James of Blackheath, L.

Jenkin of Kennington, B.

Jopling, L.

Kakkar, L.

Keen of Elie, L.

King of Bridgwater, L.

Kinnoull, E.

Knight of Collingtree, B.

Lamont of Lerwick, L.

Lane-Fox of Soho, B.

Lang of Monkton, L.

Lansley, L.

Lawson of Blaby, L.

Leigh of Hurley, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Liverpool, E.

Livingston of Parkhead, L.

Luce, L.

Lupton, L.

Lyell, L.

McColl of Dulwich, L.

MacGregor of Pulham Market, L.

McGregor-Smith, B.

McIntosh of Pickering, B.

Magan of Castletown, L.

Maginnis of Drumglass, L.

Mancroft, L.

Maude of Horsham, L.

Mobarik, B.

Mone, B.

Montrose, D.

Moore of Lower Marsh, L.

Morris of Bolton, B.

Moynihan, L.

Naseby, L.

Nash, L.

Neville-Jones, B.

Newlove, B.

Northbourne, L.

Northbrook, L.

O'Cathain, B.

O'Neill of Bengarve, B.

O'Neill of Gatley, L.

Oppenheim-Barnes, B.

O'Shaughnessy, L.

Palumbo, L.

Pannick, L.

Perry of Southwark, B.

Pidding, B.

Polak, L.

Popat, L.

Porter of Spalding, L.

Prior of Brampton, L.

Ramsbotham, L.

Rawlings, B.

Redfern, B.

Ribeiro, L.

Ridley, V.

29 Feb 2016 : Column 620

Risby, L.

Rock, B.

Rogan, L.

Rowe-Beddoe, L.

Ryder of Wensum, L.

Saatchi, L.

St John of Bletso, L.

Sanderson of Bowden, L.

Scott of Bybrook, B.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharples, B.

Sheikh, L.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shields, B.

Skelmersdale, L.

Slim, V.

Smith of Hindhead, L.

Spicer, L.

Stedman-Scott, B.

Stirrup, L.

Stowell of Beeston, B.

Strathclyde, L.

Suri, L.

Sutherland of Houndwood, L.

Swinfen, L.

Tanlaw, L.

Taylor of Holbeach, L. [Teller]

Thomas of Swynnerton, L.

Trefgarne, L.

Trenchard, V.

Trimble, L.

True, L.

Tugendhat, L.

Verma, B.

Waldegrave of North Hill, L.

Warsi, B.

Wasserman, L.

Wei, L.

Wheatcroft, B.

Whitby, L.

Wilcox, B.

Willetts, L.

Williams of Trafford, B.

Wilson of Tillyorn, L.

Young of Cookham, L.

Young of Graffham, L.

Younger of Leckie, V.

Motion B, as amended, agreed.

5.40 pm

Motion C

Moved by Lord Freud

That this House do not insist on its Amendment 9, to which the Commons have disagreed for their Reason 9A.

9: Clause 14, leave out clause 14

Commons Disagreement

The Commons disagree to Lords Amendment No. 9 for the following reason—

9A: Because it would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion C1 (as an amendment to Motion C)

Moved by Lord Low of Dalston

At end insert “but do propose Amendments 9B and 9C in lieu—

9B: Clause 14, page 14, line 27, at end insert—

“(2) This section shall not come into force until the Secretary of State has laid before both Houses of Parliament a report giving his or her estimate of the impact of the provision in this section on the—

(a) physical and mental health,

(b) financial situation, and

(c) ability to return to work,

of persons who would otherwise be entitled to start claiming the limited capability for work element of universal credit.

(3) Regulations bringing this section into force shall not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”

9C: Clause 31, page 28, line 2, at end insert “and subject to section 14(2) and (3)””

Motion C1 (as an amendment to Motion C) agreed.

Motion C, as amended, agreed.

29 Feb 2016 : Column 621

Motion D

Moved by Lord Freud

That this House do not insist on its Amendment 34 and do agree with the Commons in their Amendment 34A in lieu.

34: Clause 28, page 26, line 18, leave out from beginning to “does” in line 21 and insert—

“(a) in a case where the maximum amount applying under regulations under section 26 or Part 1 of Schedule 2 is determined on a basis that treats an amount, or a description of an amount, payable by way of service charge as part of the rent payable, includes a reference to an amount, or an amount of that description, payable by way of service charge,

(b) in a case where section 21 applies after regulations under section 26 have, or Part 1 of Schedule 2 has, applied a maximum amount determined on a basis that treats an amount, or a description of an amount, payable by way of service charge as part of the rent payable, includes a reference to an amount, or an amount of that description, payable by way of service charge,

(c) in a case not falling within paragraph (a) or (b) where, under the terms of the lease or agreement, an amount, or a description of an amount, payable by way of service charge is part of the rent payable, includes a reference to an amount, or an amount of that description, payable by way of service charge, and

(d) in any other case,”

Commons Disagreement and Amendment in lieu

The Commons disagree to Lords Amendment No. 34 and propose Amendment No. 34A in lieu.

34A: Clause 28, page 26, line 16, leave out subsection (5) and insert—

“(4A) Regulations made by the Secretary of State may specify cases in which a reference in the social housing rent provisions to an amount of rent payable to a registered provider includes, or does not include, a reference to—

(a) an amount payable by way of service charge, or

(b) an amount payable by way of service charge that is of a description specified in the regulations.

(4B) Regulations under subsection (4A) may, in particular, make provision by reference to—

(a) guidance with respect to the principles upon which levels of rent should be determined issued by the Housing Corporation under section 36 of the Housing Act 1996;

(b) a standard set under section 193(1) of the Housing and Regeneration Act 2008 that includes provision under section 193(2)(c) (rules about levels of rent);

(c) a standard set under section 194(2A) of the Housing and Regeneration Act 2008 (the power of the regulator to set standards relating to levels of rent) that was published by the regulator before 8 July 2015;

(d) guidance relating to levels of rent issued by the regulator before 8 July 2015 (including guidance issued before 1 April 2012);

(e) guidance relating to levels of rent for social housing issued by the Secretary of State before 8 July 2015.

(4C) Regulations under this section must be made by statutory instrument.

(4D) A statutory instrument containing regulations under this section is subject to annulment in pursuance of a resolution of either House of Parliament.”

Lord Freud: My Lords, at Third Reading earlier this month, I informed the House that we had received representations from providers and the regulator for social housing about an unintended consequence of one of the government amendments we brought

29 Feb 2016 : Column 622

forward on Report. That amendment sought to enable continuation of existing policy on affordable rents and service charges which we had intended to be helpful. I said at the time that we would seek to address this issue by tabling an amendment in lieu when the Bill returned to the other place, and this Motion is the result of doing that.

In speaking to the Motion, I find myself reminded of Alexander Pope’s popular quotation, “To err is human”, but that would give noble Lords the chance to be divine in their forgiveness, which is clearly unacceptable. Perhaps it is more appropriate to quote William Hickson, the proprietor of the Westminster Review, who is credited with popularising the proverb:

“’Tis a lesson you should heed:Try, try, try again.If at first you don’t succeed,Try, try, try again”.

I hope that I have now removed the opportunity for noble Lords to make jokes at my expense, but I doubt it.

I will outline briefly why the change is needed. The providers have told us that the drafting of the original amendment would inadvertently bring service charges within rent reduction measures for some standard social rent housing. This is because, although providers are entitled, under existing guidance, to charge service charges on top of formula rent, this has been implemented by providers in different ways. For example, some landlords of formula social rented housing reserve service charges as part of rent for purposes of enforcement in relation to non-payment of service charge. As a result, the service charge, even if it is separately itemised—and it is not always—forms part of gross rent and is captured by the provision. In such cases, service charge is part of rent and the entirety of the sum would be captured. This would result in a larger reduction in revenue for the providers than expected. We understand that these practices, while not general, are sufficiently widespread to be a problem for the sector. This was not our intention and we thank providers and the regulator for drawing it to our attention.

Given that this is a complex area, the amendment sets out a new regulation-making power instead, rather than setting the position out in the Bill itself. This will allow flexibility for further adjustments if they are ever needed. Regulations made under these powers would do two things. First, they would identify the cases where the social rent reduction limits being imposed by the Bill would limit both the amount of rent and the amount of service charge payable by tenants. This would apply to most affordable rented housing, where the rent is set using a percentage of market rent principle. Secondly, they would identify the cases where only rent is to be limited by the 1% per annum reduction policy. These are cases where rent is determined by a formula social rent approach. This is all standard social rented housing and that minority of affordable rented housing where rents are set by reference to the formula social rent model.

I regret the need for this late amendment. I am grateful to the housing sector for bringing this issue to light. I hope, with the explanation I have given and on the basis that the new provision will help providers, your Lordships will feel able to support the Motion. I beg to move.

29 Feb 2016 : Column 623

Lord McKenzie of Luton: My Lords, as the Minister has anticipated, we have a sense of déjà vu on this drafting. We have lost count of the number of amendments and changes the Government have made to their own legislation. Again, the Commons are disagreeing with an amendment that the Government themselves laid in your Lordships’ House and replacing it with an alternative. So confident are they now that they will get it right on this occasion that they have decided to address the point at hand in regulations.

However, the substantive point is serious and it is important that the legislation is right. It is understood that the issue is to properly identify those cases where the 1% per annum reduction will apply to only the rent and to where it will apply to rents and the amount of the service charge. The former will apply to rents determined by a formula social rent approach; the latter to what is known as affordable rents, which are determined on a percentage of market value. It is understood that the sector is content with this differentiation—the Minister has confirmed that—and so are we. We look forward to the regulations in due course. There will, doubtless, be various iterations of them.

Lord Freud: I thank the noble Lord, Lord McKenzie, for being merciful in his remarks. As I said at the start of this brief debate, this Motion has been tabled as a result of representations made by the providers—I confirm that again—and the regulator. We welcome their input, as the noble Lord does. I urge noble Lords to support this Motion.

Motion D agreed.

Calais: Child Refugees

Statement

5.47 pm

The Minister of State, Home Office (Lord Bates) (Con): My Lords, with the leave of the House, I shall now repeat in the form of a Statement the Answer given by my right honourable friend James Brokenshire to an Urgent Question in another place on child refugees in Calais. The Statement is as follows:

“Mr Speaker, last Thursday a judge in France ruled that the authorities in Calais could proceed with clearing the tents and makeshift accommodation from the southern section of the migrant camp. Over the weeks the authorities, working with NGOs, have ensured that the migrants affected by the clearances—which have begun today—were aware of the alternative accommodation that the French state had made available. For women and children, this means the specialist accommodation for around 400 people in and around the Jules Ferry centre, or the protected accommodation elsewhere in the region. For others, this means the recently erected heated containers which can house 1,500 people.

The French Government have also, with the support of UK funding, established over 100 welcome centres elsewhere in France, where migrants in Calais can find a bed, meals and information about their options. To be clear, no individual needs to remain in the camps in Calais or Dunkirk. The decision to clear part of the

29 Feb 2016 : Column 624

camp in Calais is, of course, a matter for the French Government. The joint declaration signed in August last year committed the UK and France to a package of work to improve physical security at the ports, to co-ordinate the law enforcement response, to tackle the criminal gangs involved in people smuggling and to reduce the number of migrants in Calais.

Both Governments retain a strong focus on protecting those vulnerable to trafficking and exploitation, and have put in place a programme to identify and help potential victims in the camps around Calais. The UK is playing a leading role in tackling people smuggling, increasing joint intelligence work with the French to target the callous gangs that exploit human beings for their own gain. The UK shares the French Government’s objective of increasing the number of individuals who take up the offer of safe and fully equipped accommodation away from Calais so that they can engage with the French immigration system, including lodging an asylum claim. It is important to stress that anyone who does not want to live in a makeshift camp in Calais has the option of engaging with the French authorities, which will provide accommodation and support.

This is particularly important with regard to unaccompanied children. Where an asylum claim is lodged by a child with close family connections in the UK, both Governments are committed to ensuring that such a case is prioritised. But it is vital that the child engages with the French authorities as quickly as possible. This is the best way to ensure that these vulnerable children receive the protection and support they need and is the quickest way to reunite them with close family members in the UK.

The UK is committed to safeguarding the welfare of unaccompanied children and we take our responsibilities seriously. No one should live in the conditions we have seen in the camps around Calais. The French Government have made huge efforts to provide suitable alternative accommodation for all those who need it, and have made it clear that migrants in Calais in need of protection should claim asylum in France”.

5.50 pm

Lord Rosser (Lab): I thank the Minister for repeating the reply to the Urgent Question. The thrust of part of it is that the Government are working with the French authorities and others to ensure that the claims of refugees, including the estimated 150 unaccompanied children in Calais and Dunkirk, of the right to be in this country under the Dublin regulations are processed quickly. What is the evidence that that is actually happening, as opposed to the Government claiming that it is happening?

Since the Government do not allow such children to come to the UK immediately to be in the care of their family while they make their applications, as the UK tribunal ruled they should be, and the reality, as opposed to what was in the Statement, is that cases from France take up to nine months, are the Government considering allowing those children who have a claim to be in the UK to come to the UK to make that application? What specific provisions are in place to ensure that the reality, as opposed to the Government’s belief, is that such children who are currently being moved out of the camps in Calais and Dunkirk are

29 Feb 2016 : Column 625

properly safeguarded and rehoused in suitable accommodation for children, and not left vulnerable to child traffickers, to join the thousands in Europe who have already disappeared?

Finally, the UNHCR has offered to set up a system to expedite the claims of those children in Calais and Dunkirk with close family in the UK with whom they could be reunited under the Dublin regulations. Have we accepted that offer from the UNHCR, and if not, why not?

