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27 Jan 2011 : Column 505
2.44 pm

John Stevenson (Carlisle) (Con): I am grateful for the opportunity to participate in this debate. My contribution will be modest, given that I am not versed in the intricacies of the politics of Scotland, although I am learning quite a lot this afternoon. As a Scot who has family in Scotland, I have a great interest in what happens there and I would like to see Scotland succeed. I am also interested in the continuing relationship between the devolved Government and the national Government. Most importantly, I represent a constituency on the border, so I want to be aware of the implications of the Bill for my constituents.

I appreciate that the Bill is primarily relevant to Scotland, but it does have a potential impact in England, and that impact will be most pronounced in the border area, affecting seats such as Berwick-upon-Tweed, Hexham, Penrith and the Border, Workington and, of course, Carlisle. Indeed, in my part of the country, we have an unusual relationship with Scotland in that we were not part of the Domesday book because we were part of Scotland at the time. Subsequently, we had the "Debatable Lands", the reivers, and the movement of the border to Hadrian's wall and so on. Indeed, that continues to this very day with the invasion of Carlisle every Saturday by people coming over the border to shop and for entertainment. I therefore have a slightly different perspective on this debate to many hon. Members north of the border.

There will no doubt be some concern in my area about the Bill and the impact, in particular, of the tax-raising powers. In reality, many of the issues already exist: there are separate laws on housing, inheritance and planning. In some ways, the planning laws have been beneficial to parts of Scotland, with Gretna being an example. Traditionally, licensing laws were different. I remember when I moved to Chester from Scotland, I got a shock when the pub closed at 10.30 rather than 12, but England has since progressed. Scotland was also ahead of the curve on the smoking ban, to its credit. At times, Scotland can be more progressive and innovative. Indeed, those who live on the border are often more aware of the differences between the two countries and the various laws that affect them.

I welcome the Bill and its proposals. They are very much in line with the recommendations of the Calman report, which has broad support in this Chamber. It is also in line with my own philosophical viewpoint and that of the Conservative party-and of the Liberal Democrats-including a belief in localism, decentralisation and financial accountability. Devolution is now an accepted part of our political culture and is generally accepted by most people. Therefore, the issues that we now have to debate are the workings of devolution, how to make it better, how to achieve the right balance and the powers that we give to the devolved Assembly. Giving powers away is very much in line with the localism agenda, including the need for responsibility and the link between spending and taxation. Indeed, in many respects, that link has been missing in the English local government debate as well as in the Scottish one, but I am delighted that the Government are starting to address that issue for English councils just as they are for Scotland in this Bill.

The aim of the Calman commission was to recommend changes to the present constitutional arrangements in three ways-to serve the people of Scotland better, to
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improve the financial accountability of the Scottish Parliament and to continue to secure the position of Scotland in the UK. It is in terms of those three key points that we must consider the Bill.

As Calman said, the devolution settlement is a "real success" and "works well in practice". In many respects, that outcome is supported by the Bill, which does not dramatically rewrite the devolution settlement, but fine-tunes and adds to it. As hon. Members have said, the key aspect of the Bill is the changes on tax, but it also includes drink-driving limits, speed limits and other measures. I suspect the drink-driving limits and speed limits will be of more interest to those of my constituents who travel over the border.

One omission from the Bill is welfare and social security. It will be interesting to see how the Government approach that in due course, but I appreciate that a national debate on that subject is going on. The reforms that the Government are proposing nationally must have priority.

Income tax is the obvious area that could have an impact on cross-border relationships. There are people who live in Scotland and work in England and vice versa. However, I believe that there is nothing wrong in having different tax rates between different places-we see it at local government level with domestic rates-and allowing the Scottish Parliament to be able to set its own income tax rate creates accountability, responsibility and transparency.

The tax that I am probably most interested in, and the one that gives Scotland a real opportunity to be innovative, relates to old-fashioned stamp duty land tax and how it could be applied to commercial and residential property. If the Scottish Parliament is innovative, that will give it the opportunity to gain a commercial advantage, which could be beneficial to the local economy. However, the Bill is not just about transferring powers; it is also about providing the tools for Scotland to improve itself. The really exciting part of the Bill is that the Scottish Government and Parliament will receive incentives and control over their own economic destiny.

