UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1440-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

SCOTTISH AFFAIRS COMMITTEE

 

 

SCOTLAND OFFICE ANNUAL REPORT 2006

 

 

Tuesday 4 July 2006

RT HON DOUGLAS ALEXANDER MP, DAVID CAIRNS MP and DR JIM WILDGOOSE

Evidence heard in Public Questions 1 - 72

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Scottish Affairs Committee

on Tuesday 4 July 2006

Members present

Mr Mohammad Sarwar, in the Chair

Danny Alexander

Gordon Banks

Mr Ian Davidson

Mr John MacDougall

Mr Jim McGovern

Mr Angus MacNeil

David Mundell

Mr Charles Walker

________________

Witnesses: Rt Hon Douglas Alexander, a Member of the House, Secretary of State for Scotland, David Cairns, a Member of the House, Parliamentary Under-Secretary of State for Scotland and Dr Jim Wildgoose, Head, Scotland Office, gave evidence.

Q1 Chairman: Secretary of State, Minister and Dr Wildgoose, good afternoon and welcome to this meeting of the Scottish Affairs Committee, part of our evidence session on the Scotland Office Annual Report 2006. As in previous years, the session will concentrate mainly on policy and administration matters and we shall be sending you a set of written questions on expenditure matters. Before we start on our detailed questions, do you have any opening remarks you would like to make?

Mr Alexander: I shall keep them very brief Mr Chairman. Firstly, thank you for the generosity of allowing me to take off my jacket. Whatever lucidity I manage in the forthcoming session has probably been heightened by my ability to take off my jacket. I am happy of course to be here in my first appearance before the Scottish Affairs Select Committee to answer questions both on the Annual Report of the Scotland Office and the Office of the Advocate General. I should perhaps start simply by repeating the sentiment contained in the foreword to the Annual Report. I am very proud indeed to have been asked by the Prime Minister to serve as Secretary of State for Scotland and I am conscious that it is both a great honour and indeed a heavy responsibility. It would be remiss of me, by way of introductory remarks, not to pay tribute to my very worthy successor, Alistair Darling, who held this office for almost three years. I should like to place on record my gratitude for his skilful stewardship of the office. Today, I am supported by David Cairns, the Parliamentary Under-Secretary of the Scotland Office and also by Jim Wildgoose, the Head of Office and I propose to bring them in as appropriate in relation to particular questions. A further point that I should make is that I am, of course, conscious that your Committee has produced two recent reports, both of which I have read with interest and in the first of them Putting Citizens First, the Committee recommended that the Arbuthnott report should be debated in the Scottish Grand Committee and, as you know, the upshot is that the report will be debated in a Government adjournment debate on 20 July and we shall in due course provide a written response to your latest report on the Sewel convention.

Q2 Chairman: Secretary of State, you have two roles as the Secretary of State for Scotland and Secretary of State for Transport and, Minister, you are also wearing two hats as a minister for Scotland and Northern Ireland. How do you both manage your competing priorities?

Mr Alexander: By getting a little less sleep has been my experience in recent weeks. The change that was effected when my predecessor Alistair Darling was appointed to his role, recognising the change in the office of secretary of state after devolution, was the right one and I do not believe that the maintenance of the position as a full-time position of Secretary of State for Scotland would have been the right way forward. It was better, as the Prime Minister decided, to undertake the role of Scottish Secretary in association with other duties and responsibilities. In terms of the time that I am committing to the job, I am sure not dissimilarly to other colleagues around the table, there has not proved to be anything like a normal week so far. However, I am conscious of the responsibilities that both offices place upon me and I am seeking to discharge them. In terms of giving shape and focus to the work that I have been undertaking as well as the formal responsibilities, I have sought to prioritise the work that I would like to take forward during my time as Scottish Secretary. I would be keen to continue a focus that my predecessor began and this is related to the economy; secondly, issues of energy and climate change which have weighed heavily in recent weeks as we anticipate the energy review being brought forward by the Government; thirdly, I would want to maintain a focus on the issue of policy, not least given that there is a very close interface between policies being taken forward by the Scottish Executive and indeed by the UK Government as we meet the challenge of addressing poverty in Scotland.

David Cairns: Obviously the general themes of the work that we do are those which have been set out by the Secretary of State. My particular role as Parliamentary Under-Secretary has been focusing a great deal on the parliamentary processes that we go through, not just in terms of appearing before your Committee but also Scottish Office questions and also the Scotland Act orders which I take through, which are outlined in the Annual Report, like the one we did last week on the River Tweed; the order was on the River Tweed, we obviously did not do it on the River Tweed. I must say it excited more press interest than any of the other ones we have done. As the Secretary of State says, there is no such thing as a typical week, that is true for all MPs, so a lot of the way in which the workload is structured simply depends on what tasks have to be done in that particular week. In relation to the specific point about Northern Ireland, it is clearly our hope to have devolution restored to Northern Ireland by 24 November and my appointment is very much a temporary appointment up to that point where we hope we can actually hand the day-to-day governing of Northern Ireland and all the suite of devolved powers that the Assembly currently has back to an executive of locally elected members of the Assembly.

Q3 Chairman: There are seven days in a week. How much time do you spend as the Secretary of State for Scotland?

Mr Alexander: I would not, in clear conscious, be able to give you any numbers attached to the respective roles, partly because I am relatively new to the position, partly because there has literally not been one week the same as the last in the six or seven weeks since I have held the position. Certainly I have not found difficulties with it. It was a matter that I discussed with my predecessor, Alistair Darling, on the day of the re-shuffle and he assured me that by careful diary-keeping, by judicious determination of where one needs to be, whether in Dover House or the Department for Transport, it was an undertaking which was achievable. On the basis of Alistair's success in the post for almost three years, that gives me confidence that, notwithstanding my own relatively recent appointment, it is a balance which can effectively be struck.

Q4 Mr MacDougall: Secretary of State, in your opening remarks you touched on the Government's energy review paper. Clearly within the energy review our anticipation is that it would be impossible to plan the future needs of the country's energy supply without considering further nuclear power stations. In that respect, certain members of the Scottish Parliament have already given an opinion and in fact oppose such increase in nuclear capacity. In that respect, what powers, what legal options would the Government have should a situation arise where the Scottish Executive, for example, did not give planning consent as it was required to do for the construction of a new power station which was designed by Government to meet those future needs in Scotland? In respect of those legal actions, how could the UK Government proceed under those circumstances should planning permission be refused?

Mr Alexander: There are no powers for the UK Government to impose new nuclear power plants in Scotland against the wishes of the Scottish Executive. You are right in recognising that one of the key issues of the energy review which are still under discussion with colleagues is this issue of energy supply. It will also focus on issues of energy efficiency and have a particular focus in terms of energy supply on the issue of renewables where there has been very effective joint working between the Scottish Executive and the UK Government for some time. The devolution settlement, both in terms of the devolved nature of planning powers and also a specific clause contained within the 1989 Electricity Act make clear that the decisions in terms of new build nuclear power stations would be taken north of the border by the Scottish Executive. That being said, of course in terms of the present energy mix the fact that a considerable proportion of Scotland's energy supply is provided both by Torness and Hunterston reflects the fact that already a different balance is being struck between Scotland and other parts of the United Kingdom. The position is clear and I repeated it again today at Scottish questions and indeed in the previous questions on the floor of the House: there is no question, as some both within Westminster and indeed north of the border have sought to suggest, that notwithstanding the publication of the energy review, a Westminster Government would be able to or would seek to impose its will in relation to new build nuclear plants on the Scottish Executive.

Q5 Mr MacDougall: In that respect then, the total responsibility of meeting Scotland's future energy needs of whatever capacity will be left to the Scottish Parliament. Would that be the case or would that not be the case in terms of nuclear capacity?

Mr Alexander: What I have described is a situation specifically in relation to new build nuclear facilities. Of course it remains the case that we have an integrated United Kingdom grid, of course it remains the case that we have worked very closely with the Scottish Executive, for example on the issue of renewables, and we should of course continue that dialogue with the Scottish Executive in light of the emerging findings of the energy review. The discrete position, which is the issue which has attracted so much publicity on the part of Opposition politicians in recent months, has of course been the more contentious issue of whether there would be the capability to establish new build nuclear facilities.

Q6 Danny Alexander: It is perfectly conceivable to have circumstances in which you would have a result of an energy review at UK level which was promoting the idea of new nuclear power station whilst at the same time, having a political composition in this Scottish Parliament which was opposed to them. In those circumstances would you see your role as Secretary of State for Scotland as being to argue caution on Scotland's behalf within the Cabinet or working to persuade the Scottish Executive to implement the conclusions of the energy review?

Mr Alexander: I am reminded of an American politician who was asked a similar question. She said "I do not make predictions, least of all about the future". You are inviting me to indulge in certain hypotheticals. Let us first of all await the outcome of the energy review; we are expecting that in the weeks to come. Thereafter, I am not sure it would be wise either as Scottish Secretary or indeed for any of us at this stage to predict with any certainty what would be the composition of the Scottish Parliament or indeed the composition of the Scottish Executive post the coming Scottish elections taking place next year.