Lord Bates: I am grateful to the noble Lord for his questions. Dealing first with the time that it takes to process such applications, I say that nine months is clearly too long. That is one reason why we have announced that a senior Border Force officer is going to be embedded in the interior ministry in France to ensure that particularly the Dublin family reunion cases are processed as quickly as possible. We hope that that situation will improve.

The noble Lord asked what we are doing to ensure that children do not fall prey to the trafficking gangs. The evidence from Europol is that 90% of those who come to Europe have paid a criminal gang to do so. We know that those gangs are a serious threat and are operating in that area. One reason we are putting so much emphasis on the hotspots is that we want especially children but all asylum seekers to be processed as soon as they come into the EU. There are five hotspots in Greece and another seven in Italy. The Home Secretary has asked Kevin Hyland, the Independent Anti-slavery Commissioner, to go out to those areas with a child protection officer to see what more can be done for children.

In relation to the UNHCR, of course that has a wider remit around the world for those who are seeking asylum under the refugee convention. We are working very closely with it, particularly on the initiative announced by the Prime Minister in relation to the 3,000 identified by Save the Children as to what more can be done with them. The UNHCR is looking at a solution to that and we are expecting an answer from it in the next couple of weeks.

Lord Paddick (LD): My Lords, I understand what the Minister says about unaccompanied children but what action are the UK Government taking to identify unaccompanied children with family in the UK who are legally eligible for asylum here, not only in Calais but in Grand-Synthe near Dunkirk and numerous other camps in northern France? Surely there are settled families in the UK who know that there are unaccompanied children related to them in these camps in northern France. Surely it cannot be left simply to the French Government and the children to apply for asylum. They are just children, after all.

Lord Bates: That is right. In the Written Statement on 28 January, we announced that we were devoting £10 million to the protection of children across Europe. We have provided additional support, particularly in the camps, to make sure that people get the advice they need. As the noble Lord rightly says, we are talking about children here and I well understand that they need an adult on their side who can work with

29 Feb 2016 : Column 626

them, helping and guiding them through the process. We have said that the best route for that is in the first instance that they claim asylum in France and then they can enter that system and get the protection they need. Then when their family are identified in the UK they can be safely transferred to the UK to be reunited with them.

Lord Hylton (CB): My Lords, I apologise for not having heard what the Minister repeated. He was too quick for me. However, as I was in Calais just over a month ago, perhaps I could ask: does he agree that getting information to the relevant people, whether children or adults, is crucial to those who already have close relatives in Britain? Does he also agree that that kind of information would be best conveyed not by officials but by people who are already in this country, who can explain their situation and how to go about family reunion? I hope the Minister will look sympathetically on my amendment about family reunion when we come to Report on the Immigration Bill.

Lord Bates: On the point about family reunion, the French Government are supporting some NGOs that are operating in that area and doing important work in the camps, ensuring that people get access to the type of advice they need. We will make sure that that work continues. The NGOs want to do the right thing. The Government want to do the right thing, both here in the UK and in France. That is why the relationship is so important and why we are working so closely together to ensure that children and families are reunited as soon as possible.

Lord Cormack (Con): My Lords, how many of these children are under the age of 16 and do we have satisfactory reception facilities of a temporary nature before they are reunited with any family members?

Lord Bates: I am grateful to my noble friend for that question. I can tell him that 62% of unaccompanied asylum-seeking children were 16 or 17; 26% were 14 or 15; and 8% were under 14. Of course, in this country the obligations under the Children Act mean that anyone aged under 18 will be taken into local authority care as a result of those duties.

Lord Dubs (Lab): Not long ago four children were discovered in Calais who had parental links here. It took a long time to find those children. Surely we have to make sure that we do not let time pass in the way it did then. Could the Government not publicise very loudly and clearly to the people in Calais and Dunkirk that if there are young people there with family members here they should announce themselves because that is a quick way of getting in here?

Lord Bates: The noble Lord is absolutely right. Without going into the details of a particular case, it was simply a question of process to say that if they had claimed asylum in France, that whole system could have been organised and expedited very quickly indeed. That is the message that we need to get out to people: the way to be reunited with your family in the

29 Feb 2016 : Column 627

UK is to claim asylum in France and rely on the Dublin regulations to ensure that that happens as soon as possible.

The Lord Bishop of Durham: My Lords, can the Minister confirm how tight or loose are the parameters on family relationships under Dublin being used in this? That is one of the concerns of those working on this in the NGOs—how tight or how loose the family ties can be defined as.

Lord Bates: The family ties are tightly defined; I suppose that they are there to avoid any potential risk of wider, extended family being brought in under humanitarian protection. They are defined as siblings or a parent and it is preferable that the children are reunited with the parent, wherever that parent is. That is one argument where the UNHCR has certainly made a strong case for ensuring that children are reunited—and stay—with their families in the region, rather than undertaking the perilous journeys which bring them to Calais.

Lord Roberts of Llandudno (LD): My Lords, does the Minister realise exactly how urgent the situation is? In a census last week, there were 5,497 residents in Calais, of whom 651 were children and 423 were unaccompanied children. France has of course started to clear the southern section of the camp of its 3,455 residents and will then begin on the north section, which has 2,042. What is to happen to these children when the French have cleared it? Will there be any humanitarian extension by the United Kingdom Government? The Minister might listen to just one suggestion. The Government have promised to bring in 20,000 refugees over four years. We will be coming to the end of the first year in May, which means that we should have accepted 5,000 refugees by then. Can he please tell me exactly how many have been accepted?

Lord Bates: Under the Syrian vulnerable persons’ resettlement scheme, we set out to say that there would be 1,000 before Christmas. That figure is now 1,200. I am sure it will also be of interest—in particular to the noble Lord, who has always spoken up about the protection of children and will welcome this fact—that half of those 1,200 are children.

Scotland Bill

Report (2nd Day)

6.01 pm

Clause 42: Policing of railways and railway property

Adjourned debate on Amendment 41.

Lord Faulkner of Worcester (Lab): My Lords, on Wednesday night we had an hour-long debate on the role of the British Transport Police in Scotland. A number of issues remain unresolved and may be the subject of further amendments at Third Reading but meanwhile, as far as this afternoon is concerned, I beg leave to withdraw the amendment.

Amendment 41 withdrawn.

Amendment 42 not moved.

29 Feb 2016 : Column 628

Clause 43: British Transport Police: cross-border public authorities

Amendment 43 not moved.

Amendment 44

Tabled by Lord Empey

44: After Clause 43, insert the following new Clause—

“Oversight arrangements for the British Transport Police in Scotland

(1) The Chief Constable of the British Transport Police (“the Chief Constable”) shall appear before the Scottish Police Authority Board on request (including at urgent meetings, with reasonable notice).

(2) The Chief Constable shall appear before the Justice Committee of the Scottish Parliament (or any successor Committee fulfilling the functions of that Committee) on request (including at urgent meetings, with reasonable notice).

(3) The Chief Constable shall appear before the Cabinet Secretary for Justice in the Scottish Government on request, with reasonable notice.

(4) The Chief Constable shall present a report on the work of the British Transport Police in Scotland to the Scottish Ministers at least annually.

(5) The Chief Constable shall present a plan for the work of the British Transport Police in Scotland to the Scottish Police Authority Board at least annually, and a report on the work of the British Transport Police in Scotland to the Scottish Police Authority Board at least annually.

(6) The Chief Constable shall ensure that British Transport Police personnel exercising functions in Scotland have undertaken training on the Code of Ethics for policing in Scotland, and on the disciplinary policy procedures and operational procedures in place for Police Scotland, and the Chief Constable shall take that Code and those procedures into account when exercising his or her functions.”

Lord Empey (UUP): My Lords, this amendment was debated last week and I hope the Minister will reflect on the significant debate that we had then. I hope he will take on board the fact that this amendment does no injustice or prejudice to the clauses in the Bill. He agreed to reflect on matters, and I reserve the right to look at this again at Third Reading. In those circumstances, I shall not move the amendment.

Amendment 44 not moved.

Clause 45: Onshore petroleum: consequential amendments

Amendment 45

Moved by Lord Dunlop

45: Clause 45, page 47, line 17, leave out subsection (5)

The Parliamentary Under-Secretary of State, Scotland Office (Lord Dunlop) (Con): My Lords, Clause 44 devolves power to the Scottish Parliament for regulation of licences to search and bore for petroleum in the Scottish onshore area. Clause 45 transfers the functions of the Secretary of State to the Scottish Ministers. However, as consideration payable for such licences is to remain reserved to Westminster, Clause 45(8) retains the power of the Secretary of State to make model

29 Feb 2016 : Column 629

clauses on the consideration payable for a licence granted by the Scottish Ministers, and on matters related to the keeping of accounts and the measurement of petroleum.

Amendment 46 would revise Clause 45(8) to ensure that the Secretary of State’s enforcement ability in relation to such reserved matters is preserved for licences in onshore Scotland. This will be achieved by maintaining the Secretary of State’s current power to cancel licences in onshore Scotland, applicable only for infringements in relation to consideration payable for a licence, the keeping of accounts and the measurement of petroleum related to consideration and taxation. Nothing in this amendment changes the powers being devolved to the Scottish Parliament. A definition of “appropriate Minister” under Clause 45(5) is removed, as this is redundant in light of Clause 45(17). I therefore beg to move Amendment 45.

Lord Wallace of Tankerness (LD): My Lords, I shall speak to Amendment 47 and others in this group which are in the name of my noble friend Lord Stephen and myself. Amendment 47 would in effect devolve legislative competence for consents for electricity generating stations and overhead lines to the Scottish Parliament. The position at the moment is that the Scottish Government have executive power to grant development consent for generating stations of 50 megawatts capacity or more and overhead lines of 20 kilovolts nominal voltage or greater. However, the Scottish Parliament does not have legislative power to reform the law in relation to such development consents. This is the only type of development that the Scottish Parliament does not have legislative power to regulate.

As I have indicated, such consents are governed by Sections 36 and 37 of the Electricity Act. This legislation, which goes back to 1989, is outdated. In fact, it is sufficiently outdated that, in the mean time, in England and Wales, it has been changed so that applications for development consent are dealt with under the Planning Act 2008, a much more suitable system. In Scotland, it has been described as effectively a legislative orphan. The Scottish Parliament has no power to reform it, and when the United Kingdom Parliament reformed it in respect of England and Wales, the opportunity was not taken to reform it in Scotland. Moreover, it is my understanding that the draft Wales Bill is devolving power to the Welsh Parliament, as it will be known, to legislate on consents for almost all energy development there. The aim of this amendment is therefore to devolve to the Scottish Parliament legislative power to reform the system of development consenting for energy infrastructure. The generation, transmission and distribution of supply of electricity is presently reserved although, as I said, the actual power to grant consents has been devolved.

This issue has some practical consequences in the context of the Energy Bill, which is currently in the other place. I was advised last week that a development in the south of Scotland, which I think is of about 65 megawatts, is therefore subject to the present regime under Section 36. However, if the same development had been just several miles further south in Northumbria, it would have been the responsibility

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of the local authority. If the local authority had refused it in England and Ministers had called it in, the grace period that the Government proposed for onshore wind farm consents would have kicked in. However, that does not cover the situation in Scotland given that it is already subject to ministerial fiat there, so there is a mismatch in practical terms. I apologise that this gap was drawn to my attention after Committee but I have certainly made the noble Lord, Lord Dunlop, aware of these concerns. He has had some notice and I hope that he may be able to give an encouraging reply.

The other amendments, to some extent, go over the ground that we covered in Committee. I appreciate that the Minister has met me since then and we have discussed these amendments. The Government argue that there is already adequate statutory provision for consultation, and the Minister asked why the industry was not satisfied and agreed to meet the industry to find out. My understanding is that, in the event, negotiations on the fiscal framework took over. That is perfectly understandable—there is no criticism there. However, his officials did meet the industry.

The current position is in spite of the fact that a commitment followed a request in the Smith commission for further consultation. Indeed, in the initial response to the Smith commission, the Government’s Command Paper stated:

“The UK Government will work with the Scottish Parliament and Scottish Government to devise a proportionate and workable method of consulting the Scottish Parliament on the strategic priorities set out in the Energy Strategy and Policy statement”.

However, the Government’s position now is that this is not necessary and that there is already a statutory regime there under the Energy Act 2013.

The fact that the industry remains unsatisfied is of some concern. Notwithstanding new Section 90C(4), which states,

“a ‘renewable electricity incentive scheme’ means any scheme, whether statutory or otherwise”,

people in the renewables industry have formed the impression that any consultation with Scottish Ministers is likely to be triggered only by legislative changes. It would therefore be helpful if, in responding to this debate, the Minister could indicate the overarching legal basis for the contract for difference regime being set out in primary legislation, while the main detail as to how it will operate is contained in statutory instruments and any changes to these statutory instruments would trigger the consultation in terms of this Bill and the Energy Act.

The experience of the accelerated closure of the renewables obligation for onshore wind, which went ahead with, I think, minimal consultation with Scottish Ministers, has given rise to the concerns within the industry. It would be useful if the Minister could indicate whether the position with regard to any order to remove specific technologies from the contract for different regime is something about which Scottish Ministers would be consulted. There is no obligation on the Secretary of State to consult on the budget notice issued in advance of each allocation round. However, there is a need to consult Scottish Ministers on other aspects of the contract for difference mechanisms, for example on setting the new administrative

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strike prices, and it would be helpful if the Minister could perhaps give some clarity on how he sees that operating in the future.

Officials seem content that the issue addressed by Amendment 55 is dealt with adequately under existing provisions, but the view is that the improved consultation mechanism would have been better if a Scottish member could have been appointed to the Gas and Electricity Markets Authority. Again, this is a matter that the Smith commission flagged up. The Bill does a similar thing for Ofcom, and perhaps the Minister could indicate how he intends to improve the consultation and whether there is any further mechanism through the GEMA board which would meet the industry’s concerns.

