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Lord Mackay of Ardbrecknish moved Amendment No. 183:

Page 66, line 17, at end insert--
("Exception from reservation
Scottish bank notes issued by the Scottish banks.").

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The noble Lord said: This matter comes under Head 1, financial and economic matters, in Schedule 5. That reserves to the United Kingdom Parliament and Government fiscal and economic policy. That is perfectly understandable and correct. Local taxes are exempted from reservation, as we have discussed. I seek to add to that exemption from reservation,

    "Scottish bank notes issued by the Scottish banks".

This amendment seeks to give the Scottish parliament control over the issuing of Scottish banknotes, but not over general currency questions. I do not want to hear anyone suggest that we seek to hand responsibility for monetary policy to the Scottish parliament. We seek simply to hand to the Scottish parliament responsibility for Scottish banknotes issued by Scottish banks under the Bank Notes (Scotland) Act of 1845 which gives Scottish banks the right to issue their own banknotes. That is one of the more colourful aspects of Scottish life which is much appreciated by visitors from around the world and indeed from south of the Border.

These matters are important to Scots. There was a huge outcry a few years ago when we moved to pound coins and it was proposed to abolish the one pound banknote. However, the Government had to accept that in Scotland one pound banknotes should continue to be issued. That is still the case. I can envisage that with inflation we shall soon face the dilemma of whether we should introduce £5 coins instead of £5 notes. The outcry will arise again. I think it would be far better for the Scottish parliament to have responsibility for the matter of Scottish banknotes. That seems perfectly sensible. I cannot see why the Government could possibly object to that.

Of course the amendment would not give the Scottish parliament any powers over the number of notes in circulation. That would remain firmly the responsibility of the Bank of England, not the Monetary Policy Committee. This amendment takes account of a Scottish tradition which is held dear by those of us who live north of the Border. In my view that Scottish tradition would be better safeguarded by the Scottish parliament in whom, on this occasion, I have trust. I beg to move.

Lord Mackie of Benshie: I support the noble Lord, Lord Mackay, on this occasion. He is often right as regards small, cosmetic measures. I love Scottish banknotes. I have spent my life trying to accumulate enough of them to accommodate my expensive tastes. I have not always been successful. Scottish banknotes are a useful and nice factor of Scottish life and I believe we should retain them. I have heard various explanations of what will happen if we adopt the euro, but in the meantime I trust and hope that we shall be able to continue to offer Scottish banknotes in England and find them accepted with delight by taxi drivers and others who also collect notes.

Lord Renton: I was brought up to believe that one should never love any banknotes. I am anxious that my noble friend Lord Mackay of Ardbrecknish, with whom I nearly always agree and whose arguments I greatly

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admire, should enlighten us before we go much further with regard to the following point. I can understand the desire--especially when one considers the Scottish banknotes Act--that the new Scottish parliament should have some say with regard to Scottish banknotes. However, Scottish banknotes are available in denominations of one pound sterling or a number of pounds. They are part of the common currency of the United Kingdom. I hope that when we have devolution to Scotland we shall continue to have a common currency within the United Kingdom.

My noble friend used the word "safeguarded" just now. There is a further safeguard that we should think about if we are to accept his amendment; namely, to write into the Bill that although the Scottish parliament is to have control over Scottish banknotes, those banknotes should be part of the common currency of the United Kingdom and should not be regarded internationally as a separate currency.

The Earl of Balfour: I think Scotland must be the last country in the world where each different bank produces its own banknote. I think that is a quite unique custom and one that I find rather fun. To the best of my knowledge Scottish banknotes have been controlled by the Bank of England, as far as I understand the position.

Lord Selkirk of Douglas: I understand that local designs are permissible under the protocol to the Maastricht Treaty. An amendment to this effect, which allows the Scottish parliament to legislate about the issue of Scottish banknotes, has considerable merit. I hope that the Minister will be able to accede to this request.

Baroness Carnegy of Lour: If this should be possible, it would of course be a popular measure to have in the Bill. Am I right in thinking that banknotes are not actually tender but are promises to pay?

