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Lord Sewel: My Lords, perhaps I may assist my noble friend and shed some light on the matter. The answer is, yes.

Lord Dean of Beswick: But, my Lords, that can only mean a diminution in the services in Scotland; indeed it cannot mean anything else. I believe it is a conservative estimate that the whole process will probably cost about £100 million. Therefore, £100 million less will be spent on hospitals and schools in Scotland. I do know a little about local government finance, but we have been given no guarantee in that respect.

Much has been said about the Barnett formula. I do not know what that formula is, nor indeed does anyone else, except for my noble friend Lord Barnett, who is not present in the Chamber. He was the architect of it. I suspect, and only suspect, that there may have been a case at some time in the past for the differential contained within the Barnett formula. However, it is possible for differentials over a period of time to become completely irrelevant and to go out of control.

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I believe a young Member of the House on the Opposite Benches gave us an outline of what it means in terms of the hard facts of life. I do not know whether the noble Baroness, Lady Young, gave that information, but I quoted sometime ago in your Lordships' House the actual differential per capita of payment between Scotland and England as being £871. I also calculated that if we take the English as being about 50-odd million up to that level, it would cost over £300 million. That is the sort of money that we are talking about.

For the life of me I cannot see that the English regions will accept the situation when they get to hear about it. Some of the MPs in another place have been rather slow to react. That is perhaps because some of them are new to Parliament and do not know the system. If this thing goes through, and it means that those south of the Border will be called upon to contribute substantial sums of money to this exercise, I suspect that when the Government cut the cake it will mean less cake for the other regions. I am not going to sit here and swallow that because I think that the Scots have done very well. Indeed, they are getting rather greedy because they have done so well.

I live in a city which could do with a lot of money being spent on it. In fact, parts of it are like a desert. No one talks to me about finding extra money for that, but extra money will be found for this exercise. If my noble friend the Minister says to me that it will come out of the block grant, it will not be the block grant within the existing ratio; it will be the existing grant with a "plus-age". If we divide up the national cake taking the biggest slice for England, the next slice, which will be a small one, will be for Scotland. However, in ratio it will be much bigger. It will mean that the only areas from which that extra money can come will be the English regions.

I have a suggestion to make which noble Lords may think rather foolish. If the Government propose to continue with the Barnett formula, I should point out to them that my noble friend has said that it is already out of date. So he must know what is wrong with it, even if the Government do not. It might be feasible to appoint a Select Committee of both Houses at this stage, under the chairmanship of my noble friend Lord Barnett, to look into the question of the Barnett formula and bring it up to date so that its application will be fair to all people. That would take the politics completely out of the matter. I do not suggest, of course, that the over-abundance at present in another place--I stress the words "at present"--of Ministers from north of the Border (the ratio at the Treasury is 3:1 in this regard) would result in any bias being shown whatsoever! However, if they wish to win the next election and retain their seats, they will not want to be regarded as the people who started to give money back to the English. Let us face it, this measure is a gift-horse to the SNP.

Every morning in the Library I am asked by Scots whether I have seen the public opinion polls. I reply, "If that applied to England, I would be frightened". They say, "We are frightened too". I cannot conceive that the Government's intentions for this Bill can be fulfilled. The SNP believes that it will carry everyone before it.

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An aspect of this matter that interests me is that of Europe. I believe I am right in saying that the Scottish assembly will have no direct access to Europe and will have to gain access to Europe through Westminster. Can your Lordships conceive of a situation where the SNP was to become a powerful voice or win the elections? God forbid that that should happen, but according to the opinion polls it could happen. If the SNP were to become such a powerful voice, do your Lordships believe that it would sit back while Ministers in another place say, "We will tell you what to do as regards Europe"? In my opinion that is a recipe for disaster.