Q7 Mr MacNeil: Given that the current First Minister in Scotland has not been unequivocal about his position on new build nuclear power stations and if, come next May - unlikely, but we hope - we have a new First Minister in Scotland who says no, do I understand you clearly that there is absolutely no chance of Westminster interfering in an SNP Government's no.

Mr Alexander: I am not sure that a Select Committee appearance is the appropriate point at which to question what appears to be the underlying assumption of your question which is that there will be a different First Minister.

Q8 Mr MacNeil: If there is.

Mr Alexander: Of course I shall be working with colleagues to ensure that that is not the case because I believe that Scotland's interests are better served by the stability than the separatism that others around the table advocate. That being said, it is a matter of record that I have spoken both with Jack McConnell, indeed I spoke to him only at the weekend on the issue of the energy review and we are discussing matters in anticipation of the energy review being produced. That is entirely appropriate. The Scottish Executive have already made a submission to the energy review that reflected what has been its long-standing position which is that there are remaining issues to be resolved in relation to, let us say, nuclear waste and that is why I welcome the fact that we have been working effectively and collaboratively with the Scottish Executive as a UK Government, as part of the quorum process and that is a parallel process which continues but reflects the fact that it is perfectly capable on these kinds of issues to find a way of working effectively with the devolved administration.

Q9 Mr MacNeil: But on the substance of the point, if Scotland says no through the SNP, will you be quite happy?

Mr Alexander: As I say, I am not anticipating the outcome that you are suggesting.

Q10 Mr MacNeil: If.

Mr Alexander: I am saying that the kind of scare tactics being employed by the Scottish National Party, somehow desperately seeking a quotation from myself and from others which would allow you to misrepresent the position of the British Government in the months ahead of the May election, has no foundation in fact and I do not know how I could have stated my position more clearly than in answer to Mr MacDougall's question.

Q11 Mr MacNeil: It is not my wish to scare you, but I just want to know unequivocally that if we have a SNP Government next May, the Westminster Government will respect that.

Mr Alexander: That is not a scenario that I either envisage or would wish to see in the interests of the Scottish people.

Mr MacNeil: I have tried three times.

Q12 David Mundell: Whatever the make-up of the Scottish Executive and however it is sustained, my constituents who would, very much as I would, wish to see a new power station on the Chapel Cross site are increasingly concerned that even if the energy review comes out in favour of new nuclear power stations the uncertainty which surrounds the position in Scotland and the outright hostility of some politicians in Scotland to the nuclear industry will actually put off the private financiers who ultimately will be investing in the industry. How do you see your role, or indeed the role of others in trying to give some certainty to investors that, if they want to go ahead with a new nuclear power station in Scotland and there is a Scottish Executive that is at least not committed to veto it, that investment is a good one?

Mr Alexander: If I were as concerned as you about issues of certainty, I am not sure I would appoint Zac Goldsmith to my policy commission looking at these and other related issues. The degree of uncertainty that you describe in terms of the long-term planning horizons involved in power generation broaden the issue beyond simply one of Scotland. As I say, if there is uncertainty, I cannot say that I have any clear idea as to what the principal Opposition in Westminster is advocating at this stage and that no doubt is a consideration for the industry far beyond the borders of Scotland.

Q13 Gordon Banks: Just taking the energy situation a little bit away from nuclear and onto renewables, I was wondering in your discussions with the First Minister what discussions you have relating to the renewables process and also what concerns you may have in relation to the time it takes to get planning applications through, even to get a yes or no for, say, wind farms that often get referred back to the Scottish Executive for a subsequent decision.

Mr Alexander: You are right certainly in recognising that this is one of the areas of conversation between us at a UK level and the Scottish Executive; indeed I was discussing the issue of renewables with the First Minister only on Sunday. You are also right in recognising that there have been considerable blockages within the planning system to specific applications, but it would not be appropriate for me to direct the First Minister in terms of the planning regime, which is a devolved matter and therefore better addressed directly by the Scottish Executive. It is however the case, as you say, that there is a significant number of applications, principally for wind farms but renewable energy sites within Scotland and that is a matter of which I know the First Minister is aware because he sees the real opportunities not just for Scotland in terms of electricity and power generation, but also in terms of the manufacturing sector where there is a genuine opportunity for Scotland to assert real leadership and to grasp the opportunities which have been provided both by the targets being set and worked towards by the Scottish Executive but also the targets that are being worked towards and set by the UK Government on renewables.

Q14 Mr Davidson: May I just seek clarification on the point about the powers of the Scottish Executive in relation to planning and power? Do I take it from what you say that as well as being able to make individual decisions on, say, wind farms or nuclear power stations, the Scottish Executive also have the power to decide on planning grounds in principle that there would be no wind farms or no nuclear power stations in Scotland at all?

Mr Alexander: The corpus of planning legislation which preceded devolution has been transferred back to the Scottish Parliament. It is not for me to speculate as to how that could be re-written in the future according to the will of the Scottish Parliament in relation to planning law, but it is the case that planning law has been devolved and therefore it is within the competence of the Scottish Parliament to amend planning law. I cannot say I anticipate the scenario that you describe, given that there have been, as I understand it, recent changes in the planning legislation in Holyrood within the last couple of years.

Q15 Danny Alexander: You will be aware that one of the constraints on the development of renewable energy is the electricity transmission infrastructure within Scotland which is a UK responsibility through the regulation by Ofgem. I wonder whether you have had any discussions, either with the Secretary of State for Trade and Industry or indeed with Ofgem, about the proposals which have been brought forward to develop more of a sub-sea electricity transmission network around Scotland, particularly to facilitate some of the offshore and marine renewable sources, particularly wave and tidal power as well as offshore wind, which a lot of people believe have real potential to transform Scotland's energy generation over the next 10 to 20 years.

Mr Alexander: The issue of the electricity grid and the transmission of electricity within Scotland is a matter that I have discussed with the Secretary of State for Trade and Industry who is coordinating the Government's response and now coordinating the Government's review of energy policies and it is appropriate that I have done so. It is also fair to acknowledge however that in terms of the level of maturity of the technologies, there is certainly a disparity between deep-sea renewables and inshore renewables relative to the facility to have onshore wind developments at this stage. In that sense it is not a straightforward choice between one or the other; the relative development of the technologies is at different stages. I can assure you that this is a matter which I have discussed with the Secretary of State for Trade and Industry in anticipation of the energy review which is coming out in due course.

Q16 Danny Alexander: But you will be aware that some of those technologies may only be two or three years away from being commercially viable and that, given the constraints of the legal framework that Ofgem has put on taking strategic decisions about the transmission infrastructure, to take a decision, for example, to go down the sub-sea route actually requires an act of political leadership; it is not one that can simply be left to the Ofgem mechanism. I wonder whether that is something that you have looked at.

Mr Alexander: It is certainly the case that both the electricity industry and Ofgem as regulator have recognised for some years the need to reinforce existing grid lengths which now date back to the 1950s and to the 1960s. Those discussions do continue. The major expansion of renewables generation in the Highlands and Islands will require an upgrading of the high voltage transmission grid as you have suggested and it is fair to acknowledge, in light of my earlier point, that that is true whether you are talking about onshore or indeed whether you are talking about offshore. These are matters which continue to be discussed.

Q17 Gordon Banks: Just on the transmission issue again and linking back to my earlier question on renewables, the issue of transmission lines is a big issue in many constituencies in Scotland. I just wondered whether, in your discussions with the First Minister, you have considered the difficulties that might be apparent should the transmission line be delayed for any design reasons and how that will affect Scotland's renewable energy targets?

Mr Alexander: Anybody who has travelled up the A9 is aware of the strength of feeling on these particular issues. Consent powers for any new transmission line under section 37 of the Electricity Act 1989, the Act that I referred to in one of my earlier answers, are a matter for Scottish Executive ministers and it would not be appropriate for me, given that the proposals for an upgrade are now with the Executive, to comment further as it is ultimately a matter for the Scottish Executive.

Q18 Chairman: We have made good progress in achieving renewable energy and it is desirable to have wind, wave, hydro power, nuclear and solar energy in Scotland, but do you not think it would be a mistake ultimately to rule out farms in principle, leaving Scotland to rely heavily on imported energy from overseas?

