not believe, however, that the Inland Revenue press release is of extensive help to the general population of taxpayers, let alone those who were referred to by the noble and learned Lord the Lord Advocate when he answered some of my questions at Second Reading and those Scottish taxpayers whom we shall be discussing later.
I have followed every word that my noble friend has said. It is very complicated and we are only just getting our little toes wet on this aspect. It is no fault of the Minister and the Front Bench team that we are coming to it this late in the proceedings. I shall try to follow my esteemed colleagues and be brief, but it is a very important subject. If we do stray beyond the witching hour, so be it.
Lord Mackie of Benshie: I would say to my noble neighbour that "leaping" to my feet is perhaps a slight exaggeration, but I would like to raise a point which has been rather passed over, in that Amendment No. 287 was grouped with Amendment No. 272. The noble Lord, Lord Mackay of Ardbrecknish, dismissed the question of lowering the rate of tax. He did bring it up, however,
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and I think I would be justified in asking the Minister a question and putting the point that my noble friend Lord Thurso wished to put.
He is conscious of the fact that the gross rate of return of tax does not depend so much on the rate of tax but on the prosperity of the economy. We have constantly seen Chancellors of the Exchequer with no money coming in; suddenly there is some prosperity and they have a surplus, which appears to have happened in the case of the present Chancellor. It might well not be fanciful at all therefore to lower the rate of tax in order to encourage investment in Scotland, and it might well be successful. At the present moment, however, it appears that the Government would simply nick the amount off, on some form of calculation, and that would be that. That appears a little unjust. The calculation can be made by the Inland Revenue. If that revenue comes in, it should not be taken off; or it should be repaid at a later date. It is a practical point. I should very much like to hear what the Minister has to say.
Lord Sempill: I support my noble friend Lord Mackay of Ardbrecknish. I echo his sentiments that the legislation is confusing for those of us with no accounting or finance background.
When the Minister responds to the amendment, perhaps he will answer this question. There was lengthy debate on the issue in another place which continued for nearly two days. The one question that kept arising was the extent to which the issue was restricted only to income tax. The Scottish Office Minister of State for Home Affairs, Devolution and Transport, Mr. Henry McLeish, denied that the Scottish parliament could raise taxes other than income tax. I thought that that was a fairly straightforward answer. I find it staggering that the issue continues to arise. People mention that additional revenues could be raised indirectly through other or new local taxes. Can the Minister clarify whether the response given by Mr. Henry McLeish is correct: that the 3p can be raised only through income tax?
Lord Sewel: First, I reply to a point made by the noble Lord, Lord Mackay of Ardbrecknish, in what was a general preamble to the specific amendment. He drew our attention to the views expressed by the Institute of Chartered Accountants of Scotland, and in particular its concern about reliefs. The institute's suggestion at that stage was based on a misunderstanding. Since the ICAS letter, Ministers have written to and met with ICAS to clarify the matter.
Let me stress that there is no question whatever that the Inland Revenue will deny reliefs that are legally due to Scottish taxpayers. Nor will it by executive decision ignore the effects of the Bill. That point was made to ICAS and has been accepted by it.
I accept completely that the noble Lord, Lord Mackay of Ardbrecknish, was giving voice to an earlier concern of ICAS that has now been addressed; and I believe that it has been addressed to the satisfaction of the institute.
I deal also with the point made by the noble Lord, Lord Sempill. The powers of the Scottish parliament to vary tax are limited to income tax, to the 3p variation;

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and we shall stick to the 3p variation. I believe that a degree of misunderstanding may arise from the ability of the Scottish parliament to change and reform the basis of local taxation. Local taxation is not as set in stone now as it used to be. We have moved from rates to the poll tax—I should say, the community charge—to the council tax within almost the twinkling of an eye. That area of local government, local taxation, is within the legislative competence of the Scottish parliament. But in terms of the taxes raised at the hand of the Scottish parliament, that variation is limited to the 3p power, upwards or downwards.