I shall not vote against the measure, but I shall certainly not vote for it at this point in time. I believe it is too fraught with difficulty for everyone concerned. I do not believe it has been clearly explained what ordinary people in Scotland will lose. If I had my way I would re-organise the financial aspects to give a fair deal to all. Those people who are lighting bonfires and waving the nationalist flag in Scotland will quickly sober up when they realise that money will be taken out of their pockets. If we "butter up" these people, that is only another incentive for them to continue their present behaviour.

I do not know what the outcome of the elections in Scotland will be. I do not think anyone does. As I have said, I believe this process is fraught with difficulties. The matter in the Bill that interests me deeply is that of finance. At the Committee stage of the Bill I shall scrutinise that aspect line by line.

9.53 p.m.

Lord Mountevans: My Lords, follow that, especially if you have a somewhat modest locus standi in this matter! I declare I was born in Dunoon.

I wish to approach the debate from a totally different direction. I take the opportunity to raise two tourism topics. That is a subject which has been close to my heart for many years, as many noble Lords will be aware. The first concerns the present and future relationships between the Scottish Tourist Board and the British Tourist Authority. The second concerns the threat of a tourism tax, which is implicit in tax raising powers.

I start with the BTA/STB relationship, pausing only to take my hand out of my pocket, for which I apologise. This was governed from 1969 by the Development of Tourism Act, which gave the BTA the duty of promoting Scottish tourism overseas. Many years later, political pressures--that is what we are here to discuss tonight, to a certain extent--led to the Tourism (Scotland) Act, which gave the Scottish Tourist Board some overseas promotional powers.

The Bill before us devolves tourism to the Scottish parliament. I have no quibble with that at all. The Tourism (Scotland) Act specified that STB's overseas activities should complement or supplement rather than clash head on with the BTA's work. The Secretary of State has a role to play. I hope that that will continue. What I would like to see in the future is the BTA and the Scottish Tourist Board playing their separate roles, with the STB continuing to be complementary, providing the best of Scottish tours.

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The Bill as it stands gives Scotland the best of both worlds. Perhaps I may quote a press release issued yesterday by the Scottish Office. It noted that:

    "BTA had promoted Scottish tourism well".

It is nice to know that after all the years of slings and arrows of outrageous fortune.

    "The fact that the industry in Scotland is able to call on BTA's experience and world-wide resources is a real benefit which we will retain".

The words in the press release are attributed to the honourable Member for Cunninghame South, the Scottish Tourism Minister--someone with whom I have fought over the years, not necessarily face to face, but side by side, on transport, and someone for whom I have great admiration. He states that the Scottish Tourist Board should be politically accountable to the devolved parliament--I have no quibble with that--but that the Scottish tourism industry should also recognise the importance of the BTA in ensuring that Scottish interests are represented on a much wider scale than STB itself could aspire to. Those words are music to my ears. They articulate the future to which we must aspire. They are a tribute to the fact that from Ravelston Terrace (which, coincidentally, has a former BTA staff member as its chief executive), to Thames Tower and to the Scottish Office itself they are speaking with one voice.

I appreciate that the noble and learned Lord, Lord Hardie, whom I can see on the Front Bench, will have to respond to over 60 speeches tomorrow evening. However, I hope that he will find time to join me in congratulating all those concerned on evolving a practical and a strong way of ensuring that Scotland's vibrant tourism industry continues to go from strength to strength.

I have just mentioned a vibrant industry. But it is also an industry of fragilities. I refer particularly to seasonality. I hesitate to quote my own words, but once upon a time I said that no tourist goes to Scotland after the end of September, because there is nothing to do. The reason there is nothing to do is that no tourists go to Scotland after the end of September. It is not a perfectly strong industry. It is the second strongest in the British market. The biggest subject on which my former colleagues in the BTA receive questions is London--naturally, because it is a gateway. The second biggest is Scotland. So we have a vibrant, or potentially vibrant industry.