Finally, one of the amendments gives Ministers the power to bring forward a scheme which effectively would devolve contracts for difference to Scottish Ministers. I stress it is a scheme which UK Ministers could devolve, so the concerns that this could lead to a bigger levy on consumers across the United Kingdom would not necessarily come through. The specific point here is that there is concern in the industry that, under the next tranche or round of contracts for difference, onshore wind may not be included under the technologies, notwithstanding that onshore wind has been at £82.50 per megawatt hour for 15 years, index linked, while offshore wind has been at £114.40 per megawatt hour for 15 years and nuclear is index linked for 35 years at £92.50. There is a very strong argument that Scotland has a considerable abundance of resource in onshore wind and that it could be developed there. This is not in the Smith commission, but had it been known that the Government were going to change the rules on the renewables obligation for onshore wind when the commission was sitting, it may well have made such a recommendation, because it would have been entirely consistent.

I simply remind the Minister that in the Scotland analysis paper for energy, the then Government said:

“The UK Government is now introducing the Contracts for Difference scheme, which will provide long term support for all forms of low-carbon electricity generation. These contracts provide industry with the long-term framework to make further large scale energy investments at least cost to the consumer”.

I stress the words “all forms”, which includes onshore wind. I am sure the Minister would like to take the opportunity to say that the present Administration will stand by the commitment that the previous coalition Government presented to the Scottish people in the run-up to the referendum. I hope the Minister will be able to give us some reassurances when he comes to reply.

6.15 pm

Lord Dunlop: My Lords, the noble and learned Lord, Lord Wallace, spoke to a number of these provisions when we considered this matter in Committee. He made some observations about the clauses and I have met him to discuss his thoughts on these areas, as he said. I am also grateful to him for withdrawing the amendments he tabled regarding heat. Again, we spoke about that issue and I was glad I was able to reassure him on the position.

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In Committee, we discussed consultation on renewable heat incentive schemes, Ofgem’s Strategy and Policy Statement, and transferring executive powers related to contracts for difference and feed-in-tariffs, which the noble and learned Lord advocates. Similarly, on Ofgem’s energy strategy and policy statement, statutory arrangements are already in place. That remains my position. However, although I do not agree with the amendments, I am grateful that the noble and learned Lord has brought them before the House. As he mentioned, I know that Scottish Renewables have a particular interest in how Ofgem’s statement is produced, and therefore it is helpful to remind the House that these arrangements exist. I was due to meet Scottish Renewables recently but had to postpone the meeting. I very much hope to meet it in the near future and I commit to continuing the dialogue to see how we can improve all aspects of consultation. If the noble and learned Lord will allow me, I will write to him further following those discussions, to see what improvements can be made.

Turning to Amendment 56, I have outlined to the noble and learned Lord why I do not agree with his proposals in relation to contracts for difference and feed-in tariffs. That is not just because they go beyond the Smith agreement but because both CFDs and FITs are GB-wide schemes and do not operate in a regionally specific way. We have a GB-wide, integrated energy system. The costs of both CFDs and FITs are spread across all GB consumers, which helps to keep down the cost ultimately borne by bill payers. If the Scottish Minister were to set separate rates, or directly award CFD contracts, this would create distortions in the market as well as being a duplication of effort. That could also result in decisions taken in Scotland imposing costs on electricity consumers across Britain.

The Scottish Government have the power to set different renewables obligation bands for specific technologies, but the CFD scheme generally awards contracts through a competitive auction open to GB-wide generation. This ensures that for each particular technology grouping only the most cost-effective projects receive support. Moving to a regional allocation would be likely not only to increase the overall costs of meeting our renewables and decarbonisation targets but to lead to an increase in supplier costs being passed on to consumers across GB. I understand that the noble and learned Lord may not accept this argument, but I do not agree that this is a sensible change to make.

I hope I can be more encouraging on Amendment 47, which would introduce a new clause on “Consents for electricity generating stations and overhead lines”. I am grateful to the noble and learned Lord, Lord Wallace, for the clearly thoughtful consideration he has given to this. He expressed the issue very cogently in his remarks, but I am afraid at this stage I am not able to accept it as an amendment to the Bill. However, I commit to him that I am prepared to consider this matter further, outside of the Bill. I am sympathetic to the point he raises and therefore would like the opportunity to consider it further, including the planning points that he raised and the existing balance between executive and legislative competence in this area. Officials in the Department of Energy and Climate Change have already

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raised the issue with the Scottish Government. Energy consenting is a complicated area and one where any change merits detailed consideration to ensure that any agreed policy is delivered. Far be it from me to prejudge that consideration but, if the proposal were found to have serious merit, there are legislative avenues by which we can take it forward, such as a Section 30 order under the Scotland Act 1998.

Therefore, I hope that the noble and learned Lord will allow me to consider the matter further outside the Bill. I will of course be happy to update him on further discussions. On that basis, I urge him not to press his amendment.

Amendment 45 agreed.

Amendment 46

Moved by Viscount Younger of Leckie

46: Clause 45, page 47, leave out lines 24 to 33 and insert—

“(1A) The Scottish Ministers may not make regulations under subsection (1)(e) prescribing model clauses that may be prescribed under subsection (1B).

(1B) The Secretary of State may make regulations prescribing model clauses on the consideration payable for a licence granted by the Scottish Ministers, and the following so far as they relate to such consideration—

(a) the measurement of petroleum obtained from the licenced area (including the facilitation of such measurement);

(b) the keeping of accounts;

(c) cancellation of a licence by the Secretary of State if there has been a failure to pay consideration or to comply with a clause on a matter falling within paragraph (a) or (b).

(1C) Model clauses prescribed under subsection (1B) shall, unless the Secretary of State thinks fit to modify or exclude them in any particular case, be incorporated in any licence granted by the Scottish Ministers.”

Amendment 46 agreed.

Amendment 47

Tabled by Lord Wallace of Tankerness

47: After Clause 50, insert the following new Clause—

“Consents for electricity generating stations and overhead lines

(1) Section D1 in Part 2 of Schedule 5 to the Scotland Act 1998 (electricity) is amended as follows.

(2) For the heading “Exception” substitute—

“Exceptions

Consent for the construction, extension or operation of electricity generating stations.

Consent to install or keep installed overhead lines.

The grant of any ancillary consent or right including—

(a) regulation of public rights of navigation in respect of offshore installations for electricity generation and transmission;

(b) establishment of a safety zone in respect of offshore installations for electricity generation and transmission;

(c) decommissioning of offshore installations for electricity generation and transmission;

(d) compulsory acquisition of land by holders of licences under Part 1 of the Electricity Act 1989;

(e) acquisition of wayleaves by holders of licences under Part 1 of the Electricity Act 1989.””

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Lord Wallace of Tankerness: My Lords, in light of what the Minister said and his willingness to continue to engage and look at this further, I hope that we can get to a sensible outcome, so I do not wish to move the amendment.

Amendment 47 not moved.

Amendments 48 to 54 had been withdrawn from the Marshalled List.

Clause 58: Renewable electricity incentive schemes: consultation

Amendment 54A not moved.

Amendments 55 and 56 not moved.

Amendment 56ZA

Moved by Lord Forsyth of Drumlean

56ZA: Before Clause 13, insert the following new Clause—

“Approval of the fiscal framework

Nothing in this Part shall have effect until each House of Parliament has passed a motion expressing its approval of the agreement between the Scottish Government and the United Kingdom Government on the Scottish Government’s fiscal framework.”

Lord Forsyth of Drumlean (Con): My Lords, I shall speak also to Amendments 57AB, 57AC, 68, 68A and 68B standing in my name. Amendment 56ZA is a probing amendment giving us an opportunity, for the first time, at 20 past six at night, in the final stages of the Bill, to discuss the fiscal framework. This will be the first opportunity for either House of Parliament to discuss this important measure. The amendment simply states that the proposals for giving the Scottish Parliament income tax powers should not have effect until each House of Parliament has had an opportunity to discuss the fiscal framework.

Amendment 57AB provides for the same matter in respect of the welfare provisions in the Bill. Amendment 57AC provides that a statement should be published on what exactly the Scottish Government have spent the £200 million on which, under the fiscal framework, is being provided to them as a one-off payment to implement the powers, and the £66 million per year being given to them to support the additional powers being provided to them. Amendment 68, on which, in the absence of an indication from the Minister that he is prepared to accept it, I intend to test the opinion of the House, simply states:

“None of sections 1 to 68 may come into force until … the Secretary of State has laid before each House of Parliament a fiscal framework setting out the arrangements and institutions underpinning the tax and spending powers included”,

and that,

“the framework has been approved by resolution of each House of Parliament”.

First, I thank my noble friend for the courteous and helpful way in which he has supported us in trying to do our job in this place, which is to scrutinise the fiscal framework. I know of the difficulties that have been caused by the lack of agreement between the Government and the Scottish Government on these matters, but I have to say that this is fundamental to the Bill, and it seems to me that the fiscal framework should be approved by both Houses of Parliament.

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I found myself spluttering over my WheetyBangs when I was having breakfast yesterday reading the Sunday Times—it was probably only in the Scottish edition. Mr Jim Gallagher was a very distinguished Scottish Office civil servant indeed. I think I am right in saying that he was private secretary to my noble friend Lord Lang and, previously, Sir Malcolm Rifkind, and went on to be in charge of the Constitution Unit in the Scottish Office, and he is held in high regard by people on all sides of this House. I was very surprised to read his verdict in the Sunday Times, which I shall share with the House. He said:

“The compromise the Scottish government made is that the deal is not eternal. It will be subject to review. The compromise the Treasury made is that they handed over the money … The Treasury gave the Scottish government a deal it couldn’t turn down. How it will explain this to English MPs I have no idea, but that is George Osborne’s problem. From a purely Scottish perspective, you have all the advantages of tax devolution and very few of the risks”.

In the same article, the Sunday Times reported that, “According to well-placed Westminster sources, the deal between the Scottish and UK Ministers was struck amid Tory fears that sticking with the Treasury offer that could have left Scotland £3 billion worse off over a decade would have hurt David Cameron’s chances of winning the June EU referendum”. It strikes me as extraordinary that something as important as the future financing arrangements for the whole of the United Kingdom should be decided in this way and, indeed, that the agreement that has been struck is so unfair to other parts of the United Kingdom. We are talking in the Scotland Bill about trying to provide a permanent and stable arrangement for the future governance and funding of the United Kingdom.

If I may be permitted to make one political point, it is extraordinary, is it not, that in less than a month, had the Scottish people not voted by an overwhelming majority to reject independence, we would be experiencing Scottish independence day, which was set by the former first Minister, Alex Salmond, as 24 March 2016 What a mess we would be in with the oil price of $31. There would be a hole of billions of pounds in the Scottish Budget arising from the loss of oil revenues and other disastrous consequences. Fortunately, we in Scotland are part of the United Kingdom and have the security of the United Kingdom around us.

Therefore, I find it quite extraordinary that in the fiscal framework, the Government have agreed to give the Scottish Government £200 million in a one-off payment to meet the administrative costs of the additional powers contained in the Bill before us. Two hundred million pounds was what the First Minister was telling us throughout the independence campaign for the referendum would be the entire costs of setting up an independent Scotland. It is exactly the same figure: £200 million. Yet they are getting £200 million for taking on responsibility for the powers included in the Bill. I have no idea how that figure was arrived at, but as a taxpayer, I would like to know how it is spent, and one of my amendments refers to the fact that there should be an account for that.

In addition, under the fiscal framework, they are being given an extra £65 million every year, on a continuing basis, to administer the new powers. Again,

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one wonders why that is necessary, how the figure was reached and whether there will be any accountability for spending it. As I indicated at the time of the Statement, the First Minister appears to have been bought and sold for English gold. Those who remember their Burns will know that it refers to a parcel of rogues in the nation, and the SNP is a parcel of rogues in the nation. They told the country that there would be a one-off referendum and that it could all be done for £200 million, but now in secret they have been passing the begging bowl to my noble friend and requiring huge sums of extra money on the basis that it is needed to survive in the union. Thank goodness they did not get their way, break up the United Kingdom and leave Scotland exposed to the financial difficulties—now apparent even to them—that would have resulted.

This fiscal framework makes a fundamental error. I served with my noble friend Lord Lang and others on the committee established by the late Lord Barnett to deal with what he regarded as a great embarrassment—that his name was associated with a formula that he believed was unfair to the rest of the United Kingdom, and to Wales in particular. We looked at the Barnett formula and concluded unanimously, in a report that stands the test of time, that we should have a system that treated all parts of the United Kingdom fairly, was based on needs and had transitional arrangements for the implementation of the changes for losers and winners. That has been ignored by Governments for political reasons—I understand that—by Governments on my own side and on the other side. I understand the political reasons why it has been ignored, but I cannot understand why, in this fiscal framework, it has been agreed that the Scottish Government will have a veto on any change to the Barnett formula in future.

6.30 pm

The arrangements under the fiscal framework say that, after five years of this deal, there will be an independent review. We are not told how independent it will be, how the review will be established or what its terms of reference are—and perhaps my noble friend could explain that in responding to these amendments. Then the recommendations will be subject to the agreement of both Governments. That is Whitehall-speak for saying that the Scottish Government will have a veto. So there is no ability, if the agreement is carried forward, to get rid of the Barnett formula and have a formula that is fair to all parts of the United Kingdom, because the Scottish Government will have a veto. As the Barnett formula is so generous to Scotland, I would be very surprised indeed if the Scottish Government are keen on moving away from Barnett, for that reason.