I turn to the interesting point made by the noble Lord, Lord Mackie of Benshie, about reducing tax. If the Scottish parliament decides to reduce the tax rate, it will forgo the income which the tax will raise. Therefore, that should feed through to the resources which it can commit to its programmes. It would be attractive if the parliament could reduce the tax and retain the same income. I would hurry to this House and move an amendment that we should limit it to 3p in the pound but that we should go all the way, declare a dividend and still enjoy the same level of services. However, we must recognise that that is not feasible.
If the parliament wishes to reduce the tax rate it will have to forgo that income. That point was made early in our debates on the referendum. The noble Lord, Lord Mackay of Ardbrecknish, pushed us to make that clear and we were happy to do so.
Lord Mackie of Benshie: The point that I was making was that it might well produce the projected loss, but if that turned into a profit for the Inland Revenue that would be totally unjust. The noble Lord, Lord Mackay of Ardbrecknish, looks puzzled. It is possible that it would stimulate the economy so much that the total income would rise by more than the fall in the rate of income. That happens a great deal, as I explained previously, but obviously the noble Lord was not listening. There are facts to prove that. Therefore, it is right that we should produce a method of repaying the money which has been lost to the Scottish Treasury when it put up the total revenue to the Inland Revenue.
Lord Lyell: Perhaps I may be of some assistance to my noble neighbour. I remember figures which were capable of proof in discussion in your Lordships' House, in the Red Book and so forth. The Conservative Government reduced the high rates of income tax which existed in 1979. Although I did not go through every single pound, I understand that the revenue rose.
The noble Lord, Lord Mackie of Benshie, is failing to look at the other side of the argument. The lowering of the tax rate was accompanied by a removal of many of the allowances, which I shall deal with in one of my amendments. That meant that the taxes were not crazily high in theory, but in practice persons with a taxable income and a marginal rate of 83 per cent. did not pay them, as the noble Lord, Lord Bruce of Donington, who is not here tonight, told me. When the top tax rate was lowered to 50 per cent., the allowances and concessions given by the Inland Revenue were withdrawn.
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The noble Lord is on the ball there, but I do not believe that the Scottish parliament, thanks to the Bill before us tonight, will have the power to do that. It may be able to lower the rates, but it will not have the power to remove some of the allowances and concessions, thereby increasing the tax. The Inland Revenue as part of the United Kingdom may do so, but I do not believe that the Scottish parliament will do it. I believe that that is the essence of my noble neighbour's argument.
10.30 p.m.
Lord Sewel: I understood it slightly differently because I thought that I could see where the noble Lord was getting to. If the whole of the Scottish parliament's income, the revenue available to it, a fixed amount of resource, was raised through a tax which it controlled, then a situation such as the noble Lord indicates could arise when, as a result of increasing prosperity, increased population and more people being employed, the same amount could be raised at a lower poundage, effectively.
But that is not the case and is not the way in which the parliament is being funded. It is being funded predominantly by grant and the 3p is an extra top-up on that. Therefore, it loses or gains income only in relation to the 3p adjustment. It is not responsible of taxing on its own basis for the majority of its income, which comes by way of grant.
Baroness Carnegy of Lour: I believe that the whole point of the intervention made by the noble Lord, Lord Mackie, is that when the noble Lord, Lord Lawson, lowered taxes, the tax take went up enormously. If the Scottish parliament increases the tax take by lowering tax in Scotland, it will not get the benefit. I believe that is what he is saying. He should have said it for himself and I apologise for saying what he was about to say.
Lord Mackie of Benshie: I accept that that is the intention at the moment but I am saying that it is not either just or sensible.
Lord Selkirk of Douglas: Can the Minister enlighten us on the point made by the Prime Minister? It is my understanding that, when the Prime Minister when to Scotland, he was arguing for a very low Scottish variable rate. Will the Minister confirm that those provisions conform with the Prime Minister's wishes?
My noble friend raised the point that lower taxation can lead to a bigger take for the Treasury. But, of course, if people have more money to spend, they spend it through indirect taxation, so the take can be bigger. Perhaps the Minister will also answer the point made by my noble friend Lady Carnegy that, if we understood the Minister correctly, he was saying, that if there is a lower Scottish variable rate, it will not necessarily mean that the take will be bigger.