Mr Alexander: There is something of a risk that in these debates in a Scottish context we, as I said in one interview, see the world through the wrong end of the telescope. Of course you are right to recognise that we will face challenges in the years ahead, both at a Scottish level and right across the United Kingdom, in terms of the diversity of our energy supplies, the security of our energy supplies and indeed, in a European context, wearing my previous hat as the Europe Minister, the effectiveness of a genuinely open market across Europe in terms of energy supplies. While all of that is true, the appropriate way to address these issues is to undertake the review that the Prime Minister has announced. Perhaps inevitably the coverage has predominantly focused on the issue of nuclear, but the Prime Minister has been at pains to make clear both internally and externally that as well as this specific issue of nuclear energy production there are also related challenges both in terms of renewables and also in terms of energy efficiency. In my discussions with the First Minister, there has been a recognition of the importance of the energy review in providing a means by which these issues can be better explored. Frankly we are in circumstances where energy prices have been rising for recent years. One need only reflect on the dispute between Russia and the Ukraine at the turn of the year, around January, to reveal the extent to which, not just in Britain but across Europe, there was heightened concern as to security of supplies following that particular incident. I think the right approach at this stage is to have the review, not to anticipate today what will be the findings of a review that will be published fairly shortly. You are right to recognise that one of the issues we do need to have regard for is the security of supply. That is why I welcome the steps that the Scottish Executive has taken and indeed other colleagues in Government have taken to make sure that under the renewables obligation we have been driving up the proportion of our fuel that comes through renewable production.

Q19 Mr Walker: Moving on to the really big issue, there has been quite a lot of coverage in the papers over the last couple of weeks - I am sure you will have seen it, there is interest north of the border and growing interest south of the border - of the future of Gaelic television in Scotland. Are we going to get a Scottish television channel? If so, what are your views on that, what do you think it should be broadcasting and where do you think it should be based?

Mr Alexander: A recent report prepared for the Committee of interested parties, of which the Scotland Office is but one part, along with the Gaelic Media Service, BBC, Ofcom, the Scottish Executive and DCMS, identified two models for taking forward a Gaelic channel: a joint venture between the BBC and the Gaelic Media Service or a BBC licence service. Further work is now being undertaken to put flesh on the bones of these two options and how future governance arrangements might work. Business plans are also being worked up under these models but that is where the situation rests at the moment. In terms of the involvement of the Scotland Office, it has been broadly a role that I would describe as a facilitation role, but it has been a broadly successful role in bringing together a number of interested parties around the table and that is reflected in the report that was published back in April.

Q20 Mr Walker: How do you see it being funded though? Do you see it being funded by the BBC out of licence payers' revenue?

Mr Alexander: My recollection is that the BBC have reserved their position ahead of the charter renewal discussions in terms of the size of their own licence fee and therefore I would not wish to pre-judge where the discussions will actually reach. As matters stand at the moment, several people are potentially bringing resources to the table, whether that is the Scottish Executive, given that it has a role in terms of promotion of the Gaelic language, whether that is specific support that could be offered by the Department for Culture, Media and Sport or indeed support that could be provided by the BBC. There is also a question in terms of the Scottish media group's involvement, given that previously it had a responsibility in terms of a proportion of its broadcasting being undertaken in Gaelic. These are fluid discussions that continue but, as I say, my understanding of the BBC's position was that ahead of a definitive decision on the licence fee, it was reserving its position as to how much it could actually contribute.

Q21 Mr Walker: If the BBC can afford to spend licence payers' money on all the quasi commercial activities where it is spending money, there is a lot of concern now that it is getting into areas and crowding out the private sector, that it would be pretty thin gruel if the BBC could not actually deliver on its public broadcasting remit, which is to provide a service to the public. There are natural Scottish speakers in Scotland, the Gaelic language has a place in Scottish culture and I have to say, if the BBC were going to come cap in hand to the Government for money, that would raise questions more generally about what the BBC is spending its money on across the UK. That would be my view and perhaps you could not comment on that but perhaps other members of the Committee would want to get in on the back of that.

Mr Alexander: I am sure the BBC would be interested in your views but I feel it is a rather negative construction of the fact that both BBC Scotland and indeed the Gaelic Media Service confirmed on 28 April that agreement had been reached in principle to work jointly towards the set-up of a dedicated digital Gaelic television channel. This seems to me a potential success.

Mr Walker: It depends who is paying for it?

Q22 Mr MacNeil: We all welcome your respect for a Gaelic television channel and it is something that I have long waited for. When I was first elected it was talked about as being backstopped at 18 months. When do you hope to see a Gaelic television channel transmitting in all its glory the length and breadth of Scotland?

Mr Alexander: The agreement dated 28 April was that there was agreement in principle

to work jointly towards the set-up of a dedicated digital Gaelic television service in 2007.

Q23 Mr MacNeil: When in 2007? At the beginning or the end of 2007? The reason I ask is that the 18-month back-stop would be at least the beginning of 2007 and there is almost 12 months difference to the end of 2007.

Mr Alexander: It is not a great secret that there is a 12-month difference between the beginning and the end of 2007. I doubt that even the Stornaway Gazette will splash their front page with that particular observation. Tempting though your supplementary question is, I shall stick to the terms of the agreement as I understand it which is 2007.

Q24 Danny Alexander: Just following up this point, you will know that 2007 is Highland Year of Culture and therefore having this station set up in 2007 would obviously make a great deal of sense from that point of view. Also, do you not think it is a wee bit ironic that we are talking about setting up a Gaelic television service at the same time as the ability to buy TV licences in all too many rural Gaelic-speaking communities across Scotland has been removed because of the change in the contractual arrangements taking that service away from post offices? Actually in a lot of these small communities, island communities and so on, people will no longer be able to pay for their BBC service at the same time as talking about this. Is that something you have made representations on, representing Scotland's interests in the Cabinet to your colleagues.

Mr Alexander: I shall let David say a word in a moment in terms of our approach to the post office, but I am certainly not convinced that the proposals of the Liberal Democrats to privatise the post office would actually offer a way forward for Gaelic viewers of television or indeed English-speaking viewers of television in the Highlands or in any other part of the country.

David Cairns: Nor indeed the policy to scrap the DTI and spend its budget elsewhere, which is the very department which provides the subsidies to the post office in the first place. That would be a real double-whammy from which the post office would never recover. As I said on the floor of the House a few minutes ago, essentially the matter to which Mr Alexander refers is a commercial decision between the BBC as the licence authority and the post office and PayPoint have won the contract. It is simply not appropriate for the Government to interfere in these commercial arrangements. I have a list as long as your arm of all the additional monies and other support the Government have given to sustain the post office network because we do believe in the post office network, we believe it has a viable future, it has a role to play in rural communities and in urban communities in Scotland. It will not be the same role as the role it played 20 or 30 years ago because people's lives are changing, people are accessing services in different ways and people are shopping in different ways. We are providing vast amounts of taxpayers' money to help subsidise the post office.

Q25 Mr Davidson: Surely that answer is wrong. Surely nobody is proposing to close down the DTI, are they?

David Cairns: I believe that it is a policy of the Liberal Democrat Party.

Q26 Mr Davidson: Goodness me; you learn things every day. May I ask about the elections next year? I understand a decision has been taken to do e-voting. May I seek clarification on who is responsible for procuring all this, paying for it, setting it up, testing it and making sure that it works?

Mr Alexander: I very rarely presume to correct the honourable Member but it is e-counting rather than e-voting.

Q27 Mr Davidson: Sorry. I thought you were going to correct me on the DTI point. Is that correct?

Mr Alexander: You are right that it is the Liberal Democrats.

Q28 Mr Davidson: Are they proposing to close all of it?

Mr Alexander: That is right, they are proposing to close all of it in the same way that the Scottish National Party have just welcomed the British Broadcasting Corporation's involvement in the Gaelic Media Service; you are absolutely right. To return momentarily to the question at hand, the Scotland Office contribution to e-counting costs to local authorities is expected to be around 60 per cent. This is consistent with the formula for the funding of manual conduct of combined elections in Scotland. The current formula of a 60:40 split between the Scotland Office and the Scottish Executive was based upon an agreement that the two elements of the Scottish Parliament elections, that is the list seats, for which I know you have such high regard, and also the first past the post seats, involved greater costs than the single element of local elections. However, currently we are consulting on a single ballot paper for the Scottish Parliament elections and the outcome could influence how the costs are shared. We are open to looking at this. We are obviously out to consultation at the moment, anticipating a decision in August in relation to whether we do go for a single ballot paper combining both the regional list and the first past the post seats. That could potentially affect the conversations we have with the Scottish Executive in terms of the sharing of costs, given that you would be moving towards a single ballot paper for the Scottish Parliament as distinct from what was the case in 2003 and 1999. There two ballot papers had to be counted for the Scottish Parliament elections, for which the costs fell to the Scotland Office as distinct from the Scottish Executive who are responsible for local government elections.

Q29 Mr Davidson: If the system is not set up in time or does not work properly, who is responsible?

Mr Alexander: You would expect me to say, partly because this is something I know that my predecessor deliberated long and hard, but so have I ahead of the decisions we have reached, that I can assure you that we have worked very carefully to have the requisite degree of confidence in the system which is proposed. The cost sharing which I have described reflects the historic formula based on manual counting. There will be further discussions with my Scottish Executive colleagues in terms of where the balance of funding should appropriately lie, depending on the decision we reach in relation to a single ballot paper. However, those decisions will be reached ahead of the elections themselves which will take place next spring.

Q30 Mr Davidson: If it does not work, who is held responsible?

Mr Alexander: Ultimately I have responsibility as the Secretary of State for Scotland for the Scottish Parliament elections and it is the Scottish Executive who are responsible for the conduct of the local government elections which will take place simultaneously.