For those who have not had an opportunity to study the fiscal framework as it was set out, I got my copy at nine o’clock on Friday from the Vote Office. I was most grateful to the officials from the Treasury who gave me a briefing on Friday morning and to the officials and my right honourable friend Greg Hands, who gave a briefing today at lunchtime to take us through the fiscal framework. I have to say that the Statement, which we had on Wednesday, seemed to consist of, “Haven’t we all done terribly well? We’ll tell you what the details are shortly”. The document that has been circulated leaves a whole range of unanswered

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questions. On how the mechanism will operate, the relevant paragraph is this—and I shall read it to noble Lords so that they are all absolutely clear how this funding is going to work. Paragraph 17 says:

“For a transitional period covering the next Scottish Parliament, the Governments have agreed that the block grant adjustment for tax should be effected by using the Comparable Model (Scotland’s share), whilst achieving the outcome delivered by the Indexed Per Capita (IPC) method for tax and welfare. This will ensure that the Scottish Government’s overall level of funding will be unaffected if Scotland’s population grows differently from the rest of the UK”.

That is very clear, is it not—easily understood? It means that, had those arrangements been in place since 1999, when the Scottish Parliament was established, Scotland would have got the Barnett consequences, 20% more per head relative to England, plus an additional £6 billion. It is more generous in its impact on Scotland—or would have been, looking back.

Secondly, if I go back to Second Reading in the House of Commons and listen to the reasons put forward for this whole adventure, I hear that it was important that the Scottish Parliament should be responsible for raising the funds that it spent. That was the argument—and with that would come accountability. But what we have in this fiscal framework is a bit of an adjustment, because the Scottish Government will be protected from population changes, so if the population falls relative to that of England—and the additional amount under Barnett is population-related—they will be protected and the English taxpayer will bail them out.

Throughout the Statement and the Government’s comments publicly on this matter, they have talked about having a system of funding that is fair to all taxpayers, in England, Wales and Northern Ireland as well as Scotland. But they must know that fairness is compromised by this arrangement, first, because the income tax yield in Scotland, as the document makes clear in paragraph 18, is less, at 87.7%. So the agreement compensates Scotland for having a lower tax capacity than the rest of the United Kingdom. While they will effect increases under the Barnett formula, because the rest of the UK revenue is going up, the reductions in the block grant will result from lower tax revenues. It is estimated that that will provide Scotland with an extra £350 million in 2020-21. The adjustments to the population are likely to remain an additional benefit.

None of us has had any time to consider this matter properly. I am most grateful to Professor David Bell from the University of Stirling, who is the adviser to the Economic Affairs Committee, which did the report on the fiscal framework. Many noble Lords will know of him; as far as I know, his politics are pretty neutral and he is very distinguished. This is what he has to say about the fiscal framework:

“Scotland’s block grant will be calculated using the ‘Comparable Model’ … This was proposed by Greg Hands in his letter to the Scottish Affairs Committee of February 12, 2016 … The logic behind it is that Scotland’s BGA is increased by its population share of tax increases in”,

the rest of the UK,

“adjusted for Scotland’s lower per capita income tax revenues. (Income tax revenue per person in Scotland is 87.7% of that in the UK as a whole). The adjustment for Scotland’s lower tax capacity implies that the ‘taxpayer fairness’ criterion will not be met by the agreement. There will continue to be a net transfer from”,

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the rest of the UK,

“to Scotland when an increase in rUK tax revenues is allocated to increased spending on ‘comparable programs’ with Barnett consequentials for Scotland. This is because Scotland will receive a payment through the Barnett formula that ultimately depends on rUK’s higher per capita tax revenues, but the reduction in its block grant will result from Scotland’s lower per capita tax revenues”.

I could go on—the advice is contained on the website of the Economic Affairs Committee, and I urge everyone who is interested in this to look at it. Basically, what is happening here is a deal has been struck that is not fair to the whole of the United Kingdom; it has been done in secret, and there has been no opportunity for both Houses to discuss it—and there are some anomalies. For example, paragraph 16 says:

“For welfare, and all other spending unless stated otherwise in this agreement, the chosen method will be the Barnett formula”.

If we look at the welfare budget as determined by the Barnett formula—just to show that I am being even-handed—if that had applied from 1997 to 2014, welfare spending in Scotland would be £147 million less. But paragraph 17, which I read earlier, refers to,

“the outcome delivered by the Indexed Per Capita … method for tax and welfare”,

which contradicts what it says in paragraph 16. How is welfare going to be funded? Will it be through the Barnett consequences, or will it be adjusted upwards—and, if it is the Barnett consequences, what happens to the gap that would otherwise appear?

I am conscious that time is getting on and that I have been speaking for 18 minutes on these amendments, but there are a number of other issues in this fiscal framework which remain something of a puzzle. Throughout the conduct of this Bill, I have repeatedly asked Ministers, the noble Lord, Lord Smith, and anyone else who might have an opinion how the second no-detriment principle will work. Paragraph 45 states:

“Specifically, where either government makes a policy decision that affects the tax receipts or expenditure of the other, the decision-making government will either reimburse the other if there is an additional cost, or receive a transfer from the other if there is a saving”.

I read that as meaning that if the Government in Scotland cut the airport tax on Edinburgh Airport and Glasgow Airport, as they currently plan to do, and people no longer travel from Manchester Airport, Newcastle Airport or wherever, the Scottish Government should send a cheque to compensate people south of the border for the loss they have incurred.

A Noble Lord: Some hope.

Lord Forsyth of Drumlean: I tend to agree. I want to know how this will be calculated, how it will be enforced and what are the powers to do so.

Then the agreement goes on to make a change from the Smith proposals. Paragraph 46 states:

“These financial consequences of policy decisions have been termed policy spillover effects”.

“No detriment” has now become “policy spillover effects”. Paragraph 47 states:

“The main categories of these can be divided into … Direct effects—these are the financial effects that will directly and mechanically exist as a result of the policy change (before any

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associated change in behaviours); and … Behavioural effects—these are the financial effects that result from people changing behaviour following a policy change”.

I asked the Chief Secretary to the Treasury about this today. The example the noble and learned Lord, Lord Wallace of Tankerness, has used and I have used is from when I was in government. We decided in Scotland not to privatise water, but in England it was privatised and we lost the Barnett consequences of that. Does that mean that under the new arrangement of no detriment, where the Government south of the border decided to have a policy of funding water privately, not through the taxpayer, as a result, a cheque would have to be sent north of the border to compensate them for this policy under the no detriment or policy spillover effect that arose? “Spillover” is actually quite good in the context of water privatisation. Does it mean that? The Chief Secretary looked slightly puzzled and said, “No, of course it doesn’t”. Why does it not? Where does it say that? How is this defined? Nowhere is it defined.

Here we are, at the 11th hour, discussing the fiscal framework. Everyone is rather confused about how it is going to operate. Everyone is wondering how on earth the veto which has been given to the Scottish Government will operate. As I am sure at least one party will come to its senses at some stage and decide that we need a fair system for funding the United Kingdom, what happens if a party is elected on a manifesto which provides for replacing the Barnett formula with one based on needs or some other system and the Scottish Government say, “Hang on a second. We have an agreement that you cannot change it without our consent”? Then where are we? I have no doubt that the Minister will say that he believes that people will be guided by the results of an independent review. If he says that, I will say to him that he has not seen how the Scottish Government operate or how the Scottish nationalists operate. That is not their way of doing things, as I am sure many Members of this House would agree.

My simple request to the Minister is that he accepts the sunrise amendment which gives an undertaking that this House and, more importantly, the elected House—the House of Commons—have an opportunity to discuss this fiscal framework and to consider the impact on Northern Ireland, Wales, the north of England and elsewhere. It is far reaching and fundamental, and it is not acceptable that this should be agreed in secret and given out in dribs and drabs with little time for the House to consider it or for people outside to consider it and advise Members of both Houses on the way forward. I beg to move.

6.45 pm

The Deputy Speaker (Lord Haskel) (Lab): My Lords, I have briefly to interrupt to give the following correction. The result of Division No. 1 on the Welfare Reform and Work Bill was announced incorrectly as Contents 289, Not Contents 219. The correct figures were Contents 286, Not Contents 219.

Lord Wallace of Tankerness: My Lords, I shall speak to the amendment in this group in the name of my noble friend Lord Stephen and myself. I am sure

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the House is grateful to the noble Lord, Lord Forsyth, for raising this important debate on the fiscal framework. It is long awaited. Although we had a very good debate in Committee, it was a bit like “Hamlet” without the Prince of Denmark; it was about the fiscal framework without the actual fiscal framework agreement. At least we can now have a debate on this important part of the architecture of Scottish governance following the Smith commission’s proposals in the light of the agreement which was published at the end of last week.

The amendment which my noble friend and I have tabled is to address the mechanism for the review of the fiscal framework. The Smith commission said that it was important that there was a review, and in Committee we moved an amendment to establish a review. We have tried to revise that amendment in the light of the agreement as we now see it.

When the Minister replies, it would be helpful if he could give us some indication of how the Government understand the review and the mechanisms. The Chief Secretary to the Treasury, Mr Greg Hands, was right to point out that there is a distinction between the review and dispute resolution. I am rather intrigued by the fact that in the agreement the review is referred to in paragraphs 20 to 23 and again in paragraphs 111 to 113, some of which appears repetitious and almost as if there is something uncertain about it. It is as if the more often you say it, it might just happen. Perhaps the Minister will tell us if there is anything we should read into the fact that it was felt necessary to repeat some of the proposals with regard to the review at a later stage.

The First Minister of Scotland in her Statement to the Scottish Parliament last week seemed to indicate—I sat and listened to it—that there could be a veto over the Scottish Government accepting anything which was not to their advantage following the review. Indeed, paragraph 112 states:

“It will be open to either government to propose changes to the fiscal framework from”,

the point of the review or the end of 2021, and:

“The fiscal framework does not include or assume the method for adjusting the block grant beyond the transitional period”.

The Chief Secretary seemed to say today that it was “our model”, which I assume to mean Her Majesty’s Treasury’s model, whereas the transition period was the Scottish Government’s transition period. So—this is a question which the noble Lord, Lord McConnell of Glenscorrodale, asked last week when the noble Lord repeated the Statement—what is the default position? Is the default position the Treasury model, or is there in fact a veto? What happens if there is not agreement following a review? One was left with the impression that it is a bit, “it’ll be all right on the night”. Those of us who have seen the negotiations with the Scottish Government know that it will not necessarily be all right on the night. They may well take things up to the brink.

Under Section 64 of the Scotland Act 1998, the Scottish Consolidated Fund is established, and subsection (2) states that the Secretary of State shall pay sums into the Consolidated Fund, but the sums are not predicated by any agreement or formula, and certainly are not predicated by the statute. I imagine

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that if all else failed, the ball would be at the feet of the Secretary of State, who has to pay money into the Scottish Consolidated Fund. Perhaps the Minister could indicate how, in the event of impasse and of no agreement being reached, the UK Government, particularly Her Majesty’s Treasury, see that sum to be paid into the Scottish Consolidated Fund being arrived at, given that it is actually the Secretary of State’s decision and, according to statute, is not in any way fettered. It is important that we get some clarity about what should happen.

Lord Forsyth of Drumlean: Is it not clear throughout? Paragraph 52, regarding a dispute over the no-detriment principle, says:

“Without a joint agreement, no transfer or decision will be made”,

while paragraph 103, on dispute resolution, says:

“If no agreement can be reached”,

between the Governments,

“then the dispute falls—there would be no specific outcome from the dispute and so no fiscal transfer between the Governments”.

Lord Wallace of Tankerness: My Lords, I noted earlier, with regard to paragraph 103, that it surely cannot be conceivable that the funding would dry up. The House is therefore owed an explanation as to precisely what lies behind paragraphs 52 and 103 of this agreement.

The proposal that my noble friend and I have tabled is that there should be a review, which should be informed by a commission. The commission should be three persons from the Office for Budget Responsibility advisory panel, to be appointed by the OBR’s chairman, therefore taking it even more than arm’s length away from the Government, and that there also should be membership of a Scottish professional body—it could be the Institute of Chartered Accountants of Scotland or CIPFA—to be agreed by Her Majesty’s Treasury and Scottish Ministers, whose members should be appointed by the senior office-bearer of that body. Again, that is an attempt to put it at one remove from the Scottish Government. It would be a genuinely independent body that would inform the review about how the fiscal framework had worked.

We go further than that by saying that no person appointed to the commission should have been a member of any political party for five years prior to accepting membership. Consistent with the fiscal framework, the report should be laid no later than 30 November 2021 and submitted to both Houses of this Parliament, the Scottish Parliament, the Chancellor of the Exchequer and Scottish Ministers.

All that we find out in the fiscal framework agreement is that the arrangements for review, including how independent they will be, should be left to the Joint Exchequer Committee. We may feel that in order to be reassured, it is not unreasonable for Parliament to set some parameters for how the independence of that review body will be established. The amendment is therefore intended to probe just what Ministers have in mind with regard to the working out of that review, and indeed to answer some of the questions about what happens in the event of a failure to reach agreement

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on the review. There are important questions to be answered, and I look forward to the response of the Minister.

I am sorry, is the noble and learned Lord, Lord Hope, waiting to intervene or to ask a question?

Lord Hope of Craighead (CB): I was hoping to follow the noble and learned Lord.

Lord Wallace of Tankerness: That is fine. I hope that the Minister will be able to fill in the gaps when he comes to reply to this important debate.

Lord Hope of Craighead: My Lords, I would like to pursue the points made by the noble Lord, Lord Forsyth, and the noble and learned Lord, Lord Wallace of Tankerness, about dispute resolution. As a lawyer, one tends to look to the dispute resolution bits, because they are the things that matter to us, to see that there is actually an effective mechanism for that, rather than at the fiscal parts, which I am content to leave to others.

Would the Minister care to look at paragraph 46, which the noble Lord, Lord Forsyth, identified? It contains the definition of “policy spillover effects”, which is where either Government make a policy decision that affects the tax receipts or expenditure of the other. If that happens then there is a spillover and a spillover effect. In paragraph 98 we enter the dispute resolution system, which applies to, among other things,

“All disputes arising from the consideration of direct and behavioural spillover effects, including both gains and losses”.