Lord Sewel: Perhaps I may reply to the points made by the noble Lord, Lord Selkirk of Douglas. I agree with what the Prime Minister said. The explanation is that there is a world of difference between a power and a policy. We are giving the parliament the power. We

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have said also that for the lifetime of this Parliament, my party will not use that power. That is the policy. Let us make absolutely clear the difference between the power and the policy. This Parliament has the power to bring in tax rates at whatever level it wishes. That may be the power but, clearly, an excessive rate is not the policy of any party at present.
I deal next with the point made by the noble Lord, Lord Mackay of Ardbrecknish. That is important because it relates back to the substance of the amendments; that is, the difference between the two figures—£450 million and £420 million. I shall read out the reference to that in the White Paper, which states:
"The Scottish Parliament will have the power to increase or decrease the basic rate of income tax set by the UK Parliament by a maximum of 3p".
That is the first, primary statement. It then goes on in explanation and exposition to say:
"Since each 1p change would currently vary revenue by around £150m, the Scottish Parliament would be able to levy or to reduce income tax for basic rate taxpayers in Scotland by up to around £450 million".
It is fair to say that the best estimate that we had at the time from the Inland Revenue was, indeed, that 1p produced £150 million and that 3p produced £450 million. That was the best estimate that the Inland Revenue could give. However, because the tax take is dependent on so many things—for example, general prosperity, the number of people in work, the size of the population and the number of people paying tax—the latest estimate, which is now 11 months old, is that 3p raises £420 million.
I believe that a more recent estimate is due in the very near future, but it is not possible to predict. I understand perfectly what the noble Lord, Lord Mackay, is advocating, but the practicalities are simply not there. That is why I have to move away from the apparent attractiveness of the guaranteed additional revenue figure; it effectively puts the cart before the horse.
Lord Mackay of Ardbrecknish: I am grateful to the Minister for the explanation of the £420 million, although I must say that I am a little puzzled. As regards income to the Treasury from taxation, I thought that that included income taxation, that it was actually quite buoyant and was better than had been forecast. That is one of the advantages that the Chancellor of the Exchequer has had from the golden legacy bequeathed to him by the previous government. In that case, I would have expected the income tax from Scottish taxpayers to be equally buoyant. If the Minister had told me that it was being revalued "up the way" I would not have been in the least surprised. But to revalue it "down the way", when I think the total income tax taken in the UK is being revalued "up the way", seems to me to be puzzling.
I wonder if there is more to it than that; for example, was the original calculation perhaps wrong because it was 1p on all the rates of tax or only on basic rate taxpayers, without taking into account the basic rate that higher rate taxpayers would pay? There is a little
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uncertainty in my mind about it. It is possible that the Minister will be unable to clear up the matter this evening. I should be grateful if he could, but, if not, perhaps I may suggest that he looks into the matter and sends me another erudite letter.
Lord Lyell: Before the Minister replies, perhaps he will be kind enough to read on from that paragraph in the White Paper. I have the document with me. Of course, the Minister did a brilliant job; but he stopped. If he looks at the last sentence of paragraph 7.13, he will see that it reads:
"In these circumstances, the Parliament's ability to raise or forgo up to £450m through the tax system will be preserved. This sum will be index linked to maintain its real value".
That does not quite equate with the first words that the Minister used. Therefore, with the advice of his noble and learned friend—indeed, we also have the noble and learned Lord, Lord Hope, with us—can he advise me whether that "sum" is the flexible sum of £420, or whatever might be coming out as a result of the process? The noble Lord said we would obtain a slightly more accurate projection as to what 1p on the standard rate, as laid out in further amendments, will be. However, which sum will be index linked? It is mentioned in the White Paper. Has anything changed?