Q31 Mr Davidson: Both of which are being held under e-counting.

Mr Alexander: Yes; that is correct.

Q32 Mr Davidson: So if the system grinds to a halt, then you are responsible for the failure of part of it and the Scottish Executive will be responsible for the failure of the other bit of it.

Mr Alexander: The responsibility for the conduct of elections is unaffected by the nature of the counting. There has been no change in the settled regime whereby, as Secretary of State for Scotland, I am responsible for the conduct of the Scottish Parliament elections. In contrast the local government elections are a matter rightly for which the responsibility lies with the Scottish Executive.

Q33 Mr Davidson: May I ask about the timing of the count? The Electoral Commission recommended that the count be conducted the day after, yet you and your Scottish Executive colleagues decided that it should take place immediately after the polls close. Can you clarify why you made that decision against their advice?

Mr Alexander: Because I was not convinced of the case that was put to me by the electoral registration officers. Consistent with expectation we should be in a position where it is possible to have the requisite degree of confidence in the system which will be operating whereby this electronic counting will be taking place. Concern was principally being raised by the electoral registration officers about whether there would be officials who would be tired overnight on the Thursday night and into the Friday morning. With the greatest respect to those hardworking, dedicated local government officials, I expect there are many of us who will be tired overnight on the Thursday night after the Scottish Parliament elections. It does not seem to me beyond the wit of man that we can both have the assurances in terms of the technology, but also the facility to make sure we are properly staffed so that the results for the Scottish Parliament elections, notwithstanding the change to electronic voting, could come out as we would anticipate early on Friday morning. Then, consistent with past practice, we would be in a position where, rather than simply starting the counting for the local government elections on Friday, which was their proposition, we maintain the position whereby, certainly in my own council area, we are able around lunchtime on Friday to have local government results.

Q34 Mr Davidson: The final point on electoral issues is the question of electoral registration. These are obviously going to be extremely important elections next year. What steps are you and others with whom you are cooperating taking to make sure that the electoral register is as accurate as possible and that as many people as possible are actually on it?

Mr Alexander: I shall allow my colleague David to answer this, given his direct involvement in the Electoral Administration Bill which addresses exactly those types of issues.

David Cairns: This was at the heart of what we were trying to do in the Electoral Administration Bill, which was to recognise that there is a genuine concern about the levels of legislation throughout the entire country and a genuine concern that additional help and support be given to electoral registration officers along with a duty to them to maximise the numbers on the register. The Bill contains a general provision that they have to do two door-to-door canvasses in order to try to maximise the numbers on the register plus a suite of other things which they can do. Unfortunately the Bill is stuck in a Ping-Pong between both Houses at the moment and, despite the fact that the House of Commons has voted on three occasions on a particular point to do with individual identifiers on the annual canvass, the House of Lords have overturned this on a couple of occasions and I certainly hope that the House of Lords will now bow to the will of the House of Commons on this issue. It is important that we get Royal Assent on this Bill by the recess so that work can begin on the very detailed conduct orders for the election in 2007 which have to be made and also so that once the Bill is on the statute book, moving into the autumn canvass that the EROs will undertake, they will actually have the new powers which are set out in the Act.

Q35 Mr Davidson: Do you have targets for the numbers you would wish to see added to the electoral register in areas like my own which have traditionally got low registration figures?

David Cairns: There is no target other than 100 per cent, which is the obvious target. We would like to see absolutely everyone who is entitled to vote able to vote and absolutely to get onto the register. In addition to the changes which I have just outlined about the annual canvass and giving other powers to EROs, for example we shall also introduce a measure whereby people can get themselves onto electoral registers up to 11 days before polling day. As you know, what happens is that people are not aware that they are not on the register until the election starts, when there is a great increase of awareness in the election. Then they phone our offices and ask where their polling cards are and discover they are not on the electoral register; by which time it is far too late to do anything about it. If all these measures are on the statute book in time what we shall see will be able to happen will be that by the time the election is called - and we all know the date of the next Scottish Parliament election which is going to be a fixed election - councils will be able to have a very, very big publicity drive, as will political parties, telling people that they have two or three weeks to get themselves onto the register. There is a whole varietal suite of powers in this Act designed to do absolutely what you want to do, which is to get 100 per cent of people who are entitled to register actually on the register. I should point out of course that it is actually compulsory to be on the register; although it is not compulsory to vote, it is compulsory to fill in the form and send it back.

Q36 David Mundell: "The Liberal Democrats" is also the answer to the question of who foisted STV on Scotland for local government elections. Given that those elections are due to be held on the same day and at the same polling station as the Scottish Parliament elections and therefore will inevitably impact on the conduct of the Scottish Parliament elections, are you not, in respect of your responsibilities, concerned that there appears to be absolutely no dissemination of public information to the wider public who clearly have no present understanding of how the STV system will work? Secondly, even at this late hour, would it not be appropriate for you to make representations to the First Minister to go along with the Arbuthnott recommendation and indeed the proposals in my own Bill when I was a member of the Scottish Parliament that these elections be split, given the possibilities for spoiled papers and general confusion?

Mr Alexander: Firstly, I am not convinced by the case you make that the fact that there will voting arrangements in place in terms of the elections to Scottish local government itself prejudices the capacity of the Scottish Parliament elections to operate effectively. Secondly, the coincidence of timing which brings together the Scottish local government elections and the Scottish Parliament elections is largely a matter for the Scottish Executive given that the Scottish Parliament election date is fixed. I am not convinced that there is an overwhelming body of evidence that that is necessarily prejudicial to people being able to have their democratic wishes expressed effectively. Indeed in this age where there is a number of different opportunities for people to cast their vote in relation to different institutions, the fact that there is this bringing together of the Scottish local government and the Scottish Parliament elections affords us an opportunity as elected politicians to make the case to the Scottish people from our respective political positions and to advance our argument. I do not think that the voting system is per se prejudicial to the ability for that discussion to take place. In terms of the publicity surrounding the Scottish local government elections, that is rightfully a matter for the Scottish Executive rather than for the Scotland Office.

Q37 David Mundell: I suspected you might say the latter, but in relation to the former, do you not take account of what actually happened in relation to London mayoral elections where different systems were used on the same day, experiences which I am sure Mr Cairns will be able to bring you up to speed with in Northern Ireland where, when different elections have been held on the same day, the number of spoilt papers in both sets of elections has been substantially higher. Therefore, particularly as STV is a new system and on this occasion we are asking members of the public not simply to do the same thing on two papers, but in fact to put 1, 2, 3 on one paper and an X on another paper, is this actually not just a step too far on this occasion with the introduction of STV and therefore the logic is that they be separated at least until we are clear that the public are familiar with the new system.

Mr Alexander: I am not convinced by the prescription that you offer. As for the practical steps I have taken in terms of the conduct of the Scottish Parliament elections we are out to consultation on the idea of having a single ballot paper rather than two ballot papers for the conduct of the Scottish Parliament elections. Within those areas which are rightfully within my competence and responsibility I personally believe that could make a contribution towards making clear to Scottish voters their responsibility and the opportunity afforded to them in terms of both the votes that they will have in the Scottish Parliament elections. You are right to say that in terms of the introduction of STV this will be a distinctive and a new system, but it is not beyond the capability of the Scottish Executive to bring to people's attention the choices they will have under the STV system and that is a matter which is receiving the attention of Scottish Executive ministers.

Q38 David Mundell: Do you not think that the levels of spoilt papers in the London mayoral election which are highlighted in the Arbuthnott commission report are a serious issue? We have talked a lot about the problem of getting people to vote and the falling numbers voting, therefore is it not unacceptable that when people do make the attempt to go out and vote the system put in place is complicated and the rates of spoilt papers are approaching ten per cent. Surely that cannot be acceptable?

Mr Alexander: It would be common ground between us that none of us would have an interest in having a large number of people unable to vote or unable to understand the system which affords them the opportunity to exercise their democratic choice. In practical terms we have taken one step which potentially is a significant improvement, moving towards a single ballot paper for the Scottish Parliament elections. In terms of the responsibilities in the Scottish Executive, given they are responsible for the conduct of the Scottish local government elections, I am sure they are cognizant of the points you have put previously in another place and indeed the points you make in terms of the experience in other jurisdictions and other electorates. I do maintain the basic point that I think there is a strong democratic argument for saying in this era where turnout has been declining, that there is merit in bringing together these two elections and working with all parties, not simply the Government party in Scotland. There will be a genuine opportunity to persuade Scottish electors of whatever hue that they have a strong interest in coming out to vote, both for the local councils, which will affect directly the local services in the local community and indeed for the Executive and Scottish Parliament which they wish to see elected at Holyrood.

Q39 Danny Alexander: Following up on the subject of electoral registration, you will be aware that one of the major changes which has happened in the last couple of years is that substantial numbers of migrant workers from other EU countries are coming to Scotland who will be entitled to vote both in the local elections and indeed in the Scottish parliamentary elections. In the context of the electoral registration activity that the minister was describing will particular attention be given to ensuring that those people also have the opportunity to exercise their democratic rights?