So this particular group of paragraphs deals with the resolution of the dispute. We can see how it works: first, if it cannot be settled at working level then it becomes a disagreement and is referred to senior officers at director level or above, including consideration at Joint Exchequer Committee official level too. If that does not work, the matter becomes not a disagreement but a formal dispute. It is then referred to Ministers to be raised and discussed at a meeting of the JEC.

We then move to paragraph 100, and so far we are working down the line of complete impasse:

“If … there is a dispute that cannot be resolved between Ministers, there is an automatic pause placed on the disputed finances, i.e. no decisions … can be taken by either government in relation to the disputed amount until the dispute is resolved”.

That seems a strange system, given that revenues either way are crucial to the running of the country. To have a dispute simply frozen in that way is very strange. The formula goes on a little further, because if that happens then the Governments are to draw up a statement of fact on the dispute, and technical input may be sought to ensure that the facts are correctly stated. It will then be considered by both Governments, who commit to using their best endeavours to resolve the dispute.

However, the agreement says in paragraph 103:

“If no agreement can be reached then the dispute”,

fails—or rather “falls”—and, as the noble Lord, Lord Forsyth, pointed out,

“there would be no specific outcome from the dispute and so no fiscal transfer between the Governments”.

What puzzles me further is paragraph 104, and maybe the Minister can help here:

“If either Government wishes to pursue the dispute further”—

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let us imagine that the UK Government are anxious to do that—

“it can be referred to the ‘Protocol on the Resolution and Avoidance of Disputes’ attached to the Memorandum of Understanding between the UK government and the devolved administrations”.

I do not know where the memorandum is—it is not in the Printed Paper Office, as far as I know—and it is also said to be subject to review. So there is a cloud of uncertainty over exactly what paragraph 104 means and how fixed it is as a system for resolving these disputes.

If one is entering an area like this where it is plain that there will be political arguments on either side that may lead to a complete impasse, it is crucial that there should be a system for the resolution of disputes; otherwise one is left with a situation where no transfer takes place although one side is calling for it and the other is not. How can the system be left in that situation, hanging in the air without anyone to decide it? Can the Minister inform the House about that? It has a direct bearing on the amendment by the noble Lord, Lord Forsyth.

Lord Lang of Monkton (Con): My Lords, we all slightly feeling our way in the dark in this debate, and that is very unfortunate because the fiscal framework is crucial to the future not just of the Government of Scotland but of the Government of the United Kingdom, and indeed to the stability of the UK and holding it together in the face of the assault coming from the Scottish nationalist Government in Scotland.

One would not have thought that we were feeling our way in the dark, though, from the absolutely masterly exposition by my noble friend Lord Forsyth of Drumlean, who laid out the issues with great clarity and considerable force and raised a number of very important points to which we have not yet had an answer. I share his view on almost everything that he said, and he has helped me to share it more clearly than I did before.

I shall focus on one fairly simple issue—as I understand it, although here, too, we are in the dark—namely, the way in which the implementation of the financial assistance that is to be given to the Scottish Government over the next five years on the population issue will be put into force. I should start by saying that, yes, I welcome the fact that a deal has been done because it is a political situation that we also have to consider, as well as the proprieties, the economics and the constitutionality. Having a deal done means that the Bill can come into force and the Scottish Government can be put in the position of becoming accountable to a greater degree for their actions, possibly exposing themselves to the shortcomings of their policies and attitudes.

As I look at it, in the context of the Scottish block and the Barnett formula, there seems to have been a finesse of a somewhat insidious nature and we need to try to get to the bottom of it. I am perhaps thought pedantic because I do not like to hear the whole financial settlement in Scotland referred to as “Barnett”. Barnett is a very small part of it which simply deals with the annual increases that are added to the very substantial Scottish block, and the effect it has on those increases is, by an infinitesimal and unreliable

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amount, to reduce what comes to Scotland from what it otherwise would have been under the old Goschen formula, when the Barnett formula did not exist. I will not bore the House with the reasons why; I could do so but it has never had much impact on people before so I will ask your Lordships to take my word for it.

7 pm

However, I am concerned about the Scottish block, which is not a very creditable basis for funding any country either. It is the sedimentary accumulation of more than a century of separate financial settlements, year after year, plus a lot of in-year adjustments, where Secretaries of State or other pressure groups have secured extra funding for Scotland because of its special circumstances—and there were indeed very special circumstances at certain times in the past. However, once everything has accumulated on to that Scottish block it stays there for ever, and the new baseline embodies all those increases that have accumulated over the years. That is how the 20% overspend has come about, so that Scotland now gets about 20% more per head than England.

The one redeeming feature of the Scottish block is that from the very outset it was population-based. We got a per capita percentage that was the same as the percentage granted in England. Barnett changed that, converting the percentage to a cash figure when it came to Scotland because a percentage on a higher baseline—here I am explaining how it works after all—would deliver a higher cash figure in Scotland than the same percentage would deliver in England. Clearly that was unfair, and Lord Barnett, as the chief secretary under pressure, managed to secure a deal that gave Scotland slightly less than it would have had otherwise although he still gave it a credible figure because it was directly comparable in cash terms with what was being given to England.

However, that simple and straightforward population formula has been destroyed or very severely damaged by the deal that has taken place. The one buttress of the integrity of the block is abandoned in favour of a deal to compensate Scotland for imaginary, non-existent people, which is very curious. We recently passed an Act of Parliament concerning individual electoral registration, the purpose of which was to find phantom people and delete them from the registers. Now we seem to be doing that in reverse. Can my noble friend explain to me how that is justified?

I understand that if the UK Government take a decision that affects the revenue stream in Scotland, the doctrine of no detriment will kick in, but populations are not political decisions—they are facts. The population is known, the decline or increases are roughly predictable, and there is no case for a subsidy for demographic risks, which do not flow from government actions. However, since it will bring extra billions of pounds to Scotland over the next five years, that must be a detrimental event for the rest of the United Kingdom. It may be described as “per capita indexation” but in reality it can be justified only as a political bung.

My noble friend the Secretary of State said in another place last week that,

“the sum being delivered to the Scottish Government is exactly the same as would have been delivered under the Barnett formula”.—[

Official Report

, Commons, 24/2/16; col. 306.]

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Setting aside where I differ on the definition of what the Barnett formula does, I simply do not understand how that can happen. If money is being brought to Scotland that would not otherwise have been justified because the population is not what it is pretended to be, how can the rest of the United Kingdom not be disadvantaged by the equivalent of that sum? Anyway, if nothing else, it is at least interesting to note the sudden conversion that this represents of the Scottish National Party to the principle of pooling and sharing. It is a little unfortunate that it did not realise the value of it earlier and in other fields. However, kicking the can down the road, as this deal does, is not a solution to the problem of weaning the Scottish Government off separation.

The Bill was intended to introduce accountability for spending, and this measure undermines that. It was intended to remove the grievance culture but this measure will revive it when the Scottish Government try to enshrine it permanently five years hence—I agree with the noble and learned Lord, Lord Wallace of Tankerness, that there is a lot of vagueness about how that will be handled, and it cannot possibly be to the advantage of good government or democratic accountability. The Bill also perpetuates the dependency culture that constant protection from the consequences of their own actions has enshrined over the years in the devolved Parliament. It may secure the implementation of the Bill, which is desirable, but it does not secure very much else.

Lord Empey: My Lords, I said earlier that I considered the terms of the Smith commission to be effectively a treaty. Nothing I have heard last week or this week has changed my mind on that.

Can the Minister clarify a couple of things? A borrowing power for revenue shortfall is included in the framework. Certainly in Northern Ireland, if we had money left over, we used to be able to roll it over, but that was severely restricted, down to one year. On the point that the noble Lord, Lord Forsyth of Drumlean, made, about the spillovers and the behavioural changes, is that borrowing power designed to deal with the unintended, and perhaps unforeseeable, consequences of behavioural change; for instance, on welfare, which may not have been anticipated—some of it could have been weather-related or there could have been other sorts of issues—and is that borrowing power designed effectively to operate as an insurance policy to keep the wheels going until a review can take place, or are the spillover arrangements effectively an insurance policy against mistakes that are made so that the Scottish Government will not run out of money? What will the borrowing limit be, both for revenue and capital expenditure? Will it be tolerable for capital moneys to be converted and used for revenue? All these things are important, because it has already happened. I understood that there used to be a complete ban on that happening but it has happened, and I wonder where this process is going.

I understand that all the devolved Administrations are now able to borrow from the Treasury through the loans fund. Are there limits on this? The borrowing that occurs in Northern Ireland is becoming very substantial. By the end of the next financial year or

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maybe the year after it could go up to £3 billion, and £700 million of that is to pay off 20,000 workers because they did not take any precautions and start four years ago to gradually run down the number of civil servants that they knew they did not have money for. Their budgets were provided for them by the Treasury in 2010 and they knew about it four years in advance. Now they are borrowing £700 million to make 20,000 people redundant. I understood that the Treasury was very protective of the national cash limits, but it seems to have lost the plot and is now permitting devolved Administrations to borrow, and there do not seem to be any limits.

Lord Forsyth of Drumlean: My understanding is that it is proposed that the Scottish Government will be able to borrow money on the money markets and issue bonds, and will thus have more expensive borrowing than is available to the UK Government, which is another thing that is difficult to understand.

Lord Empey: I can say to the noble Lord that we raised several times with the Treasury the question of issuing bonds for capital projects. Some people in America who wanted to be helpful said that they would be interested in providing resources. However, the Treasury blocked that on the basis that it would have to go on to the national debt because, unless it was ultimately guaranteed by the Treasury, there would be less likelihood of investors coming forward to take over the bonds. Therefore, the national Government would be required to guarantee the debt. I do not know whether the Treasury is no longer concerned about things going on to the national debt but that used to be the big thing that it wanted to ensure was adhered to. Is the situation here that the Scottish Government’s decisions are effectively being insured? If so, I assure the Minister that there will be others knocking on the door for that insurance policy.

Lord MacGregor of Pulham Market (Con): My Lords, I can speak fairly briefly on this occasion because my noble friend Lord Forsyth put the whole case brilliantly and compulsively. I have sympathy with my noble friend the Minister because he has been put in the almost impossible position of having to defend what is, frankly, the indefensible. That is not his fault. I also understand why it has taken so long to reach an agreement on the fiscal framework. It was obviously comprised of many difficult matters, which is precisely why we ought to look at it in much greater detail than we are going to be able to do.

The framework covers a whole range of important matters, which both Houses should be able to look at in detail, yet the other place was not able to do so and we are having the most minimal consideration of it, which is fairly disgraceful. We are not going to be able to go into any detail tonight because we have only just seen the fiscal framework. We were told that we would be able to have a briefing on Friday, but it was postponed until today. We had a briefing at lunchtime today on a whole range of matters, with a lot of criticism and concern being expressed, and those concerns ought to be looked at in both Houses. I stress that, as others have said, this will affect not only Scotland; there are

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huge implications for the rest of the United Kingdom, which I shall mention briefly in a moment.

One point that I want to take up is the Barnett formula. I know that there is a slight difference between my noble friend Lord Lang and me on that but I think that we have come to the same conclusion in the consideration of this Bill, as he explained very clearly. I have always been very unhappy about the Barnett formula. I was on the Finance Bill Committee in the House of Commons when the Barnett formula was first created. I remember it well. It was at the time when the then Chancellor of the Exchequer, Denis Healey, made a sudden departure one lunchtime to beg for loans from the IMF. Poor Lord Barnett had to deal with all that as well as a very long and difficult Finance Bill, which included various things such as the capital transfer tax. In sheer desperation he invented the Barnett formula to get himself out of some real difficulties.

We all know that the late Lord Barnett felt that the formula should have gone long ago. It should have been replaced by a formula based on need, as Select Committees from both Houses have recommended in the past, and that seems to be the fair way to go. I heard what my noble friend said but, whichever way you try to demonstrate that the Barnett formula is based on need, it is not, yet it remains an integral part of the fiscal framework and, as I said, it has substantial implications for the rest of the UK—so obviously the north-east of England but many others parts, as well as Wales. It has implications for East Anglia, where I was an MP for 27 years. I remember that there was considerable concern about some of the implications of the Barnett formula for East Anglia. Many MPs now will have very serious concerns about the way in which the framework has been drawn up and how it affects them.

The concerns over the fiscal framework relate not only to the Barnett formula. I was very grateful to my noble friend and the Chief Secretary, who offered a briefing on the fiscal framework today, but the result of that was that many of us had even more concerns and misgivings than we had had when we went into the room. The borrowing powers aspect of the framework has to be debated in this House, and there are many other examples that we could give.

I understand why the Government want to get the Bill on to the statute book before the Scottish election, and my noble friend Lord Lang referred to some of the political aspects, but it is not our fault that this key part of the Bill has come so late in the proceedings. From my long experience in both Houses—as Leader of the House in the Commons, I was responsible for the legislative programme at one stage—I cannot recall any occasion when one of the most critical parts of a Bill has received only the most cursory examination in this House and none in the other place. I support Amendment 56ZA because I think that it would enable us to carry out that examination.

7.15 pm

Lord Higgins (Con): My Lords, along with Burke, I have always believed fundamentally in representative parliamentary democracy, and therefore I have always

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had severe doubts about referendums. Nothing in the debates that we have had this evening has convinced me otherwise. Indeed, that may turn out to be so in the context of the European Union as well.

The way in which this matter has been handled seems deeply disturbing. A deal is being put forward that is clearly grossly unfair, and I do not think that it would be right for any English Members of Parliament to go along with it. What is absolutely certain is that they ought to have a chance to debate the matter and vote on it, because then they could be held to account for the consequences of the deal which has now been done as a result of statements made during the referendum campaign and as a result of what I can only describe as the “morning after the night before” speech by the Prime Minister.