Lord Sewel: The "sum" to be index linked is only there if in fact there is a fundamental and radical change in the tax structure, which means that the basic rate calculation can no longer be made because we would no longer have a basic rate. If the tax structure were to change to that degree, we would then have to go back historically to work from—
Lord Lyell: That is not what it says—
Lord Sewel: That is exactly what it says. I am sorry. It says:
"It is of course possible that future changes to the UK income tax structure might reduce the value of the product of the Scottish Parliament's tax varying power. In these circumstances, the Parliament's ability to raise or forgo up to £450m through the tax system will be preserved. This sum will be index linked to maintain its real value".
That index linking is dependent upon a fundamental and radical change in the tax structure, so we would then have to go back to see what was the value in 1996–97 of the 1p and the 3p amounts. The measure is couched in terms of 3p, which would raise around £450 million. In 1996–97 the accurate calculation was a figure of £420 million. If there is a radical change in the tax structure at some time in the future, the base reference would be the £420 million.
Lord Lyell: I shall return to this matter.
Lord Sewel: Let us proceed. I understand that the amendment seeks a guaranteed additional revenue figure rather than a penny rate, but it is unworkable because one cannot calculate at the beginning of the tax year what the guaranteed additional revenue figure will be because during the course of the tax year factors come into play such as the number of people in work, the

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population of Scotland either rising or falling, and general prosperity, and that affects the tax take. Therefore one does not know at what level one has to set the tax to get the income that is specified in terms of the guaranteed additional revenue figure. There is the danger under that system that one could breach the 3p barrier because there is a reduction in the tax take that forces one through the 3p ceiling because of, for example, a reduction in the population of Scotland, a general slow down in the economy or something like that. Having fought the referendum on the clear understanding that 3p would be the ceiling, it would be difficult to say to the people of Scotland, "We said 3p but we were referring to a guaranteed additional revenue figure and because of that we have gone through the 3p ceiling". I think that would be a breach of faith with the people of Scotland.
Lord Mackay of Ardbrecknish: I am grateful to the Minister for giving way. If the parliament cannot raise the £420 million from the 3p rate, as I understand it the Treasury will find some clever way of meeting the shortfall out of income tax. The parliament may not breach the 3p on the basic rate of income tax, but it will surely have to meet the discrepancy from somewhere else within the income tax system.
This is a difficult issue and perhaps it is too late at night to discuss it, but if the parliament is not to break the 3p ceiling, the only logical conclusion is that if that does not deliver the £420 million, one does not get it. I appreciate that the referendum was fought on the 3p ceiling. I suspect that that 3p ceiling will probably never need to be altered unless something dramatic happens to the basic rate, and then it may have to go up, or it may conceivably come down if the basic rate were widened and not narrowed. I am not with the Minister completely on this matter. I think he is defending the 3p and the £420 million at the same time. I do not think that is possible.
Baroness Carnegy of Lour: I apologise to the noble Lord for intervening but he did say it would not be possible to know what the 3p would bring in. How on earth is the parliament to budget if it does not know what the 3p will bring in? When local government sets a budget, it knows exactly what its council tax will bring in, as the Minister well knows. It allows for unpaid debts and so on, but it knows. The Scottish parliament will not know. How is it to do the precise budgeting which is to be audited and looked after so carefully? This is the money that will be raised at the margin, and it will not know, because of all the circumstances described, what that will be. It seems that the Government have got themselves into a position—and I understand why—which is not sustainable. It will not work. They ought to contemplate my noble friend's proposal.
10.45 p.m.
Lord Sewel: We have contemplated and given great thought to the proposal from the Front Bench opposite, and we believe that it is unworkable. That is why we are not proceeding with it. I am not defending both the 3p and the £420 million; I am defending the 3p. The
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£420 million—or £450 million, to return to the White Paper—was an attempt based on estimates to give an indication of what 3p actually meant. People to whom I spoke and who were relatively well-informed before we were able to include the £450 million figure had no idea what 3p in the pound meant in terms of a variation to Scottish income tax. The £420 million, which is now the best estimate, only comes into play in terms of the legislation when and if there is a major change in the tax structure. That is the base reference point. Following a change in the tax structure, that is the amount, index-linked, that the post-structural change position has to raise.