David Cairns: Obviously this is an area which is of particular interest to the electoral registration officers who work in Scotland by and large in joint valuation boards. There are some measures within the Bill which allow a lot of the instructions which hitherto could only be published in English to be published in a variety of different languages. I very much hope that electoral registration officers and joint valuation boards will see this as a real opportunity to extend the mandate by being very proactive and getting out there into communities and looking where there are particular pockets of individuals, EU nationals, who are entitled to vote in certain elections and getting them on the register as well. What we are also having is a series of performance targets for electoral registration officers which we have drawn up in conjunction with the Electoral Commission. I know that the Electoral Commission are very keen on ensuring that people in this country who do not have English as their first language, whether they be new migrants from the A8 countries or whether they be from the Commonwealth countries or wherever, are put on the electoral register because the levels of under-registration of people from minority ethnic communities is particularly scandalous. There is a challenge there as well as a challenge for the new Polish immigrants and so on. I think the measures and the powers we have given in the Bill, if it gets onto the statute book, will be very, very much welcomed.

Q40 Mr McGovern: Annex 9 of the Annual Report deals with staffing levels and the figures tell us that year on year, certainly since 2002, the actual numbers of staff employed are less than the complement required. Try as I might, I have not found a way to blame that on the Liberal Democrats. Seriously, even as recently as last year they were below complement by nine. Is there a reason for this?

Mr Alexander: I can assure you that that decline in no way compares with the number of staff who would lose their job in the Department of Trade and Industry if another party's proposals to abolish the DTI were implemented. In all seriousness, this was a matter I looked at in anticipation of my appearance before you today. I shall ask Jim Wildgoose to say a word in a moment as the Head of the Office. The assurance I should simply give to the Committee is that unlike the staff changes which took place post 2003, when my predecessor, Alistair Darling, was appointed, where there was a conscious decision to reduce the staff numbers to reflect the changed role of the Scottish Secretary, these reflect management decisions rather than any policy decisions which were being exercised. In fact, for reasons Jim will explain, they do not reflect any change in the activities of the Scotland Office.

Dr Wildgoose: I have to say the blame lies with the Head of the Scotland Office for these changes. In many ways the complement figure is a notional figure. It is a start-of-year figure and in fact the difference between the average employment over the year, which is the actual figure, and the opening figure over the several years has been about the same over the years. The complement figure really is somewhat notional. When I took over in May of last year I looked very carefully at this and it was not helpful to have figures which were so different. The difference between actual and complement in many instances was that we were not planning to fill vacancies anyway in terms of the work. So we took a management decision to reduce the complement down to 54, which you will see is the starting figure in 2006-07. That reduction actually occurred quite quickly after May. The 60 is in fact the opening figure for the year; the opening figure. We actually reduced the complement in three areas. There was some duplication in the management of finance, in the management process there and that involved two staff reductions, a senior person and a secretary. We felt there was duplication with that. We also reduced the press office from three to two and we felt that level of resource was reasonable and we had one reduction in the election set-up in finance in the services division in election accounting work. Then we amalgamated the two private offices that we previously had and in fact that change has been very effective in terms of taking forward the work of the two ministers in the Office. These decisions were taken by the Management Board, they were not decisions which I took myself. They looked very carefully at the work of the Office and what the requirements were, so we are confident that it has not had any effect on the actual level of output and the quality of the output that we have.

Q41 Mr McGovern: That has possibly pre-empted my second question. In my previous job as a trade union official we always viewed what we called non-foreigner vacancies quite cynically. We regarded it as fewer people doing the same amount of work. Could you confirm what you have just said, that it has had no effect on the quality of the service provided by the Scotland Office?

Dr Wildgoose: That is certainly our management judgment. This is not simply me looking at this, this is the view of the management team that we have. We look at these issues regularly every six weeks; we have a Management Board meeting and we look at the staffing levels each meeting we have to assess the position. Sometimes we look at increases, sometimes we look at decreases, sometimes we fill jobs quickly, sometimes we look at whether we need to fill a job immediately. There is actually quite a continuous process in terms of assessing what staffing levels we require. I can safely say that my own view and the view of the board is that we have not adversely influenced the work of the Office through these changes. I might say that really the only operational effect previously of the complement figure was to do with budgeting and we have moved away from that process. In terms of the 2006-07 budget we are moving to an average actual staffing level for the budgeting which we feel is a better measure, a better way of projecting and forecasting budgets. These sorts of issues are in fact very much to the fore in general governance arrangements of departments within the UK Government.

Q42 Mr McGovern: Last September the Scotland Office told us that it regularly reviews its complement and a review would be taking place later that year, 2005. Is what you have just outlined the result of that review?

Dr Wildgoose: More or less. We looked at it fairly quickly after the election in May last year and we do a continuous process. Effectively that was the review. We do look at this regularly through time.

Q43 Mr McGovern: So the review which was referred to last September has taken place and this is the outcome.

Dr Wildgoose: Yes, it has.

Q44 Mr MacDougall: The Annual Report mentions a programme of regular meetings with business interests and industry representative bodies across Scotland. Have you found these meetings to be productive? What are the preoccupations of Scottish business when you have such meetings?

Mr Alexander: It would be rather presumptuous of me on the basis of about six weeks in office to offer you a definitive view. Suffice to say that in the meetings I have already undertaken with SCDI, with Alexander's the bus manufacturers in Falkirk and a range of other businesses which I have visited even in recent weeks, it is clear to me that businesses, while always of course looking at how their offering to the market can be improved and looking to Government to provide a framework in which they can be supported, set great store by the macroeconomic stability. The kinds of recent reports published by OECD and others have complimented us but that is certainly something I hear echoed in my discussions with Scottish business. There is an awareness that on the foundation of macroeconomic stability which has been developed over recent years there has been an ability to make investment decisions with a degree of certainty which was not previously available to Scottish business. Perhaps I could let David say a word, given that for the whole of the year he is in discussion in terms of the Annual Report and meeting a range of business organisations and individual companies.

David Cairns: That is absolutely right. There is also absolutely no clamour on their part to abolish the Department of Trade and Industry. I have not detected that among Scottish business figures. In the last year we have chosen in the context of the energy review to have a great many discussions with people involved in the energy sector. Offshore I went to visit an oil rig, into nuclear power stations and I am going to Kirkenzie on Friday. We have been very much engaged in that particular sector, which obviously has had challenges to do with the global increase in oil prices and energy prices in general, which has been a challenge not just in Scotland but right round the world. That has been an issue we have raised there. Of course the strength of the economy and the economic activity levels also bring challenges for business as well, because there are fewer unemployed people and that brings challenges too. The North Sea oil sector particularly has seen its most successful year in decades in terms of new licences so that has brought out a lot of pressures in terms of the supply chain and in terms of the availability of skilled labour. There are certain pressures around in the energy sector as well. To come back to the point Mr Banks made, you do occasionally get frustration from business about the length of time it can take to get planning; not remotely unique to Scotland of course. It is an issue you hear elsewhere. These are the general concerns that we hear from business, but on the whole - and I would say this would I not? - the general economic climate in Scotland at the moment is very positive. There is a great deal of business optimism out there and that is not just reflected in our comments, it is reflected in all of the surveys of business undertaken by the Bank of Scotland, by the various institutions, the mechanical engineers and so on, who take monthly surveys, all of them reporting a great deal of optimism in Scottish business.

Mr Alexander: I would just echo the point David made about the energy sector. I do not know whether you have had the opportunity to familiarise yourself with the Press and Journal today but in Steam, a Scottish publication, under the headline "Jobs galore" there is an announcement by Shell of a major £600 million contract with Subsea 7 to design, build and operate two vessels for Shell. The vessels will be used respectively to support undersea work on oil and gas facilities and by remotely operated vessels and also by divers. Those vessels are going to be used in the North Sea and elsewhere and evidence exactly the kind of opportunities which are being grasped by Scottish businesses as David was describing.

Q45 Mr McGovern: Is there a general feeling with businesses that whilst there will always be challenges for business under any environment, the long-term stability we have enjoyed in terms of the economic climate, being able to invest with some certainty et cetera, has been a key issue, enabling them to plan more longer term and with greater confidence?

Mr Alexander: Certainly I should say that is an accurate reflection. It is also one which in recent days the academic community has echoed. I do not know whether you have had a chance to see the study which received significant publicity in the Glasgow Herald yesterday, but it again made clear that in the kind of global open markets of the 21^st century a sustained period of instability would be deeply prejudicial to the interests of the Scottish economy and investment in the Scottish economy. That is why the Government are determined to resist those who would argue that the break-up of Britain should take precedence over the sustained economic growth we have seen over the last eight years.

Q46 Gordon Banks: Coming to this place from private business before May last year, I should like to support what the Secretary of State said there about the stability of the economy. My sector is the construction sector; that is where I came from. I appreciate that the Secretary of State has only been in the job for six weeks, but maybe the Minister has experience he can outline for us. Have you had any particular discussions with the construction sector on the skills shortage in the construction sector in Scotland which has seen a lot of Eastern European labour coming in because there is a lack of Scottish indigenous tradesmen?