It is also a fragile one, if it is an industry at all. Perhaps I may quote the noble Lord, Lord McIntosh of Haringey. Responding to his first tourism debate on 18th June last year (col. 1332) he said that rather than call it an industry, we should regard it as a number of "interdependent sectors". He mentioned the hotel sector, the hospitality sector, the entertainment sector, the transport industry and many others. I could restate his sentiments from my own experience: a Scotrail sleeper to Inverness; breakfast in what I believe was called "the Porridge Court Hotel" by Compton Mackenzie (some noble Lords will remember the Station Hotel at Inverness); a hired car; John O'Groats; a delightful bed-and-breakfast near Dounreay; the boat to Cape Wrath, and all the other things that are so good in

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Scottish tourism. And that is just the first 40 hours from Euston. For four of us, it was the start of a delightful experience and one that was very much value for money.

However, were we to repeat the trip in a couple of years hence, and the tax-raising powers were in place, such a trip could be a soft target for a bed tax. I should find that a nightmare. I believe it would turn a vibrant industry into a potentially very fragile one. A tax could raise costs substantially. Four of us spending a week following the Scottish coastline and paying, say, a tax of £2 per person a night, would mean that we would have to find another £56. We might well be able to afford that, but I wonder whether the Glasgow citizen heading for a holiday camp in Ayr would not find it a very penal infliction indeed. I feel that it would be a discriminatory tax, not least for that reason. It would be a painful tax and a serious threat to the Scottish tourism industry which I value and support, not just because I was born in Dunoon.

The accommodation sector is not the only sector that would be hurt. Let me refer again to the remarks of the noble Lord, Lord McIntosh, about the many sectors within the tourism industry. Should we penalise one to the advantage of the many, perhaps to rescue the local tourism structure in Scotland? It has its problems. That is not a question for the Minister to answer, but one which those voters who work in the Scottish tourism industry, as well as their elected representatives, would do well to think about twice, if necessary, and then reject.

10 p.m.

Lord Hamilton of Dalzell: My Lords, there will be no vote on the principles of this Bill and the noble Lord, Lord Sewel, has already told us that he suspects those who speak against its principles of ulterior motives. One thing is certain: the Government will pay no attention to those who complain about the principles of the Bill.

I feel rather like a member of a ship's crew wrecked on a desert island in the middle of a vast sea of political opportunism, who is reduced to putting messages in bottles and throwing them into the sea, in the hope that at some stage in the future someone will realise that there were people who thought the Bill was wrong in principle.

I share with many other noble Lords the misgivings that devolution will foster the growing trend towards tribalism and violence that is so much in evidence today and will ultimately lead to a demand for independence. However, I wish to address my remarks this evening to the subject first brought up by the noble Lord, Lord Kirkhill, and very admirably by my noble friend Lord Lang: the lack of financial independence caused by the block grant.

It is a delusion that the democratic aspirations of the people can be satisfied by giving them votes to elect bodies that have power only over how a given sum of money can be spent, but have no responsibility for how much that sum amounts to or for how most of the taxation is raised to pay for it.

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It is the reduction in the responsibilities of local authorities, the substitution of block grants for local taxation and the capping of local authority expenditure that has led to the centralisation of power in Westminster. This and the transfer of power to Europe have helped cause disaffection with the Westminster Government and encouraged the widely held conviction that there is a democratic deficit which can be solved by creating new assemblies. But these new assemblies incorporate the same defects.

The very serious question of the connection between taxation and government expenditure, the management of the nation's money, the part it plays in the democratic process and its contribution to the concept of sovereignty has been brushed aside. It is fundamental to the debate on economic and monetary union, therefore the Government do not want to discuss it. They have deliberately avoided discussing it.

In the debate in Committee on Clause 22 of the Government of Wales Bill concerning the transfer of powers to the Welsh assembly, the question was raised by noble Lords as to whether powers should be retained to withdraw functions given to the assembly if it went astray. In resisting the amendment, the noble and learned Lord, Lord Simon of Glaisdale, and the noble Lord, Lord Williams of Mostyn, asserted that they were convinced that, constitutionally, Westminster remained sovereign. Although I did not hear him, I am told that the noble and learned Lord, Lord Hope, also made that point this evening. I agree with them, but for the prime reason that Westminster will still hold the purse strings.

