CONSULTATION WITH BUSINESS

HL Deb 30 July 1998 vol 592 cc1639-80 (" . 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 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 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 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 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 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 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 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.

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 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 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 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 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 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 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 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 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 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.

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 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 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 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 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 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 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 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 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 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 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. 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, 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 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 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 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 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.

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 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 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 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 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 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 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.

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 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.

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 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 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 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 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.