Mr Alexander: I cannot claim yet to have had the opportunity to meet with major construction sector employers, but from my own experience as a constituency MP, which may well be echoed around the room, one of the distinctive features of the labour market we have developed in recent years in Scotland is the fact that those people who happen to find themselves unemployed as a result of the two recessions visited upon Scotland in 18 years by the Conservative Party have largely now secured employment. Certainly in terms of my own constituency I now find a situation where, contained within the residual pool of people who find themselves unemployed are people who do need support, perhaps because they are not job ready in terms of numeracy problems, literacy problems or drug dependency issues. That is why I think it would be exactly the wrong approach to abolish something like the New Deal, which is targeted directly at providing exactly the kind of support those individuals need in order to be job ready, to be able to make a contribution to the Scottish economy. That being said, I also think it would not be appropriate to deny the reality that the kind of workers which Danny Alexander and you referred to are already making a significant contribution to the Scottish economy, not just in rural Scotland but also in urban Scotland. It is in part because of their capacity to contribute to the strength of the Scottish economy, not, as many people according to the newspaper feared, arriving to claim benefits but instead arriving to pay taxes, to work, to contribute and then return to their home countries, that there is a very dynamic labour market within Scotland. That is not to say there are not continuing pressures, but I believe the right way to address that is to have a coherent strategy for the labour market which asks what the modern skills are that we shall need in exactly the kind of vocational trades that you describe. How do we equip Scottish workers to have those skills? That is why it is essential that we see sustained investment, not just in the university sector but also in the FE sector, to make sure that in colleges like the one in Paisley we are producing exactly the kind of skilled tradesmen which are required and why it would be deeply damaging to see the kind of cuts which in the past have been visited on those sectors at exactly the point at which Scotland is not just making its way but prospering within the global economy.

Q47 Mr Walker: What cuts are you alluding to? You alluded to damaging cuts.

Mr Alexander: The third fiscal rule which the Conservative Party are proposing which would see year on year a reduction in terms of public expenditure for what is claimed to be a sharing of the proceeds of growth.

Q48 Gordon Banks: You mentioned vocational skills. In your discussions with the First Minister or with other ministers are you encouraging them to develop a situation where schools and FE colleges are working much more closely together to give vocational skills to the people who maybe do not want to follow an academic route and give them these skills at 14, 15 and 16 rather than just keeping them in school?

Mr Alexander: Absolutely. There is a recognition within the Scottish Executive, although it would be for them to answer your question directly, that there are pupils, in terms of our strengthening economic position in the future, whom we have a considerable interest in keeping in education, who would not wish to pursue the academic route in terms of further education. If one thinks, for example, of somewhere like John Wheatley College in Easterhouse, that is an exemplar of the kind of transformation we have seen in the FE sector, which I feel, certainly looking back over decades, has not received the support it rightly deserved in terms of its significance to developing the kind of Scottish economy all of us would wish to see. I do therefore welcome the fact that there has been sustained investment in further education in Scotland over a number of years now which reflects the reality that we shall certainly have a higher proportion of the jobs created in the Scottish economy in the future being graduate jobs, but nonetheless there is a vital and enduring need to make sure we equip Scottish young people and Scottish workers more generally with appropriate skills for the full range of skills which will be required for a modern economy.

Q49 Mr MacNeil: For business and jobs can you think of anything which might put Scotland in the company of Norway, Ireland and Iceland, who are third, fourth, fifth in the OECD in terms of wealth per head, as opposed to being an underperforming part of the nation in 13^th place?

Mr Alexander: I can trade OECD statistics with you if you would like in terms of recent reports which have been published about the strength of the Scottish economy. In terms of the examples you cite, I have to say that my reading not just of Scotland's economic history but my understanding of economic policy stretches back long enough to make me rather wary of the idea that there is a single transferable answer to the challenges of modern economic success in the globalised marketplace. If we had been having this conversation in the 1970s, one of the features might have been German industrial banking. There might be an article asking why Japan was in a position where we have the Ministry of International Trade. Then you would have moved onto a discussion about the distinctive attributes of Silicon Valley. The truth is that all countries, the United Kingdom included and Scotland therein, have to work hard to make sure they have the essential elements of modern economic success in place. I believe, if you look at the trend rate of growth, if you look at the levels of employment being enjoyed in Scotland at the moment, if you look at the stability in terms of the housing market, there are grounds not just for pride in terms of what has been achieved in recent years compared with other advanced economies, but also real grounds for optimism. The idea that there is, for example, as your party advocates, a long-term strategy for Scotland based on a commodity such as oil, which as we all know is highly volatile, seems to me to be naïve when the real challenges are, as I have just described, to make sure that they are a foundation of economic stability. We then have the right economic responses to make Scotland's place in the future. That involves sustained investment in education - success in the boardroom begins in the classroom - that means that post school education has to be valued and it means that we have to drive up not just standards in terms of vocational education but also make sure that our graduates are equipped for modern economic success. I believe those building blocks are in place which account for the success that Scotland has enjoyed and which explains why every major survey which has been produced in recent months in relation to the Scottish economy by credible independent forecasters recognises not just the success we have enjoyed but is optimistic about the prospects for Scotland's future.

Q50 Mr MacNeil: I take that as "No hope of catching Norway, Ireland and Iceland".

Mr Alexander: With the greatest of respect, you cite Ireland as an example. Distinctive choices were made by Ireland in an era when the European Union was essentially a fairly closed trade bloc. It would be naïve, although it would be characteristic for your party to say that any relatively globalised market, which we now see, where supply chains can stretch from Falkirk, where I was visiting a bus manufacturer a week ago on Friday, to Shanghai, the logic which made sense in terms of the choices which Ireland was making for itself in the 1970s and 1980 necessarily makes sense in terms of the modern challenges we face. I believe that if you look at the framework of macroeconomic stability which has been established it is literally the envy of the world and that is why report after report, whether the Fraser of Allander Institute at home or the OECD abroad has recognised the strength of our macroeconomic stability. That stability is, however, not the end of the discussion but the starting point of the discussion. To imperil that stability, as I believe your policies would, would of course be highly irresponsible, but on that foundation of stability we do need to make sure we have the appropriate skills mix for a modern economy. I believe we are making the right choices both north and south of the border. Do not take my word for it, take the word of the OECD in their most recent report which placed great weight on the economic stability which had been achieved at a UK level and look most recently at the report produced by the Fraser of Allander Institute only this week which highlighted the very perilous dangers of throwing away that stability in pursuit of the volatile resources that your party advocates as a sustainable basis for Scotland's prosperity.

Q51 Mr Davidson: When we met the oil industry recently they were unhappy about the Treasury and it is worth mentioning that they were very supportive of DTI whom they felt understood very well what the oil industry was about. It was a noticeable contrast in the views between the Treasury and the DTI. Why they were unhappy with the Treasury was because of the increase in corporation tax. Can you tell us the mechanism by which the Scotland Office was consulted on that matter?

Mr Alexander: I was only appointed a number of weeks ago, but I can tell you that I understand my predecessor, Alistair Darling, had frequent and detailed conversations with the Chancellor, as you would expect of a Cabinet colleague in the days and weeks preceding the Budget. I can myself vouch for the fact that I similarly had discussions with the Chancellor immediately preceding that. There is some risk in relation to your question in presuming that the Scotland Office would regard there as being a wholly different set of fiscal policies which are appropriate for Scotland and the rest of the United Kingdom.

Q52 Mr Davidson: It would be wrong to presume that. I was not asking that. I was simply seeking clarification on the mechanism. While I appreciate that the Chancellor and the then Secretary of State for Scotland would have met and chatted and so on, what I am still not clear about is the actual mechanism by which these dialogues are conducted. Is there a formal mechanism by which the Chancellor consulted the Secretary of State for Scotland on the change in corporation tax on the oil industry that will reassure us that there will be formal consultation on any future change?

Mr Alexander: Ultimately these are judgments exercised, as any Budget judgment, by the Chancellor. That is informed by the discussions which are held with Cabinet colleagues. I understand that it is a matter of record that there were discussions between the then Scottish Secretary and the Chancellor of the Exchequer preceding the judgment which was reached by the Chancellor. I should not wish to leave the Committee with the impression that any other Cabinet Minister ultimately exercises that judgment. While there is consultation, as the Chancellor made clear repeatedly in his Budget statement, the Budget judgment that he makes is the basis on which the Government forms the taxation policy.

Q53 Chairman: Your Annual Report tells us that £19.1 billion was paid to the Scottish Consolidated Fund in 2004-05. This compares to an original Estimate of £21.3 billion. Why were your forecasts so inaccurate?

Mr Alexander: Perhaps I might ask Jim to explain because this was a question I asked him some time ago.