We have been pushed into a situation where things are being rushed through. There has been no discussion in the other place about the central feature of the deal. We are discussing it only now, on Report, with the dispensation that we can speak more than once and adopt a system of debate close to the Committee stage system, but without having the opportunity for a stand part debate, for example. The whole thing is being rushed through highly unsatisfactorily.

The House should be grateful to my noble friend Lord Forsyth, who has set out the arguments with extraordinary clarity. It ought to be obligatory reading for everyone in the House of Commons, and it is absolutely essential that they should have an opportunity to debate this matter, even at this late stage, so that they can be held accountable for the decision that is reached. I agree with every word that my noble friend said and with all the doubts expressed by every other speaker in this debate, and I very much hope that my noble friend will press his amendment to a Division. If need be, we may have to revert to other aspects of the matter at Third Reading.

We must take this opportunity to give the House of Commons a chance to debate something which is far more important than almost any other issue and of lasting importance, as my noble friend spelled out, in terms of the deal containing a veto relating to reconsideration of the issue in a few years’ time. We really must make sure that the House of Commons has a chance to debate this matter.

Lord Cormack (Con): My Lords, following my noble friend Lord Higgins, I add my support for my noble friend Lord Forsyth. We are in danger of forgetting that this is, as the noble Lord, Lord Empey, said, a treaty between the sovereign Government of the United Kingdom and the Government of Scotland, who, we must recognise, are composed of a party whose sole raison d’être is the destruction of the United Kingdom. That is a perfectly legitimate view to hold, but that is the view it holds. We have here a document that, as my noble friend Lord Higgins has just said, is of enormous, far-reaching significance, and it has to be debated in Parliament in some detail.

In another context, a few weeks ago some of us remarked that Governments are accountable to Parliament and not Parliament to Governments. Here, the Government have come to an agreement and are

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expecting us to more or less put it through on the nod. It has very far-reaching implications. My noble friends Lord Lang and Lord MacGregor of Pulham Market have both made powerful, brief speeches indicating how vital it is that this matter be properly discussed.

It is the fault of no one in this Chamber that we have had to wait so late for this document. We have not had the chance properly to analyse it. It is full of extraordinarily vague statements and, at the end of the day, a review which will be entirely at the whim of the Government of Scotland, rather than the Government of the United Kingdom. I believe passionately in the United Kingdom, and equally passionately in parliamentary democracy. Neither is being served by debating this far-reaching document in such an unsatisfactory manner. I very much hope that, even at this late stage, my noble friend the Minister will acknowledge that each House of Parliament should have the opportunity to debate this document at some length. At the end of the day, it will probably be endorsed. But then, as my noble friend Lord MacGregor said, it will have been endorsed by Parliament and we will have a degree of responsibility for it.

This is a mess. It is a wholly unsatisfactory situation. We are deeply indebted to my noble friend Lord Forsyth for the calm and analytical way in which he spoke in moving his amendment, which deserves considerable sympathy and support.

Lord McCluskey (CB): My Amendment 67A is in a different group but, with respect, because it deals with the Barnett formula it ought to be considered at this stage. It raises the general question of the formula, as did its predecessor, which contained a reference to the Government’s obligation to publish the Scottish fiscal framework.

The Barnett formula runs through the whole document—rather like dry rot in a south Edinburgh house I used to live in. It cost an awful lot to put that right, and I dare say it will cost an awful lot to get this right.

The noble Lord, Lord Forsyth, referred to getting the briefing. I saw the document on Friday, and I came to today’s very useful briefing with, like President Wilson, 14 points. However, I did not dare raise the 14 points because many people were anxious to speak and we had very limited time. I do not propose to raise them all now, and I am happy to note that many have been dealt with by others, but there remains one rather important one.

This Scottish fiscal framework is recognised by everyone as being fundamental to the whole Bill. The entire Bill rests upon the Smith agreement, which was reached in nine weeks. It took nine months to frame the fiscal framework. The Smith agreement was reached by 10 elected Scottish politicians—Members of the Scottish Parliament. They included representatives of the Labour Party, the Liberal party and the Greens, none of whom, as far as I can see, have been consulted at all about the Scottish fiscal framework, and certainly not in the formal consultations. It is a very odd situation. This document has been produced between the two Governments, after nine months, and it contains things that are simply not in the Smith agreement.

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For example, we talk about “no detriment”. I never knew what it meant, and I am happy to say that I was not alone in my failure to understand. The committee of the House of Lords that looked at it could not understand the second detriment, and even the noble Lord, Lord Forsyth, for whom one has the highest regard, was not able to understand it. He asked in vain if anybody would explain it to him, and we are still waiting for an explanation. Now, the paper has come up with something that was not considered by the Labour Party, the Liberals or the Greens: division of detriment into direct detriment and behavioural detriment. Last week, we were told about not behavioural detriment, but indirect detriment. All those concepts have come up to fill out the notion of no detriment, which no one has yet been able to explain.

I want to pick up one or two of the points that have been made, just to show my support for the approach of the noble Lord, Lord Forsyth. Paragraph 7 of the document states that,

“the … block grant will continue to be determined via the operation of the Barnett Formula”.

That seems to fly in the face of what the noble Lord, Lord Lang, said, but that is what the document says. House of Lords paper No. 55, A Fracturing Union?, states:

“The Formula contains no mechanism to correct any unintended consequences being built permanently into the baseline”.

That surely means that Scotland continues to get the benefit of built-in unintended consequences for at least five years, and perhaps in perpetuity, given the remarks made by others about the arrangements at the end of the five years.

The document continues:

“For welfare … and … other spending”—

nothing to do with the Barnett formula, at the moment—

“the chosen method will be the Barnett formula”.

Does that mean that, in respect of the devolution of welfare payments, the block grant will be adjusted to give Scotland the benefit of the unintended consequences of the operation of the Barnett formula?

We talk about the unintended consequences, but it is entirely foreseeable—

Lord Higgins: It is intended.

Lord McCluskey: Forgive me—yes. The document that talks about the unintended consequences is the House of Lords document.

One thing is foreseeable: that the Scottish population will decline in relation to the UK population because, as the noble Lord, Lord McFall, pointed out, that has been the position for hundreds of years. In law, or certain branches of it, if you can foresee the consequences of your actions, you are deemed to intend them.

I do not want to go through all my 14 points, but I have the greatest difficulty in understanding paragraphs 15 to 19. I do not understand what is meant by “Income tax, 87.7%”—per cent of what? These things are rather difficult, and they are not explained. Not being an accountant, I am unable to follow entirely what is going on.

I repeat the point that was made a little earlier: if Scotland’s population declines in relation to that of the rest of the UK, the funding will not go down

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under this document. Funding per capita is bound to rise; that is just inevitable. So I do not see how we can have “no detriment” to Scotland without causing detriment to other taxpayers throughout the United Kingdom.

On a point of detail that I hope will be echoed by my noble and learned friend Lord Hope of Craighead, the courts and tribunals are dealt with in paragraph 28. There is no agreement, apparently, as to who is to pay for the Supreme Court. I am not sure whether it is regarded as a court in Scotland or a court in the United Kingdom. That is a small detail.

I have little more to say. However, I do not understand how the £200 million figure and others related to it can possibly be justified. They are certainly not justified within the document.

My other amendment relating to this issue concerned the independent scrutiny of these matters in Scotland. However, this is now going to be dealt with by a government amendment and I give notice that I will not seek to move Amendment 67.

7.30 pm

Lord Hope of Craighead: My Lords, in view of the difficulties to which the noble and learned Lord has drawn our attention, does he agree that clarity and dispute resolution is absolutely crucial? This issue is ripe with areas that will give rise to dispute of various kinds and it cannot be left in a position where there is no mechanism for deciding them.

Lord McCluskey: My Lords, that was my 14th point. My notes state that the arrangements for resolution of these disputes read like the draft of a script for a BBC drama that would put “War and Peace” to shame.

Lord Campbell of Pittenweem (LD): My Lords, I have been provoked to make a contribution arising out of the nature of the debate. I hope it is not a question of piling Pelion upon Ossa for yet another lawyer to offer what may be an obstacle. The right of judicial review may apply in circumstances where either of the two institutions makes a decision that does not pass the test of reasonableness. If there were such an application for judicial review in relation either to the conclusions or to the implementation of the conclusions of this agreement, that would certainly bring the validity of the agreement under considerable scrutiny.

Others have referred to the imperfect nature of dispute resolution. In the worst case the Supreme Court, which has just been referred to, could find itself engaged in these matters. That is more akin, of course, to a Supreme Court in the United States rather than the one we consider here. Therefore, there might be fundamental constitutional implications and unintended consequences from what is proposed.

The Earl of Kinnoull (CB): My Lords, I want to come in on a similar theme and echo the earlier words of the noble and learned Lord, Lord Hope of Craighead. At roughly one o’clock last Monday my email system received a helpful letter from the noble Lord, Lord Dunlop. I thank both Ministers, who have been unfailingly courteous and very helpful in these extraordinary

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circumstances. That was said earlier and I wish to say it as well. The letter I received at one o’clock on 22 February was extremely complimentary about the negotiating position of the Government. It enclosed a letter to Pete Wishart. Paragraph 3 of that letter said:

“The UK government agrees with the Committee that the Indexed Per Capita … model would ‘breach the second no detriment principle, that of taxpayer fairness’. This model would see Scotland benefitting from an ever-increasing share of income tax from the rest of UK, irrespective of the Scottish Government’s policy decisions or relative economic performance”.

That is clear.

The following day—less than 24 hours later—we were told that the fiscal framework had been agreed. Paragraph 17 of that states:

“For a transitional period covering the next Scottish Parliament, the Governments have agreed that the block grant adjustment for tax should be effected by using the Comparable Model (Scotland’s share)”—

that sounds okay—

“whilst achieving the outcome delivered by the Indexed Per Capita … method for tax and welfare. This will ensure that the Scottish Government’s overall level of funding will be unaffected if Scotland’s population grows differently from the rest of the UK”.

I know this point has already been put to the Minister but I put it forcefully again and ask whether those two paragraphs can be reconciled clearly for the House so that we can understand what happened. I suspect that, quite simply, the white flag was run up to conclude negotiations for political expediency.

I now turn to the review clause and to the point made by the noble and learned Lord, Lord Hope. Paragraph 23 states:

“The two governments will jointly agree the method as part of the review. The method adopted will deliver results consistent with the Smith commission’s recommendations, including the principles of no detriment, taxpayer fairness and economic responsibility”.

That means essentially that all one has managed to do is to kick the hand grenade six years down the line. It will blow up and there will be a terrible constitutional crisis in Britain. I agree with the noble Lord, Lord Campbell of Pittenweem, and other noble Lords that we need to head this off at the pass. I urge the Minister and the Government to do something about this issue before the Bill goes on to the statute book.

Lord Kerr of Kinlochard (CB): My Lords, I, too, am very concerned about the review provisions. The noble Lord, Lord MacGregor, was absolutely right in what he said about the Barnett formula and I agree with every word. Of course it should be needs based. However, I fear that that pass is sold. It was sold in the vow; it was sold before Smith even started. It is a great mistake and very damaging but we are where we are.

I am struck by the same point that the noble Earl addressed on paragraph 17. We are saying there that in the fiscal framework talks both parties have agreed that the right block grant annual indexation mechanism should be the comparable model, but they have agreed that it will not be used up to 2021; the wrong one will be used. Then comes the review, with no terms of reference set out, and the decision-making machinery in the review is that both Governments have to agree. As the French say, rien ne dure plus que le provisoire—nothing lasts longer than the temporary. I am afraid

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that the can is being kicked down the road not only until 2021 but as far as the eye can see. That is a serious mistake.

I agree with the noble and learned Lord, Lord Hope, on the dispute settlement mechanism, which, on the face of it, simply does not make sense—ending up with, “if they do not agree there will be no fiscal transfer”. What is that? Is it a nuclear weapon in the hands of the Government so that the whole thing stops? Is it a plausible nuclear weapon? Is it a credible deterrent? I do not think so.

However, we are where we are. I greatly sympathise with the noble Lord, Lord Dunlop, who handles these matters very well, but what are we expecting him to do? Are we expecting him to tell us tonight, “Okay, we will change the fiscal framework because the House of Lords do not like it”? I do not think he can quite do that, though his skills are legendary. However, the noble Lord, Lord Forsyth, may have the answer in Amendment 68—not the amendment to which the noble Lord, Lord Higgins, drew attention—which suggests that it would be a good idea that both Houses of Parliament should have a chance to have a serious discussion about the fiscal framework.

As a Scotsman, I admit that I am torn. When Mr Hogg passed the ball successfully in the last minute against the Italians and the Scots finally won a game, I was very pleased. It looks as if Mr Swinney is the Hogg of this particular match. There are consequences for the United Kingdom, for Northern Ireland, for Wales and for the north of England, so the UK Parliament should address the fiscal framework before the Scotland Bill goes on to the statute book. If the noble Lord, Lord Forsyth, were to press Amendment 68, I would be inclined to go with it.

The Earl of Caithness (Con): My Lords, we are in a mess. It is a very sad occasion when you get a situation like this where the pass has been sold. What is most interesting about the debate is the number of Scots who are questioning this because it affects adversely the rest of the United Kingdom, and I add my name to that list. I have never before attended a debate in this House, in the many years that I have been here, which has involved so many Scots who are all on the same side against an agreement that is beneficial to Scotland. Let us make it absolutely clear: Scotland had a very good deal before the present devolution agreement and it now has an even better deal. It will rank as one of the great victories that the Scots have achieved over the English Government. It is the UK Government in this case, but as far as the Scots are concerned, it is the English Government.