The Earl of Mar and Kellie: I hope I can help the noble Earl, Lord Balfour, by telling him that four banks in Northern Ireland issue their own notes.

4.45 p.m.

The Lord Advocate (Lord Hardie): The background to the issue of Scottish banknotes by the banks in Scotland is, as the noble Lord, Lord Mackay of Ardbrecknish, properly pointed out, governed by the Bank Notes (Scotland) Act 1845. With the greatest of respect to the noble Lord, it is not possible to separate the issue of notes from the concept of currency and monetary policy. I shall have to address the question of currency and monetary policy in the context of this amendment. In that regard I am reinforced by the comments of the noble Lord, Lord Renton.

The Scottish banks are entitled to issue notes but there are various conditions attached to that. I say to the noble Baroness, Lady Carnegy of Lour, that any banknote is, of course, a promissory note, but Scottish banknotes are not in fact legal tender. They do not require to be accepted as payment in Scotland or in any part of the United Kingdom although, as has been observed by

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the noble Lord, Lord Mackie of Benshie, people in all parts of the United Kingdom are happy to accept them. That situation has developed over the years. I believe that many years ago taxi drivers in London were less happy to accept Scottish pound notes than they are Scottish "fivers" or Scottish £10 notes nowadays.

As I said, the Act imposes various conditions with regard to the issuing of notes, including the regulation of the number of bank notes which each bank is entitled to issue, the determination of the denominations--notes must be in whole pounds--and the number of notes which banks may have in circulation. Weekly accounts of notes in circulation have to be made; returns have to be made and published; and each bank is allowed to issue notes only when authorised. All of these provisions are intended to regulate the currency in circulation and concern currency standards in general. These matters are integral to the United Kingdom economy and must remain reserved, as set out in the White Paper. The amendment would allow the Scottish parliament to legislate on the issuing of banknotes by Scottish banks. One can imagine that the parliament may wish to impose different conditions from the United Kingdom Government with regard to the issuing of notes.

The Government cannot support the amendment. We want macro-economic policy to be reserved. That covers everything needed to ensure the ordinary conduct of monetary and fiscal policy at a United Kingdom level, including the power to issue money. The banknotes issued by Scottish banks are an integral part of our monetary policy. We need to keep controls over them in place; for example, central control over the number and value of notes in circulation. There will be nothing to stop Scottish banks continuing to issue banknotes under the 1845 Act. I trust and hope that they will continue to do so. Like other noble Lords, I am very fond of them. I urge the noble Lord to withdraw his amendment.

Lord Mackay of Ardbrecknish: Clearly we are all fond of banknotes; are even quite fond of coins, but banknotes come in larger denominations. This has been an interesting debate. I appear to have lost my noble friend Lord Renton and gained the noble Lord, Lord Mackie. I suppose that one cannot get everybody on the same side at any one time. I was not surprised to hear the view expressed by the noble Lord, Lord Mackie. His party proposed a similar amendment in the other place. So in a way I was merely checking for consistency. The noble Lord gets full marks on this occasion.

The answer given by the noble and learned Lord the Lord Advocate was a tinge on the heavy side. I made it perfectly clear that nothing I was suggesting interfered with the control of monetary policy by the Bank of England or the other controls on these matters exercised by government--those that are not yet handed over to the Bank of England. I thought the answer slightly weak. Scottish banknotes are an important part of Scottish life. It would have been a good thing if we could have said that their issue was a matter for the Scottish parliament to decide. If my amendment is defective, perhaps the Government might examine it

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during the Recess to see whether they can ring-fence merely the simple point that all noble Lords have addressed and make sure that questions of monetary policy, how many banknotes can be issued and so on, remain entirely reserved. I believe that no one in this Chamber would want otherwise. I suspect that there are a few in the other Chamber who would be happy to have the whole issue of monetary policy in Scotland independent of the Bank of England and the United Kingdom Government. But no one is on that side of the argument in this place.

We have had an interesting debate. I hope that the Government will reflect on the symbolic importance of giving the Scottish parliament at least some say over the issuing of banknotes. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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