Lord Lyell: The index-linked sum is 3p, not this variable figure. The Minister started with £450 million. I understand that; but we should temporarily put that aside. I quite understand 3p on the standard rate. But the Minister has talked about major "earthquake" changes in the standard rate. I think that he is slightly over-egging the position. I understand, and I am with the Minister in this, that it is difficult to know what 3p in the pound on the standard rate for Scottish taxpayers, under the terms of Clause 71, will raise. It might be £420 million; it might be less than that.
If it is less, then that is the point that my noble friend on the Front Bench is driving at. I accept what the Minister says about the 3p being index-linked. In his previous remarks the Minister said: let us put aside the multiple of what will be raised because the tax structure and income tax for Scottish taxpayers may vary from year to year. But the Minister is moving onto dangerous ground if he says that a sum of money, 3p, multiplied by whatever will raise a sum of money and that should be index-linked. Is there not a method by which, at the outset of the tax year, the Scottish parliament can say: we shall have the Scottish variable rate; it will be 3p in the pound; it will be at the start of the year. It could easily refer to the previous year, so that one would know the exact amount that had been raised by levying the 3p rate. I appreciate that the multiple of 3p and the standard rate band paid by all taxpayers in Scotland will make it very difficult, as mentioned by my noble friend Lady Carnegy, for the Scottish parliament to know exactly what it will receive. If we stick with the idea of 3p being index-linked, then at least my noble friends and myself, and the specialists—the chartered accountants and others who will have to put this provision into practice—would be a lot happier.
Lord Hope of Craighead: My name was mentioned by the noble Lord, Lord Lyell, and it is only for that reason that I intervene, possibly to comfort the Minister. I have never understood that the 3p would be index-linked. The whole purpose of index-linking is to tell one what the product is of the amount of tax raised by that sum. One has to use some kind of index-linking method in order to work out what will happen in future years. If someone's income is related to the index, his income goes up, he pays the same rate of tax, but the amount of tax received by the revenue goes up in

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accordance with the index. That is what the reference to index-linking in the White Paper was about, as I understood it.
Lord Sewel: Perhaps I may make clear that the 3p is not index-linked; it remains 3p from the day the Bill is enacted, for evermore. It remains 3p. The amount that it raises will vary historically, not on an index-linked basis, because it can vary in a different way from a straight index-linked basis. It is dependent upon population as well as inflation. So that is not index-linking. The product changes over time in a way which is relatively unpredictable.
The noble Lord, Lord Mackay of Ardbrecknish, made the point at some stage about what happens if the estimate is wrong. In such circumstances the Scottish parliament will receive payments from the Inland Revenue based on estimates which become finer and finer during the course of the year. Remember, this is very much at the margin of its budgeting. If the parliament gets itself into the position where it has budgeted on the assumption of what the tax take should be and the tax take is not quite there, it can then start making in-year reductions to meet the amount of money that it has available. It has end-year flexibility and balances and short-term borrowing powers that are available with the exercise of the Treasury. I imagine the Treasury would say, "All right, it's not your fault, you can have the short-term borrowings to tide you over, but you must make the adjustment in the following year straightaway". That is the way out of that problem.
Lord Mackay of Ardbrecknish: We have had an interesting debate. It underlines some of the complexities. Perhaps I may start with the small sideshow introduced by the noble Lord, Lord Mackie, on what would happen if the parliament reduced the taxation. I found the suggestion odd, coming from that quarter, that we might have a reduction in taxation. I suspect, if my memory is right, his party opposed every reduction in the standard rate of tax we made during the last Parliament or the one before. If I remember rightly, the pledge at the last election was to increase the rate of taxation. It is hard to envisage the Liberal Democrats being part of a tax-cutting establishment in Scotland.
The real problem is that if the Scottish taxpayer pays less into the Treasury, but the same amount is still paid out by the Treasury, it would impose a burden of £420 million on the taxpayers of the rest of the United Kingdom. I strongly suspect that some of the arguments we heard earlier today will be coming forth in greater numbers and at greater volume.