Dr Wildgoose: There is a technical reason for this and it is to do with the handling of pension payments for NHS staff and teachers. A correction was required to the figures which is reflected in the outturn figure but is not reflected in the original provision figures. This change in the arrangement was discovered in fact after the final provision figure was set in the table in the year in question. This is quite a technical issue and I would be happy to write to the Committee about this if that would be helpful.

Chairman: Yes, that would be fine.

Mr Davidson: Could it be in short words?

Q54 David Mundell: I am very pleased that we have the chance to raise the matter of the operation of devolution. We have two members of the Scottish Parliament present in our audience today and I am sure they are very welcome and we all want to work very closely with them. I do not want to get into a discussion about whether or not there is going to be a new First Minister or indeed whether there is going to be a new Prime Minister, but I am sure you do agree with me that relationships between Westminster and Holyrood and between the Scottish Executive and the UK Government have to be robust enough and clear enough to be able to operate when we have governments of different persuasions alternately in either parliament. I am not convinced at the moment that they are and I think it would be helpful if perhaps you could talk through how these relationships actually work in practice. For example, you have alluded to discussions you have recently had with Mr McConnell. What is the formality of these discussions? How is that programmed? How does the system work? Are you convinced that system would work if it were to be Mr Salmond or another?

Mr Alexander: I shall resist the temptation to place on record once again my disbelief at the prospect of either Mr Salmond or, I suppose from your point of view, Ms Annabel Goldie, taking office as Scotland's First Minister, because I think we should probably deal with facts. In terms of your substantive point about the degree of formality in the relationship with the First Minister, clearly that depends on the communication. I do not suppose it is sharing any kind of state secret to say that the last conversation I had with the First Minister was by text, preceding that was a telephone call and preceding that was a face-to-face meeting. The serious point I make is that your argument is, with respect, well-trodden ground. I know that it was a subject you raised with my predecessor Alistair Darling at the equivalent hearing last year. I share with Alistair the background as a lawyer before entering Parliament and his scepticism that a greater degree of rules and regulation being devised at this juncture by the Scotland Office and the Scottish Executive respectively would strengthen what I believe are settled and well-working relationships. Frankly there is a question, not least in light of the conversations we have been having about staffing levels in the Scotland Office, as to whether it would be a judicious use of time energy and finance to send over a group of civil servants to try to scenario plan in terms of different scenarios about how relationships should be established in different ways. Instead we should recognise that there are clear arrangements which I believe have served us well. The fact that to date - and I certainly hope this continues - we have a Labour-led Executive in Holyrood and we have a Labour Government at Westminster is not prejudicial to my argument. A government of whichever hue in Westminster and an administration of whatever hue in Holyrood would, I believe, because politics is ultimately about delivery, have an interest in having effective working relationships, notwithstanding the fact that the ambition of those administrations may be different from the Labour administration which presently holds office. I am afraid, with respect, I simply disagree that having a whole battery of further rules, regulations and arrangements would necessarily serve an arrangement well which is working effectively just now.

Q55 David Mundell: Just now, without any new rules and regulations, we have a joint ministerial council which has hardly met at all. Do you regard that as being unnecessary?

Mr Alexander: No. The Joint Ministerial Committee which you describe has met. Again I inevitably bring to this discussion my previous perspective as the Europe Minister in relation to its functional work as the Joint Ministerial Committee on Europe. The reason there have been both frequent and effective meetings of the Joint Ministerial Committee in relation to Europe is that it makes good sense for there to be an aligned British negotiating position when we go to Brussels or to Strasbourg or wherever. To have a committee which meets regularly, which brings in devolved administrations, is eminently sensible. In other areas of policy, as devolution has matured, it has emerged that the Joint Ministerial Committee process is more of a long-stop. I do not per se take that as being a criticism either of the original proposals or indeed how devolution has come to mature. The Joint Ministerial Committee is only one of the mechanisms by which effective coordination is taking place. The Scotland Office has a role in that. Increasingly, under my predecessor as well, there is very effective coordination bilaterally between Whitehall departments and the Scottish Executive and the fact that per se they are not choosing to meet on a regular basis, as some have suggested is necessary, through the mechanism of the Joint Ministerial Committee, I do not see as being to our discredit. I see it as a reflection of the fact that a great deal of important business can be done bilaterally directly between the Whitehall department, sometimes coming through the Scotland Office but dealing directly with Scottish Executive ministers. Perhaps David could add his perspective, given his regular contact with Scottish Executive ministers on exactly these kinds of questions.

David Cairns: Obviously at the time of devolution it was an innovation; it was not something we had had in this country before. There was an attempt at the time of the Scotland Act to put in place a suite of different arrangements which could take place in order for devolution to be maintained and stability ensue. I am aware of the allegation which you have made that it is all done on a nod and a wink through the Labour old boys' network, which I think is the phrase you have used in the past. I simply do not think that stands up to scrutiny. There is a memorandum of understanding and there are devolution guidance notes which are adhered to. The memorandum of understanding itself, which was written up and devised at the same time as devolution, actually says that most contacts should be carried out on a bilateral or multilateral basis between departments which deal on a day-to-day basis with the issues at stake. That is actually what happens day in day out, week-in week out, most recently on the decision of the Scottish Parliament to pass a legislative consent motion allowing the Barker judgment to be overturned so that mesothelioma victims could get compensation and could get justice much more quickly. If the Scottish Parliament were to legislate itself, it would have to begin a whole new round of consultations and its law would take a lot longer to reach the statute book. I do not think that if we had had to wait until the next JMC meeting - and it would only have been a couple of times a year anyway - to resolve those issues we should have done justice by the mesothelioma sufferers and the Scottish people. We need to be much more dynamic, we need to be much more fleet of foot, we need to be able to address real issues as they come along in the exemplary way which directs discussions between the Scottish Executive department and the Department for Constitutional Affairs here, between myself and between Margaret Curran so that we could actually make sure that everybody was informed what was going on. We needed that flexibility to be able to respond quickly and we have got the result everybody wants to see and the LCM went through with absolutely nobody opposing it. We need the formal structures in place such as the JMC Europe but we also need arrangements which can respond quickly to events as they unfold.

Q56 David Mundell: Are you actually saying that nothing could be done to improve the inter-governmental parliamentary relationship and that it is as good as it could be?

Mr Alexander: I feel a sense of déjà vu in the sense that they asked the same question to my predecessor at the session last year where he replied that it would be a stupid man who says nothing can ever get better.

Q57 David Mundell: With respect, one would hope you had brought a new perspective to the role and sometimes when somebody does come into a role with a new perspective then they can identify things which people who had previously been in the role had not necessarily seen. On that basis I am asking whether you think there is anything that needs to be done that would improve the working relationships between the two parliaments and the two governments. I am sure one thing we can agree on is that it is important that, whatever the government, either Holyrood or Westminster, they should be capable of working together and not get bogged down in relationship mechanics.

Mr Alexander: Of course this is a matter which any incoming Secretary of State would have regard for and would look at circumstances. I do think, if your claim that this is all done on a nod and a wink was judged favourably in the past, that after the shameful sending off of Wayne Rooney on Saturday the idea of basing anything on the basis of winking would be judged rather rash. I do find myself in sympathy with my predecessor on the substantive point which is that my background as a lawyer and my practical experience, both as a departmental minister and now Secretary of State, suggest to me that the memorandum of understanding, which itself identifies effective bilateral working as the way forward has proved to be both durable and effective and in that sense I would not offer you false hope that with a new Secretary of State there is a fundamentally different view on what I believe is a successful joint partnership approach which can be taken forward in the future.

Q58 Mr MacNeil: As a lawyer, I wonder whether you are paid by the word by any chance. Devolution has been described as a process rather than an event. What do you trust the current Scottish Executive have devolved to them next?

Mr Alexander: I should regard the constitutional settlement which has been reached as reflecting a durable basis on which relations can be taken forward between the Scottish Executive and the United Kingdom Parliament. It is right - and again, my predecessor rehearsed these arguments when he was before this Committee last year - that there have been, at the margins, specific examples of where powers have been transferred and in a moment I shall ask David to say a word about the Sewel convention. Perhaps the railways are the most substantive example, where, my predecessor judged on coming into the post, both as Transport Secretary and then as Scottish Secretary, that it was the right view given the existence of the distinctive franchise in Scotland. I would not hold out at this prospect, notwithstanding the conversations which will appropriately take place in relation to Arbuthnot. The idea that I have in my head a range of further powers that I would wish to devolve ... Rather than your position I hold to the position that we do have a durable settlement and in that sense one of the learning points that people have gained over recent years is that, unlike some of our critics, devolution has not proved to be a motorway without exits towards independence: instead it reflects, in the words of the late great John Smith, the settled will of the Scottish people.

Q59 Mr MacNeil: Have you tested that?

David Cairns: Very briefly, more in response to Mr Mundell's point earlier on, since last year there has been an investigation by the Scottish Parliament's own procedures committee into how the mechanics of the Sewel motion operate and you have produced a report which I believe attracted some press interest on this matter. Whilst I should not want to pre-empt the Government's response to that, I think we would be very minded to look favourably upon the improvements to the operation of Sewel that you are suggesting in your report. That would represent one way of changing the way in which the parliaments and the executives are related to one another; a perfectly sensible and moderate change to it.