In Scotland, since English taxpayers contribute to the Scottish block grant which confines the ability of the assembly to spend as it would, the condition of Scotland will be rather like a child on an allowance from its parents. Financial waywardness in the assembly will be countered by the threat of a cut in subsidy.

This has to be. When countries share a currency and, in effect, join their bank accounts, autonomy has to be limited in this way. Imagine the situation if, to satisfy the expectations which will be fuelled by having their own assembly, the Scots were allowed to be a high tax, big spending economy. Sharing the same currency and language, businesses and people would flock to England where costs and taxes were lower and Scotland would be left impoverished.

It is necessary to make that obvious point about England and Scotland because, according to the opposite point of view, the freedom to spend and tax within a 3 per cent. budget deficit is claimed to be the essence of economic sovereignty within the single currency. It is a freedom that we could not exercise. Therefore, we find the Chancellor of the Exchequer announcing in his Budget that he is the guardian of the people's money. He is, and he still will be the guardian of the people of Scotland's money after the formation of the Scottish parliament. By that means, Westminster will retain its ultimate sovereignty over Scottish expenditure. If we join the single currency, that function will be transferred to Frankfurt and Brussels, but still not to Scotland.

The proposals will not and cannot reconnect the vital democratic link so that votes for expenditure have their counterpart in taxation for the Scottish parliament. The

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inevitable shortage of money will still be blamed on Westminster. It panders to tribal and nationalistic instincts without tackling the real problems caused by an unaffordable welfare state and the breakdown of the ability to finance local responsibilities from local taxation. The hard choices must still be made in Whitehall and the buck stops there.

The Bill will not for long improve relations between Scotland and Westminster, which I imagine is its main purpose. It will in time rebound on its perpetrators for having deceived the Scottish people into volunteering for a bad experiment. It is also an important constitutional change and a rotten idea. The Bill is misguided in principle and no amount of amending will change that.

10.6 p.m.

The Earl of Stair: My Lords, the noble Lord the Minister has brought before your Lordships' House perhaps the most far-reaching constitutional reform for 300 years. One of the reasons that I have the privilege to sit in this place is what happened more than 300 years ago, when the first Earl of Stair helped to bring to fruition the Act of Union of 1707. He died during the night following the last debate in the then Scottish Parliament, having had a hard battle persuading all parties to agree the terms of that Act. I hope that the same fate does not befall this Earl of Stair.

I am not only a Scot but a full-time resident of Scotland and I believe strongly that the United Kingdom can only be strong on both the world and European stage if the two countries remain united. This island is too small to divide into even smaller countries. I hope that even after the Bill has passed, the Government will fulfil their obligations to Scotland, both as a self-governing country and as part of a strong United Kingdom.

The referendum last September produced the conclusive result that the people of Scotland wished a devolved parliament, although the national turnout to vote of 74 per cent. was perhaps a little low for such an important decision. Galloway, an area that swung from a majority in favour of the Union in the last government to a majority of in favour of independence under this Government, managed a turnout of only 63 per cent. Perhaps the Government should have taken a forewarning of their present standing in Scotland.

I look forward to the passage of the Scotland Bill and hope that the Government will heed the many amendments needed to ensure the success of the new Scottish parliament. There is a danger that a parliament with legislative power over areas currently covered by regional councils may result in decisions in Edinburgh taking local government further from the electorate. I am thinking particularly of planning matters in this instance.

This Bill is in some places vague and glosses over some important divisions of responsibility between the devolved parliament and the Parliament in Westminster: first, on the matter of defence, which is a reserved item. However, due in many cases to the scarcity of the population and to the terrain, the majority of Scotland is classified as a low-flying area. For similar reasons,

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many units of the Army exercise in Scotland. The new Scottish parliament will have legislative powers, according to the White Paper, over many areas of the environment and some aspects of the air space. Will the Scottish parliament be able to legislate against or make very awkward the training use of Scotland for the reserved Armed Forces in the event of public pressure being applied to the members of the Scottish parliament?