I turn to the main issue—the amendment. I am pleased to hear that the Institute of Chartered Accountants in Scotland is satisfied about the position of a Scottish taxpayer and the way in which the SBR will impact. When we come to later amendments, I will check some of the points. I do not suppose they are satisfied about the complexity. The point about trying to make it simpler as a piece of text still exists and that is valid.
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I thought that I could be portrayed or could portray myself overnight, with the spin that goes with these things, as the person who came to save the Scottish parliament from the complexities of the clauses on tax varying and ensure that the parliament understood what its income would be. I have been rebuffed. I am not quite convinced by the argument used to rebuff me because I cannot believe that what I suggest is unworkable. Whether it is my system or the 1p, 2p or 3p, the Scottish parliament will have to make an estimate about Budget time of what it would like—if it would like to increase taxes and if it would like more income. It will be told by the Revenue what, on current tax laws, the likely income would be from basic rate. It might not be told if the Chancellor, in the Budget, was secretly about to change the basic rate out of all recognition; but it would be told, year on year, what the Treasury estimated. It would see from the previous year what it would have gained from 1p, 2p or 3p.
Therefore, it would not be unworkable; it would not be impossible to calculate the additional figure any more under my system than under the system the Government intend to introduce. These things vary and I accept that if we are only talking about a 1p rate, then the variation will be a higher percentage figure as a variation than it will be for the whole tax take for the United Kingdom. But it is not impossible.
I can see that if the basic rate was narrowed the Treasury might have to find another way. It is that other way that we will explore later, because the Minister did not answer the points about the other way the tax might be raised.
Keen as one always is on one's own amendments, I am still slightly puzzled as to why I am being rebuffed. The only reason is that the Government feel that, having said in the referendum that it was 3p in the pound, they are tied to that. The problem is that if one goes to Clause 72 then in certain circumstances that might all change. The Treasury might bring forward an order which is a different way of raising this equivalent amount of money. I do not know how that squares with the question on which we were all asked to vote in September.
In a way I see that the Minister is trying to prevent people accusing him of moving away from the 3p; I understand that. But, equally, I suspect that the complexities that he is getting us into in the clauses in this Bill, and the complexities that could occur in the future if something changed in the way the basic rate is operating, are such that we could all, if we stood together, explain comfortably to the Scottish public why it may be the case, at some time in the future, that the basic rate would have to be up by 3.5p or 4p. But a change in the basic rate to make it more than that would have to be of enormous proportions, and would mean that a change would have to be incorporated in this legislation by a finance Act in order to cope with that new situation.
I suspect that I have stumbled across the proper answer the Minister should be making: take out all this stuff and if there is a big change in the future then the Finance Act will deal with it. That would be the proper

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place to deal with it and not secondary legislation, which is what is envisaged in Clause 72. But I will be coming to that.
I will read with some care and interest and discuss with the clever people who understand more about this than I happily admit I do, as to exactly where we go from here. I am grateful to the Minister, and especially grateful—as I am sure are all my noble friends—at the way he took interventions on this difficult subject and tried to have a good debate with us. I believe we have made some progress in regard to teasing out some of the important points, but there is a bit more to go in this difficult section. I therefore beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Carter: Before I move the Motion that the House do now resume, I thank and congratulate Members of the Committee on the progress that has
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been made today. With some trepidation I have been looking round the Chamber speaking as a mere Sassenach in what I appreciate is a purely private engagement between the different chapters of the "Scotia Nostra"—and suggest that it shows what can be done if we really try. We must all hope that the same enthusiasm to make progress is shown on the ninth day of Committee in October, to which we are all looking forward.
Lord Mackay of Ardbrecknish: I am grateful to the Chief Whip. It shows how much progress we can make when we get a full day.
Lord Carter: I beg to move that the House do now resume.
Moved, That the House do now resume.—[Lord Carter.]
On Question, Motion agreed to.
House adjourned at one minute before eleven o'clock.