In my view, the Scottish economy needs to have a smaller public sector and a much larger private sector. Scotland needs to grow its private sector, and by doing that it needs to increase its population, build more houses and create more businesses. It will now have some of the tools to achieve that, via business rates, SDLT and income tax. This is a real opportunity for Scotland. If it can grow its tax base, it can reap the benefits. So I welcome the Bill. It achieves the key objectives of the Calman commission. It gives Scotland a greater opportunity to do things differently and, perhaps, better, and interestingly enough, the 2015 election will give the political parties an opportunity to offer different visions of a future Scotland. That is healthy for Scottish democracy and the Scottish Parliament, and will help to strengthen the Union.

Anas Sarwar: I welcome the hon. Gentleman's comments and am pleased that he supports the Bill. I just want to highlight the irony of a Tory Back Bencher supporting more powers for Scotland, but the Scottish National party voting against it.

John Stevenson: There is certainly a degree of irony in that. I welcome the Bill.

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2.52 pm

Graeme Morrice (Livingston) (Lab): I congratulate my hon. Friend the Member for East Lothian (Fiona O'Donnell) on her excellent and entertaining contribution. I would also like to congratulate her-on behalf of the whole House, I am sure-on it being her birthday. She tells me that she is 21. That is 21 plus VAT at a rate of 30%-do the math! [Interruption.] She is the same age as me-well, slightly younger.

I am grateful for the opportunity to speak in this debate. There can be no matter of greater importance to Scotland than the question of how we strengthen the devolution that has helped to improve the lives of our constituents over the past 11 years. Nor should we forget that it was a Labour Government who brought devolution to Scotland, through the creation of a Scottish Parliament with a significant and comprehensive range of statutory powers. Now, after more than a decade of devolution, the time is right to take the next steps in developing Scotland's democracy and its relationship with the other nations of the United Kingdom.

That opportunity was provided, of course, only through the establishment by the previous Labour Government of the Calman commission. The proposals in the Bill, which are rooted in Calman's cross-party work, reflect the overwhelming desire of the Scottish people to anchor Scotland's future firmly in the United Kingdom. On that basis, I support the principles in the Bill. There are differences of detail, of course, between Labour's approach and the plans in the Bill. For instance, the aggregates levy, food labelling and charity registration have been omitted from the Bill. Matters of considerable detail will need to be thrashed out, but the principles are the right ones. Greater magnitude of fiscal autonomy and improved accountability and transparency will ensure that Scotland's stability and her place in the United Kingdom remain strong.

There are those who say that the Bill is part of the slippery slope to independence. There are those who said the same thing about creating a Scottish Parliament, but 10 years on, support for independence is at an all-time low. Strengthening devolution does not undermine the United Kingdom; it makes it stronger. The importance of that strength could not have been demonstrated more acutely than by the economic events of the past three years, yet the SNP still preaches separation. Rescuing the Scottish banks could never have transpired under independence, and the turmoil in the Irish economy demonstrates how vulnerable independence would have left the Scottish people.

The question of devolution is settled; how we make it work better for Scotland is the challenge that the vast majority of Scottish people want us to address. It is perverse that the SNP, which stands on a platform of autonomy, has refused to engage with the Calman commission to create and shape new powers for Scotland. There is an incredible irony at the heart of the SNP position. It rejects the Calman commission because it exposes Scotland to falling tax receipts. The SNP talks about full fiscal autonomy as an answer to Calman, but exposure to falling tax receipts would apply to Scotland's budget whatever the degree of financial powers it acquired. Far from improving, the position under independence would be considerably worse.

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Stewart Hosie: The hon. Gentleman is wrong. Any country will see its tax revenues fall or rise with the economic cycle-the one that the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) said he had ended. The difficulty with the proposals in the Bill is not that tax revenues may go up or down, but that they embed a deflationary bias in the Scottish budget.