At the meeting this afternoon my noble friend Lord Dunlop said that this is a significant agreement which provides the opportunity to end the blame game. Actually, nothing could be further from the truth. This will not end the blame game—the blame game will continue. All of us who have been brought up in Scotland know full well that whatever the UK Government concede to the Scots Government, particularly the Scots nationalist Government, it will never be enough. The blame will continue.

We have an interim agreement but a permanent agreement. The interim agreement has handed over

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the grenade, as the noble Earl, Lord Kinnoull, said, to go off five years or five and a half years down the road. No one is going to want to handle that grenade, and as the noble Lord, Lord Kerr of Kinlochard, said, it will be passed on again. So we have a false but permanent agreement which is of huge detriment to the rest of the United Kingdom.

Lord McCluskey: Perhaps the noble Earl will permit me to ask him a brief question arising out of what he has said. If those of us who reside in Scotland are going to benefit so much, as we all think we are, should we be declaring an interest in speaking in this debate?

The Earl of Caithness: My Lords, having recently moved from Scotland to London, I will leave that to the noble and learned Lord, but I would certainly declare an interest—not that the Scottish Government in Edinburgh are remotely concerned with what happens in Caithness; they are much more concerned with the central belt. I do not think that Caithness is going to benefit very much.

I raised at the meeting hosted by my noble friend this afternoon the question of the tangential consequences of the no-detriment principle. It was quite clear that the Chief Secretary thought that this was a grey area. Let us take the example mentioned earlier by my noble friend Lord Forsyth and myself, of air passenger duty and the Edinburgh-Glasgow axis against the Manchester-Newcastle axis. If consequences flow from that, they are going to be very hard to prove, and, quite frankly, as far as I could determine, the Chief Secretary was not terribly interested in them. But if they can be proved by one side, we then get into the question of the resolution mechanism. The lawyers in this House have clearly shredded the mechanism that is before us, so we are now in an even worse situation in that we have a mechanism that is not going to work satisfactorily from the legal point of view; that will be difficult to implement in the first place; and that could be highly prejudicial to the north of England and other areas in the rest of the United Kingdom.

I have some sympathy with my noble friend on the Front Bench. I have been in his position when the whole House was against me and the only people on my side were those who were sitting to my right and to my left. That is the situation today. However, I would ask him to take this away and try to implement something of what my noble friend Lord Forsyth has requested. Of course this has to be a political deal in the end, but it is one that the United Kingdom Government have lost and the Scottish Government have won.

7.45 pm

Baroness McIntosh of Pickering (Con): My Lords, I have a great deal of sympathy with the arguments put forward by my noble friend Lord Forsyth, as I do for those put by my noble friend Lord Caithness as regards the cross-border implications. As a Scot by birth and resident in the north of England for the past 18 to 20 years, the air passenger duty alone has enormous implications; those points have been well made.

The noble Lord, Lord Kerr, asked: what can we ask the Ministers on the Front Bench to do? They have been immensely helpful and have been bending over

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backwards to answer many of our queries. But to have a Statement and a debate last Wednesday on a document that was available only on the Thursday certainly posed great difficulties for those of us who have legitimate questions to ask. We had a briefing earlier today on the question of fiscal scrutiny. I am a newcomer to the Chamber, but I believe that the main thing that your Lordships’ House does extremely well is to scrutinise the legislation that comes before us. I believe that it would be hugely remiss of this Chamber not to scrutinise the fiscal framework, which as I say has been put before the House only in the past week.

We are being asked to take it on trust that the Scottish Government will table an amendment that will allow the Office for Budget Responsibility to have some force in this process in the Scottish Parliament. But what if that amendment is not forthcoming? The present complexion of the Scottish Parliament and the Select Committees that would normally perform the scrutiny of this and other parts of the Scotland Act, as it will then be, is by and large SNP; they are populated by a large majority of Members of the Government from that party. I cannot believe that the scrutiny will actually take place in the Scottish Parliament to the extent that we would wish to see.

I have some sympathy with Amendment 56ZA for the simple reason that we would be failing in our duties if we did not subject the fiscal framework and other parts of the Bill to scrutiny by your Lordships’ House. The noble Lord, Lord Kerr, asked what we are asking Ministers to do. I do not think that we wish to delay. It would not be in the interests of your Lordships’ House or of Parliament to delay the adoption of this Bill, but we owe it to the people of Scotland and the people of the United Kingdom to scrutinise the fiscal framework and those remaining parts of the Bill of which we have not previously had sight.

Lord Turnbull (CB): My Lords, after long negotiations we have arrived at an outcome that was pretty predictable. Scotland has taken the approach of “What we have we hold” and has very largely succeeded in that. The UK Government have followed the philosophy of Mr Wilfred Pickles: “Give ‘em the money, Mabel”. It all takes as the starting point the Barnett formula with all its faults. Reference has been made to the fact that there is no provision for needs. Scotland has a substantially greater GDP per head than Wales and, indeed, all the regions of England except London and the south-east, but its public spending per head is substantially higher. All efforts since 2009 to tackle the concept of needs have foundered.

The other flaw, as described by the noble Lord, Lord Lang, is that this is incremental rather than based on levels. At the end of each spending round there is a calculation of the increase in spending in English departments and a population share is applied to Scotland. The population of Scotland has for many years been growing more slowly, so that share, within the Barnett formula, should gradually decline over time. The problem is that it is adjusted, I believe, with a considerable lag, resulting in Scotland always being overpaid as the population is calculated as being higher than it is. Is a bit like the old payrolls of the print unions before reform.

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It is a bit like PAYE. If you get a tax code from your inspector, and then it turns out at the end of the year that you have not paid enough tax, he does not one but two things: he adjusts the tax code to capture what he thinks will be the right amount of expenditure for the coming year, but he also adds a bit more or takes a bit more off the tax code, to ensure that the past excess was recovered. Of course, in the Barnett formula, that second adjustment never takes place.

I am getting to the important area of lack of clarity. We are told that, on the one hand, there has always been in its 30-odd years an element of applying a population share. The Barnett formula accepted that that would decline over time. Then there is the sentence about protecting Scotland against population risk. There are two interpretations of this, which have very different outcomes. The first is that you do the Barnett formula in the normal way, including the calculation of a population share. Then you come to the BGA—the block grant adjustment—which is on the basis of a per capita change in tax. In other words, a population element that is frozen applies only to the block grant. If it means that the adjustment on the expenditure side has also been frozen, it is not simply perpetuating the Barnett formula as we have known it, it is making it more generous. We need to know which it is. One is what we would always expect to be the outcome of these negotiations, and the other is an outrage. That ought to be explained to us.

One feature of this is that the balance of risks between Scotland and the rest of the United Kingdom has been changed to some degree. Scotland has been set a challenge. If it is to maintain the block grant at the rate that it would have grown had the Barnett formula never been changed, it now has to increase tax per head at least as fast as in the rest of the United Kingdom. That is taking the population out of that bit of it. That is quite a considerable challenge. What I think is happening here is that we are entrenching an existing privilege. It is preserving the unfairness to the other devolved Administrations and the English regions. Maybe we have the prospect that it will not get any worse, but that all depends on the answer to the question about whether the population share on the expenditure side is also being frozen.

A point was made about borrowing. I think the answer is that under an amendment that was originally tabled by my noble friend Lord Kerr, but has now been effectively adopted by the Government, limits will be set. It is recognised that the borrowing of Scotland is part of the borrowing of the United Kingdom. Whether the Government explicitly say it is guaranteed, effectively it is.

My conclusion is that we have been blackmailed by threats of a second referendum if the Smith commission was not implemented in full. We need to lose our fear of the second referendum because it is now apparent that, having been sold a prospectus that Scotland could afford to go it alone with no great detriment to its economic prospects, with oil at $110 per barrel, it cannot do it with oil at $33 a barrel. In effect, it would be voting for bankruptcy. I suspect that a lot of this stuff is bluff and in future negotiations we should not be intimidated by it.

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Lord Hollick (Lab): My Lords, we have arrived at a rather unsatisfactory situation. We were given the fiscal framework at the end of last week. We have seen no worked examples and have had no opportunities to scrutinise the framework in any detail. The Economic Affairs Committee spent some months evaluating all the aspects of the fiscal framework and, in particular, the various methods that could be used to adjust the block grant. None of them was perfect. Indeed, it was extremely difficult and we concluded that to meet both the requirement for fairness with reconciling the Barnett formula and the various elements of the fiscal framework, somebody would lose out.

The provisional conclusion is that the rest of the United Kingdom will lose out. Our specialist adviser, Professor Bell, spent the weekend trying to unpick and understand the fiscal framework. He concluded, based on the fact that although the Government agreed that the comparable method to calculate the annual block grant should be used, that will in fact not be used. Instead, as we have heard from a number of speakers, the per capita method, which ties the reduction in Scotland’s block grant to the rate of growth of per capita tax revenues in the rest of the UK will be used, but it will be adjusted for the rate of population growth in Scotland.

What does that all mean? It means that, either way, Scotland wins. That seems to me to undercut the whole principle of further devolution whereby you have taxes and take responsibility for how they are spent and how the economy grows. Scotland is essentially having its cake and eating it. As far as the impact of choosing not one but two different methods, which can sometimes contradict one another, to settle the block grant, we have a position of great confusion. That position of confusion will apparently last for five years. Our specialist adviser, Professor Bell, calculates that assuming that tax revenue per capita grows at 4% per annum in both Scotland and the rest of the UK over this five-year period, the Scottish block grant will be £280 million per annum larger by 2021, due to the application of the per capita rather than the comparable method. Further, the comparable method will cost the rest of the UK taxpayers £350 million more in 2020-21 than the levels deduction, which is another method of calculating this, would.

In other words, more than £600 million appears to have moved across the table from the rest of the UK to Scotland, so this is a triumph of negotiation by Scotland and congratulations to them. However, the political consequences are grave for those parts of the UK which, under the Barnett formula, already receive less than they would certainly be entitled to on a needs basis. This creates, quite naturally, for the north-east, south-west, East Anglia, and other parts of the UK a very unsatisfactory position and a very strong case for a complete review of how funding is allocated, particularly in England, which we are seeing is now going for much greater devolution.

The devolution train has left the station for Scotland and is leaving the station for other parts of the UK, but the funding formula to cope with that is frankly broken. It needs to be looked at. Naturally, as I think I inferred from the comments of the noble Lord,

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Lord Empey, other nations will look carefully at the settlement to see whether there is something in it for them.

It is a mess. I will leave it to the noble Lord, Lord Dunlop, to decide how we will get out of it, but frankly I believe that the tactics that have been used by the SNP to force this—I can understand the politics and the desire to have this all settled before the elections—have left us in a very unsatisfactory position.

Just one more thing: earlier speeches referred to paragraph 17 of the framework agreement, which says that,

“the block grant adjustment for tax should be effected by using the Comparable Model (Scotland’s share), whilst achieving the outcome delivered by the Indexed Per Capita”.

I interpret this as being an annual discussion of what the arrangements are. We are kidding ourselves slightly if we think that this will go on for five years and we are in a stable state. This will have to be reviewed each year, year in, year out. Passing a fundamentally important piece of constitutional legislation in the absence of proper scrutiny and debate in both Houses is a very black day.

8 pm

Lord McFall of Alcluith (Lab): My Lords, even if one were dozing during this debate, there would be no doubt how the House felt on the issue. I note the comment of the noble Lord, Lord Kerr, that the debate on the Barnett formula is lost. We must realise that situation. I shared a flat near Joel Barnett for many years. Joel never tired of telling me that the Barnett formula was introduced in 1978 to settle a relatively minor dispute in devolution so that he would get “them” off his back. He used a profane word that I will not use in this House. However, since 1978 that formula has stuck.

When I was in the other place, the noble Lord, Lord MacGregor, manfully defended the Treasury but still was very generous with the Barnett formula. The noble Lords, Lord Lang and Lord Forsyth, as Secretaries of State for Scotland, skilfully manoeuvred the Barnett formula in Scotland. I had to sit on the Opposition Benches and admire their chutzpah on that particular issue. That is the politics of the situation now. Sadly, in many ways the political bandwagon has moved on but the analytical one is behind it.

At the end of last week, the First Minister said that there was not a penny of detriment to Scotland. She spat that out but every Scottish party in the Scottish Parliament agreed with her. The noble Lord, Lord Forsyth, mentioned in adulatory terms Professor Jim Gallagher. I looked at Jim Gallagher’s blog at the weekend. I mentioned that every Scottish party was involved but he said that, in the event, with the fiscal framework,

“the politicians have come to a compromise: one suggested first, publicly at least, by the Scottish Conservative leader Ruth Davidson”.

She proposed this, and then the Chancellor, George Osborne, intervened and offered the Scottish Government a safety net for the first five years. That effectively delivers what the SNP Ministers asked for: namely, protection for their tax income in the event that Scottish population declines. That is the reality, so

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perhaps I am not being ungenerous in saying that maybe the right hand of the Conservative Party does not know what the left hand of the Conservative Party is doing.

Lord Forsyth of Drumlean: Speaking very much for the right hand of the Conservative Party, I think that perhaps the noble Lord did not hear the quote from Jim Gallagher. He said that the compromise the Treasury gave is that it handed over the money. That is what we are talking about: it is not a compromise.

Lord McFall of Alcluith: My Lords, the noble Lord tells us nothing new. I looked at that issue as well. I think I made the point in the last debate here that the two no-detriment principles are irreconcilable. We must try to work out the politics of that at a later date but there is absolutely no doubt of that. Professor David Bell in his submission and the work he did for the Economic Affairs Committee illustrated that very much. In fact, I sat for about three hours looking at that report from the IMF with David Bell and I thought I was back at university. After those three hours, I understood maybe 15% of the whole issue. It is hugely complex—we all agree on that.