Chairman: Before I move on to departmental objectives may I ask colleagues to put brief questions and I should appreciate brief answers because the Secretary of State has to leave at 5.30pm.

Q60 Ms Clark: There has been a change in the stated objectives of the Scotland Office since last year's Annual Report and I just wondered why that had come about.

Mr Alexander: My understanding of the evidence which was given by my predecessor at this Committee last year is that ventilated some of these issues. The changes for the 2006-07 Scotland Office are designed to focus more directly on the objectives in the three areas of the Scotland Office work: Scotland's interest in reserved matters; UK Government parliamentary activities in relation to the constitution under the Scotland Act; the proper handling of financial matters. In the previous set of objectives these three distinct elements were conflated slightly, for example finance and statutory functions were brought together. Again, I would not wish to leave the Committee with the impression that there was a fundamental political difference between the objectives in the preceding year and this year. As I understand it, it was a reflection of the consideration that my predecessor gave to the observations of this Committee as to how to give a clearer and more concise expression of the objectives which were the underlying purpose of the Scotland Office.

Dr Wildgoose: I cannot add much to that. That was very much the focus. There was some brief discussion of this at the last session. The other thing to say is that if you look at the previous set of objectives some of them really look like functions rather than actual objectives as such as to what we were trying to achieve. If you look at the third one, for example, it was really couched as a function to advise UK departments rather than specifically to look after Scottish interests. The recasting of the objectives was really to set them in the context of what it is we are trying to achieve in these three areas.

Q61 Ms Clark: One of the previous objectives was to maintain the stability of the devolution settlement and that has been taken out. Can anything be read into that?

Mr Alexander: No, basically. That is a short answer but I shall elucidate on it slightly. Again, this specific question was brought up in last year's session, in particular the wording of the previous objective one, which incorporated that particular phrase. The changes for 2006-07 are designed to focus more directly on our work and in that sense do not suggest any change whatsoever in the focus of the Scotland Office.

Q62 Ms Clark: One of the other changes has been the introduction of a new objective to handle financial matters timeously and with propriety. Is there any particular reason why that has been something which now needs to be incorporated? Is it a reflection of any problems previously in this area?

Mr Alexander: No.

Q63 Mr Davidson: May I ask on a point arising from that about the operation of the Office? Within a few days of taking over in your previous post you had killed off the European Constitution. You have not managed anything equivalent here. Do you think that you and David have been sufficiently New Labour purely in terms of promoting radical change in the Scotland Office? I am thinking in particular about the draft Scotland Order on the River Tweed. Not only could the Minister not give us a list of the tributaries of the river, he was really only reinforcing feudalism along the Tweed valley and I should have thought that was something on which New Labour ministers would want to introduce radical changes. Is this an opportunity missed?

Mr Alexander: I am afraid that my designation and appointment as Minister of the Month is now but a distant memory; neither in my responsibilities as Secretary of State for Transport nor Secretary of State for Scotland have I managed such a gilded honour in the last month. In terms of the specifics, I know that David is familiar with the Order and indeed the 200 tributaries, as I understand it, which flow into the River Tweed.

Q64 Mr Davidson: Name them.

Mr Alexander: Given the request of the Chairman for short answers I feel it would be disrespectful to the Chairman to name all 200 of the tributaries, but if there is anything you would like to ask ...

Q65 Mr Davidson: Give me five of them then.

Mr Alexander: We can certainly write with all 200 if you like.

David Cairns: I did give an undertaking to write with all 200. Just on the point, I appreciate the spirit in which Mr Davidson has made his remarks, but the River Tweed Commission, thanks to the Order we put through, will now be composed not just of people who happen to own a chunk of the land, which was the previous regime, but will not be composed of a majority of members who are appointed by local authorities along the clear line of democratic accountability in the way which the River Tweed is going to operate which was not there before. I think that is a very welcome progress of democratic and New Labour reform which you voted against.

Q66 Mr Davidson: Five of the tributaries?

David Cairns: I shall be writing to the Committee. It would be invidious of me to pick out five. People living on the banks of the other 195 would be offended.

Q67 Gordon Banks: May I take you back to the linked question of the variation in staff? There has been an increase in costs to £3.9 million over £3.3 million at present. What is the basic cause of that increase? Can you give me some comment in relation to the downward movement of the work between 2004-05 and 2005-06?

Mr Alexander: You bring the perspective and experience of a private sector businessman to these figures. Let me say in terms of the upward lift that the reason is actually terminological. We need extensive renovation work to the roof of Dover House; it is no more conspiratorial or difficult than that. Following a recent report from English Heritage we are required to carry out this work amounting to an estimated £1.2 million. This is required under our lease from the Crown Estate Commissioners. Dover House is of course a Grade 1 listed building and the lease is on a full repayment basis, hence we are responsible for all the repairs and maintenance including the impending roof repairs.

Dr Wildgoose: The earlier downward shift follows from the earlier discussion about complement versus outturn with the personnel changes that we had. We hope in future, with the changes in budgeting, that we shall not have that kind of movement from one year to the next with the new arrangements we have planned.

Q68 Gordon Banks: So a lot more stability once the roof is fixed.

Dr Wildgoose: Yes, more or less. There will be scaffolding up for three months from August over Dover House. You will see that as a feature.

Chairman: The Barnett Formula and per capita public spending. I believe there was Tory support for the formula.

Q69 Mr Walker: I just have a quick question, bearing in mind that the Minister needs to leave in about 30 seconds. I notice on public expenditure per head that the Eastern region, of which my constituency of Broxbourne is part, was £5,864 but in Scotland for 2005-06 it was £8,265. Can the Secretary of State explain to my constituents how a difference of £2,401 or 45 per cent is justifiable in public expenditure per head between the Eastern region and Scotland?

Mr Alexander: The first point I would make is that the Barnett Formula, which I believe underlies the question, has delivered stable and transparent settlements not just under this Labour administration but under previous Conservative administrations for almost 30 years. The Barnett Formula gives the same overall increases for devolved programmes per head of population in all four parts of the United Kingdom including England. It is however the case that in terms of the percentage increase in identifiable spending, as a consequence of how the Barnett Formula works, there will have been a higher percentage increase in identifiable expenditure in the Eastern region in recent years due to the general uplift in public expenditure than has been the case in Scotland. All changes to government spending are obviously decided during the spending reviews and details are then published in the spending review documentation. The substantive point rests that in terms of the general uplift in public expenditure we have seen in recent years across the United Kingdom the effect has been to see a higher percentage uplift within the region he identifies as part of England than has been the case in Scotland, given that prior to the establishment of the Barnett Formula more than 30 years ago there was a disparity in terms of ---

Q70 Mr Walker: I am sorry but that was not my question. My question was: how can you justify a difference in expenditure per head of £2,401 between my constituent in Broxbourne and your constituent in your Scottish seat? I just want the answer to that. How can you justify that difference of £2,401? It is a lot of money.

Mr Alexander: Because there is a settled basis on which decisions are made across the United Kingdom in terms of public expenditure. The Barnett Formula is the formula by which changes are allocated on a pound for pound basis. The existence of the Barnett Formula has not been a subject of contention between our parties for a number of years. It is now the fact that the Conservative Party has chosen to make this an issue. The relative expenditure in Scotland reflects the service provision established in Scotland over a number of years and the Government have no plans to change the Barnett Formula.

Q71 David Mundell: Just so it is on the record, the Rt Hon Member for Witney has made it very clear that the Conservative Party has no plans to review the Barnett Formula. In that context, can the Secretary of State tell me his view on whether he thinks the continuation of the Barnett Formula would be sustainable if the Leader of the Liberal Democrats in Scotland has his way and the tartan tax powers are used to reduce income tax in Scotland? Do you think in that context politically that the Barnett Formula would be sustainable?

Mr Alexander: I have been invited to imagine certain bizarre scenarios in the course of the last hour and a half but a Liberal Democrat Party able to dictate the full gamut of fiscal policies on the basis of having triumphed in the Scottish Parliament elections is one fantasy too many even for me at this late hour. The substantive point remains however. I welcome the commitment which has been reiterated today by the honourable gentleman in relation to his party's commitment to the Barnett Formula. It might be a view that he would like to share with his near neighbour on the Committee. I am sure that will make for an interesting discussion but I have nothing further to add to the points I have made in relation to the Barnett Formula already.

Q72 Chairman: Secretary of State, Minister and Dr Wildgoose, thank you for your attendance today and for answering our questions. Before I declare the session closed, do you wish to say anything in conclusion, perhaps on areas not covered already during the questioning?

Mr Alexander: No, I should simply place on record the fact, as Dr Wildgoose emphasised, that if there are specific technical questions, in particular in relation to the accounts at the back of the report, we shall endeavour to answer the Committee's questions in written correspondence.

Chairman: Thank you very much Secretary of State.