The Scottish parliament will also have devolved responsibility for civil defence and emergency planning. Recently there was a serious breakdown in the water supply to areas of Glasgow and, even before that, serious flooding in Perth. In both cases the Army--both territorial and regular--was involved in relief work and assistance. Under the new devolved system, the question is not only who will authorise military aid but also who will pay for the use of the reserved equipment.

The noble Lord, Lord Mackay of Ardbrecknish, referred in his opening to the Forestry Commission. Financial arrangements have been based on the receipts of the commission being split fairly between Scotland and the remainder of the United Kingdom, the financing of the commission's activities being controlled by the Scottish executive. As long ago as 1947 the land use for forestry in Scotland and England was nearly 7 per cent. and nearly 6 per cent. respectively; it is now split almost 15.5 per cent. in Scotland and 7.5 per cent. in England. Consideration will be needed to ensure that the fair division of funding allows for the often extra environmental costs of establishing woodland in Scotland. That is particularly relevant if the devolved parliament can legislate for planning and environmental matters. We need an assurance that the fair provision of funds for Scottish forestry referred to in the White Paper will allow for the extra costs and can be flexible in the event that new plantings, and particularly replanted clearfells, do not carry extra costs which penalise Scottish forestry in the future.

Finally, speaking from these Benches, I am pleased that there is to be provision for non-aligned individuals to stand for seats in the regional lists. However, if sufficient of the electorate vote to enable an independent candidate to take one of the seven regional seats, then that seat should remain occupied by an independent for the duration of the parliament. Under Clause 9--page 5 of the Bill--if a seat belonging to a registered political party becomes vacant, it is automatically filled from that party's list by another candidate and remains vacant only if there are no more candidates from that party. The procedure is simple. The returning officer merely notifies the presiding officer of a change. However, if a seat becomes vacant that was occupied by an independent, it must remain unfilled until the next election. That omission could easily be overcome by allowing the next independent candidate with the highest share of votes to fill the vacancy on the same basis as a registered political party. In constituencies the size of the Scottish regions the deficit of one independent member is liable to leave a large proportion of the non-aligned electorate unrepresented.

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10.13 p.m.

The Earl of Kinnoull: My Lords, it is a privilege to be the 35th speaker in this wide-ranging, informative debate on this historic Scotland Bill. If I had not suffered the good fortune to come just before my noble friend the Opposition Chief Whip, I would have been tempted to retire in silence on the basis of the dog having his evening stroll and, on reaching the 12th tree, finding there is nothing left. It is impossible not to repeat at least one of the many issues raised. I shall therefore, as a matter of brevity, leave my noble friend to stir us with his usual forceful and penetrating speech to complete the first leg.

Like other noble Lords, I worry about the framework under the Bill for the Scottish parliament. I appreciate that the Government have sought a framework with a light touch, relying on good working relationships between Edinburgh and Westminster. I believe that they are dangerously over-optimistic. Almost as night follows day, there are bound to be conflicts. There is bound to be resentment on both sides.

I give one example of a potential resentment. It concerns the Scottish fishing industry. I must declare a small interest, having served for 20 years with the Fishermen's Mission, which looks after fishermen and their families at fishing ports, particularly at times of tragedy. That happens all too frequently, as indeed we witnessed last Sunday. The Scottish fishing industry represents 66 per cent. of the entire UK fishing quota and it is a vital and important industry to Scotland. What is likely to happen when it comes to the common fisheries policy being renegotiated in Brussels? Will there be a Scottish voice leading the negotiations for the United Kingdom? Almost definitely not, as no one other than the Secretary of State will be serving at that time in the national Cabinet, and it looks as though he will be stripped of most of his powers by then.