I mentioned the issue of the safety net. This is a good deal from Her Majesty’s Treasury but after the five years there will be the review. What will the Treasury do at that time? That will depend on how the population looks then and what other political and economic factors are going on. I agree with individuals who say that this is a five-year or six-year proposal. At the end of the day, negotiations must start again. One thing I am interested in here is to see that we develop a narrative as a result of this fiscal framework which will ensure that the grievance mentality is abandoned. Some would say it will not be but there is a possibility of that happening. I will mention that later on in my speech.

For clarity’s sake, we see that the Scottish Parliament is supported by, as we said, shared UK resources from Barnett, its own tax revenues levied in Scotland, and a cash supplement from UK resources. That could possibly force all the parties in Scotland to go into what they are offering the Scottish electorate in terms of tax and spend. We have seen it already; today I read it in the Scotsman as I was coming down in the plane. For the first time, in many ways, we are getting on to the reality of devolution and have moved on from the process. Sadly, the Labour Party was very much involved there because it was mentioned that devolution was a process rather than an event. That got it wrong. As my old friend Tam Dalyell said, it was like a motorway without exits. Let us try to build the exits as a result of this fiscal framework.

We can go on indefinitely in asking who won the fiscal framework battle. Yes, the Treasury model is being used. We call it levels reduction. Yes, the UK is reimbursing Scotland for any money it would have received under the indexed per capita deduction in place. In effect, one side is happy saying, “The Treasury model is being used”. The other side is happy saying, “Yes, it is being used but we ain’t going to be disadvantaged because at the end of the day the per capita will be involved”. How far has that taken us? It has taken us

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five years down the road in terms of politics. We will have to come back and see how far it takes us down the road in terms of finance.

There is a big picture here as well, which nobody has mentioned. This will be the biggest ever transfer of powers to the Scottish Parliament. In fact, it will have as much autonomy as it had in 1707. It has demanded both good will and compromise to reach that position.

On that particular point, I commend the Government for their work in this area. However, in terms of the reporting of the fiscal framework, it could be helpful if the Government teased this issue out. The fiscal framework states that the Government will be required to produce reports on the implementation and operation of new powers in line with those produced under the Scotland Act 2010. Will this be done on an annual basis? If not, when will such reports be published? If we are to have an independent review, it should be set up very quickly and should not wait until the last minute, as we had to do with the fiscal framework now, where eight weeks of Smith translated itself into a secret cabal deciding it and then presenting it to us. We should have that transparency so that that independent commission can report to Parliament on an annual basis. By doing so, there will be transparency and individuals can look at it from the two no-detriment principles—particularly the second, of fairness to UK taxpayers.

This is a solution. Is it a neat solution? We can argue about that until the end of the day but there is a political momentum on this issue with the political parties in Scotland. The Government have responded to that. We wish them well in the negotiations.

Lord Higgins: I am most grateful to the noble Lord for giving way. We have had an extremely interesting debate on various aspects of the fiscal framework, but that is not actually what the amendment is crucially about: it is whether or not each House of Parliament should have an opportunity to approve it. That is what we are voting on. Despite all the technical discussion and so on which has been admirably set out and considered, the crucial issue is that the other place must have an opportunity to debate this. It would be absurd if the whole thing goes through without the House of Commons having debated it at all.

Lord McFall of Alcluith: My Lords, I take the noble Lord’s point on that but right at the beginning of my speech I made reference to all political parties in Scotland and to the leader of the Conservative Party in Scotland, whose idea this was, which was adopted by the Chancellor of the Exchequer, according to Professor Jim Gallagher. Some people are waiting to say that the unelected House of Lords is stopping a Bill which is in Scotland’s interests. So do we go with the intellectual case, which always appeals to me, or do we understand the politics in Scotland at this time? If we have a gap in this fiscal framework where this House can understand what is happening on a year-by-year basis, we should give the Government the benefit of the doubt on that issue because the political force is with all political parties in Scotland. I commend my speech on that point.

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Lord Dunlop: My Lords, it is fair to say that this has been a very wide-ranging debate and I thank all those who have taken part. I recall that on Second Reading my noble friend Lord Forsyth said that he looked forward to giving me a Glasgow handshake. As the House knows, he always makes good on his promises.

Before I address the substance of the amendments, I will try to address as many of the points that have been raised as possible, although there have been so many that I cannot guarantee to cover absolutely all of them. My noble friend mentioned Professor Jim Gallagher. Professor Gallagher, who is well known to many of us, also wrote a long article in the Daily Record, in which he described the Government’s comparable model as an ingenious compromise solution. While it is certainly the case that for a transitional period the UK Government are bearing population risk, I confirm to the noble Lord, Lord Turnbull, that, on the spending side, the population share will not be frozen at the point of devolution. However, this is a transitional period. Even my noble friend Lord Forsyth would prefer to move from the Barnett formula to a needs-based formula. Even in his thinking there is provision for transitional arrangements. Even in the transitional period that is part of this agreement, the Scottish Government bear economic risks. That means that if Scotland’s tax per head grows more slowly than in the UK as a whole, that is a risk the Scottish Government will have to manage even within the transitional period.

8.15 pm

How much the Scottish Government will have to pay going forward with this substantial act of fiscal devolution will depend ultimately on the decisions that are taken by them and how well the powers that they will get are used. So if there are fewer people in employment or productivity grows more slowly, or the composition of Scotland’s population changes and there is a higher proportion of retired people, those are all risks that the Scottish Government will have to manage.

My noble friend referred to a premise that has been mentioned that, had the comparable model been in operation since 1999, it would have delivered additional funding to Scotland. That is true because Scotland’s relative economic performance during that period was strong. Tax per head was rising faster than in the UK as a whole. I ask the House to consider that, if we had not reached an agreement, I am sure I would have been hauled over the coals and the consequences of that would have been crawled over in great detail by this House. What is the counterfactual here? If we had not obtained an agreement, the financial outcome for the rest of the UK would have been no better than under the deal that we have negotiated. A figure of £350 million has been mentioned. It is not a figure that the Government recognise. Therefore, we would not have obtained an agreement that was financially better for the rest of the UK but we would have lost something quite significant—the transfer of these powers and the greater fiscal responsibility sent to the Scottish Parliament. One can only imagine what would happen after the Holyrood election. The whole debate about more powers would be reopened. That would not be in the interests of the UK as a whole or of the stability of the union.

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There has been much mention of the Barnett formula and the need to replace it with a needs-based formula.

Lord Forsyth of Drumlean: I entirely accept the Minister’s argument that if we were to move to a needs base, or whatever, there would have to be transitional arrangements. However, what about the point that this fiscal framework has given the Scottish Government a veto on any new settlement, which means that the transitional arrangements would become permanent?

Lord Dunlop: I am coming to that point. The idea that it would be easy or straightforward to replace the Barnett formula with a needs-based one—or seek to do so—does not stand up to scrutiny. I have read, with great interest, the report of the House of Lords committee on the Barnett formula, published in 2009. John Swinney, now Deputy First Minister of Scotland, gave evidence to that committee’s review and made it absolutely clear that he did not support the move to a needs-based formula. There has been lots of talk about a veto. Another way of putting that is that if you do not have a veto then the UK Government unilaterally imposes something on Scotland. In that situation, we would have to proceed as we have done in this fiscal framework agreement—by negotiation and agreement.

The no-detriment principles have been raised several times in this debate. I have talked directly to people who sat on the Smith commission including the noble Lord, Lord Smith, himself. The commission recognised that these were high-level principles. It was always accepted that the two Governments would have to sit down and decide how those principles were applied in practice. It is not surprising that there is a greater level of detail and a lot of talk about the direct effects, which we want to capture mechanically in the agreement. However, the indirect, spillover effects are very difficult to capture, because of the causality. It is the direct effects which we are seeking to capture in this agreement. Although there is a backstop power to deal with the spillover effects, it will be used rarely. One needs to draw a distinction between the review, where we need to proceed and get an agreement, and the dispute resolution mechanism, which is very much attached to specific issues regarding how spillover effects actually work.

I turn to the review itself. It is obvious and self-evident that this is five years away. The details of the review have still to be determined. I am not going to stand here today and say otherwise, because noble Lords would not accept it. The Government would positively welcome the House of Lords Economic Affairs Committee feeding in its views about how the review should be structured. That would inform the deliberations we will have with the Scottish Government about constructing that review.

Lord McFall of Alcluith: Will the Minister take up the point I made earlier about an annual report on this issue to both Houses, and the Scottish Parliament, so that we get transparency and accountability?

Lord Dunlop: I am very happy to make that commitment. The Government intend to make an annual report to Parliament that will cover how the powers under the Smith agreement are being implemented

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in practice. That is fundamental to our approach. Regarding the review, I can confirm what has already been confirmed: there is no default position for it. All the evidence that will be built up over the succeeding five years will be on the basis of the Government’s comparable model.

I turn to the prospects of reaching an agreement. This review will be informed by an independent report. We will have had five years of experience of how these powers operate. Instead of seeking to negotiate in the months leading up to an election, this will be a negotiation after an election. Those conditions lead me to believe that an agreement can be reached.

Lord Wallace of Tankerness: The noble Lord has indicated—and the agreement says—that the report has to be received by the end of 2021. What will happen if we are approaching the financial year 2022-23 and there is no agreement? While he is right to say that there is not an election to focus minds, one imagines—although one does not know—that there will not be the passage of a Scotland Bill to concentrate the mind either. Given how close we are to the start of the next financial year, when there is actually a Bill that we hope to pass before the Easter Recess, what happens if that imperative does not exist? What will the position be then? Will it be the transitional arrangements or will it be the Treasury model?

Lord Dunlop: I am not sure I will be able to satisfy the noble and learned Lord on that point because I have learned not to deal in hypotheticals or to speculate about what might happen in five years’ time. As I say, I think the conditions that pertain then will be favourable to reaching an agreement and I am confident that we will reach an agreement at that time.

On the amendments relating to the fiscal framework being approved by Parliament, the Government do not believe it would be appropriate to subject the framework as a whole to approval by both Houses. Many aspects of the fiscal framework are administrative, not legislative, and the need to update these aspects requires a degree of flexibility. There is also no precedent for these non-legislative aspects to require parliamentary approval; for example, the block grant adjustment mechanism arising from the power to devolve under the Scotland Act 2012 was not subject to separate parliamentary approval.

Lord Higgins: This is a matter of enormous importance. Would it not be absurd if the central part—the heart—of the Bill were to go forward with the House of Commons not having had any opportunity at all to debate it? It is inconceivable that that should be right. It is really important that the other place should have a chance to express a view.

Lord Dunlop: My noble friend is of course quite right that the fiscal framework should receive detailed scrutiny from this Parliament. I know that this House will play a full part and I anticipate that the House of Commons will do the same. What the House is being asked to do today is to scrutinise and approve one of the most significant aspects of the framework: the capital and resource borrowing powers. The noble

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Lord, Lord Empey, raised this issue and we will have an opportunity to debate it in detail in the next group of amendments. Dr Angus Armstrong of NIESR told the Lords Economic Affairs Committee that the question of borrowing is,

“the most important question in the whole debate”.

In due course, this Parliament will also be asked to approve changes to tax legislation as a result of the fiscal framework and the Smith commission. That legislation will be scrutinised by Parliament in the usual way. Likewise, the legislation required in Westminster to establish the Scottish Fiscal Commission on a permanent footing by means of an order under the Scotland Act will receive scrutiny in both Houses before it is approved. As I said to the noble Lord, Lord McFall, the Government have committed to report annually to Parliament on the operation of the framework. I know that these reports will receive full scrutiny.

At the end of the day, the fiscal framework has been agreed between the two Governments. To introduce a further process at this stage would not only delay the transfer of powers, it would mean that the UK Government—

Lord Wallace of Tankerness: I understood the Minister to say that the establishment of the Scottish Fiscal Commission will require an order of the United Kingdom Parliament. I understood it to be a Bill that was going through the Scottish Parliament to establish the Scottish Fiscal Commission and put it on a statutory basis. Can he elaborate? What would be the content of an order in relation to the Scottish Fiscal Commission that would have to be passed by both Houses of the United Kingdom Parliament?

Lord Dunlop: I think I am right in saying that it does require this Parliament to establish the Scottish Fiscal Commission as a statutory body but I am happy to clarify that in more detail, perhaps in succeeding debates that will deal with this issue. That is certainly my understanding.

Lord Forsyth of Drumlean: Presumably my noble friend is anticipating using the Henry VIII clause for that purpose. Can he just explain to me how it can be right that the Scottish Parliament—in my view, quite rightly—and the Scottish Government have insisted that the fiscal framework should be available to the Scottish Parliament before it gives approval to this legislation but he is maintaining that that should not apply to the House of Commons?

Lord Dunlop: I am not sure that is what I am maintaining. The fiscal framework is available to this House and to Parliament and we are having a debate about it now.

Lord Cormack: My noble friend’s answer to the noble Lord, Lord Forsyth of Drumlean, beggars belief. The House of Commons has dealt with this Bill. The only part of this Bill that would go back to the House of Commons would be any amendment passed by your Lordships’ House. That is unlikely, for all sorts of reasons. Surely this most important, central element of the Bill, which the other place has not had a chance to look at, should be sent to it so that it can look at it?

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Lord Dunlop: My Lords, perhaps I can deal with the point that in some way the Scottish Parliament and the UK Parliament are being treated differently. As the House knows, if the Bill is to reach the statute book before the Holyrood elections, the Scottish Parliament needs time to consider and pass a legislative consent Motion. But to be clear, this is not consent for the fiscal framework itself but consent for the Bill, having seen what the fiscal framework is. This Parliament is in exactly the same position: it is being asked to approve this Bill informed by the publication of the fiscal framework, which we have now done.