Of course it will be said that the British negotiations will be a team effort. But that still denies, I suggest, the Scottish hopes raised by Scotland having its own parliament and its own voice, not deflected by some alternative issue such as Greek olive oil, brewing in Brussels, or some trade-off.

I should like to raise another issue--the potential confusion for the Scottish people as to whom they should consult in the future if they feel there is an injustice. Should it be their Member of Parliament at Westminster; should it be their constituency Scottish Member of Parliament in Edinburgh or their regional Member of Parliament in Edinburgh; or even the Secretary of State or the first minister? I hope that the Government will iron out such a confusion and publish clear guidance for the Scottish people as to their rights.

Finally, I worry about the future of the Scottish parliament and where it will lead. Resentments and conflicts between Westminster and Edinburgh caused by the inherent imbalance between the subordinate parliament and Westminster are bound to lead in future to the talk of independence. Like others, I would regard the break-up of the Union as wholly damaging. I hope that the Government will confirm that in no way are they

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contemplating in the future a referendum for independence and that it will not be achievable by a Scottish parliament alone under the Bill.

10.17 p.m.

Lord Strathclyde: My Lords, I may be speaking at the end of the day but it is not yet the end of an old song. I am sorry that the Government have chosen not to provide a "winder-upper" this evening but it gives me the greatest pleasure to be able to wind up on behalf of the Opposition and to be the last speaker of the day. It is now late but it surely justifies the decision that was taken to have two days on this Second Reading. Otherwise we would have been here all night. I am just sorry that it took the Government quite so long to reach their decision.

If anything, this debate has proved that the Scotland Bill is better than the new drug Viagra in keeping the House of Lords active and awake with this record number of speakers. But what happened to the Labour Party today? Why were there so few representatives of the people's party speaking on the Second Reading of this, their flagship Bill? It has become very fashionable in government circles to name and shame. I shall resist that temptation except to say this. It is a long time since I have spoken on a Bill to do with Scotland without seeing some old and good friends on the other side who are sadly absent. I hope there is no truth in the rumour that because some of those noble Lords disagreed with the Government's policies they were asked not to speak up today. That would be truly shameful.

My noble friend Lord Mackay of Ardbrecknish in his opening words talked a little about the timing of the Bill. He pointed out the rather leisurely pace at which it has gone through Parliament. I welcome that because it means that the Scottish Office and its Ministers will have an opportunity to re-write it during the Summer Recess when they have realised the wisdom of your Lordships who will wish to make amendments. I am delighted that the noble Lord, Lord Sewel, said that he would listen carefully, I hope that meant that he will accept some of the amendments put forward. There is certainly no reason to rush. This Bill will be delivered in good time for the new Session some time at the end November.

The noble Lord, Lord Sewel, said a number of interesting things, but one thing of particular interest. He said that the Bill was part of a far-reaching constitutional programme. I agree with that as far as it goes. He spoke about the Scottish Bill and the Welsh Bill, the new mayor for London and other things. But one thing he did not mention was reform of the House of Lords. I have a question for him. Was he on or off message on that? Did he inadvertently make a great constitutional declaration or was he simply showing his own prejudice that there are more important things to do than worry about this House?

More importantly, is it really part of an overall vision, a design for constitutional change that the Labour Party is taking through involving Scotland, Wales, London, the Human Rights Bill, the independence of the Bank of England and all the other matters that we have heard so much about over the past 12 months or so? I do not believe it is. What we are witnessing is a rag-bag of constitutional policies tacked together here and there with no coherence

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apart from one thing and that is that every Bill passed through this constitutional package removes power from the House of Commons. If that is the intention, why is it that this Government are incapable of saying so?

The intention for this Bill was entirely political. It was nothing to do with better government for Scotland, but simply to provide different government. In what I thought was an uncharacteristically cheerless and ungenerous speech, the noble Lord, Lord Thomson of Monifieth, blamed everything on the last 18 years of Tory misrule in Scotland. In particular, he complained of the experiment of the poll tax. What is this Bill if not a constitutional experiment on the people of Scotland?

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