Graeme Morrice: I am obviously aware of the objection to the Bill from the SNP-it is an objection that we often hear-which is that it would mean less money for the Scottish Parliament. Indeed, the First Minister claims that the Scottish budget would have been considerably worse under Calman, compared with the current regime, yet Alex Salmond refuses to publish the numbers setting out what his plans for fiscal autonomy would have meant for the Scottish budget in the last 10 years.

Pete Wishart: It is not just the First Minister who has said that there is a fiscal drag with the current plans- £7 billion is what we argue-but the Secretary of State, who said that the figure would be £700 million, so we are in pretty good company. If that was the loss to the Scottish budget, would the hon. Gentleman object to these tax proposals?

Graeme Morrice: The reality is that Government expenditure in Scotland is considerably greater than the sums raised in taxes. In fact, in 2008-09, the last year for which figures are available, total public sector revenue in Scotland was £43.5 billion, whereas total public sector expenditure was £56.5 billion. Under the separation that Mr Salmond wants, that would lead to a fiscal deficit of £13 billion. Let us turn to the fallacy peddled by the SNP that only under a system of full fiscal autonomy would Scotland's economy be able to generate growth. There is little evidence to suggest that this is the case. Professor Lars Feld, one of the world's leading authorities on decentralisation, has concluded:

Professor Anton Muscatelli of Glasgow university has said that

The Scottish Parliament's competencies are already substantial, but we need to do more to increase accountability. Unlike the funding of most devolved regions by national Governments around the world, Scotland's block grant is unconditional and can be spent in whichever way chosen. Voters in Scotland and Members of the Scottish Parliament are therefore not exposed to the choice between public expenditure and additional taxation. The Bill ensures that those choices are made. More shared taxes; new devolved taxes; greater borrowing; greater transparency; a fair balance of shared risk across the United Kingdom-that is a fair balance of new powers to create the accountability that the Scottish Parliament needs. The Scottish Parliament will be answerable to the Scottish people for the money that it raises and spends. That is what the vast majority of Scottish people want. They do not want separation, but they do want a Scottish Parliament that is responsible for the decisions that it takes, and that is why I am supporting this Bill.

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2.59 pm

Iain Stewart (Milton Keynes South) (Con): I welcome the opportunity to speak in this debate. Although I represent a seat south of the border, I have a long-standing interest in devolution matters. I not only spent my formative years in Hamilton, but when the original Scotland Bill passed through the House in 1998, I acted as an adviser to the then shadow Front-Bench team, which included my hon. Friend the Member for Epping Forest (Mrs Laing). I have thus gained a probably unhealthy level of detailed knowledge of the Scotland Act 1998, and I hope to draw on it a little in my contribution.

I trust that the House will not object if I draw on a book on the Barnett formula and fiscal autonomy, which I co-authored in 2003 with the eminent Scottish lawyer, Professor Ross Harper. For the avoidance of doubt, let me say that I am not seeking to advertise the book: it is no longer for sale and I received no royalties for it at the time. Let me just say that it was not troubling "Harry Potter" for the No. 1 spot on the best-seller list. Nevertheless, I hope that the research we did for the book will help our deliberations today.

I want to put on record the fact that I was sceptical about devolution at the time of the referendum in 1997. I campaigned and voted against the devolution measures. I am happy to say that many of the doubts I had at that time have not been borne out by events. I believe that the Scottish Parliament reflects the settled will of the Scottish people and that, on the whole, it has been a success. Our job today is to improve and strengthen it, thereby strengthening the Union. The Scottish Parliament is not perfect, however, as there are some deficiencies, but I believe that the Bill goes a long way towards improving them.

I want to focus, as much of the debate has, on the transfer of fiscal powers. It is right that the Scottish Parliament is more accountable for the money it spends-a flip of the old adage, "No taxation without representation". It is right for the Scottish Parliament to be held accountable to its electors for its own spending decisions. Going back to the 1997 referendum, I was intrigued by the option that did not get much coverage at the time, when the debate centred on the "yes/yes" or the "no/no" campaign. Some people believed in the "no/yes" option-they did not want a Scottish Parliament, but thought that if there was to be one, it should have proper fiscal powers and be held accountable.

I hope that the Bill will improve participation in Scottish Parliament elections. Although the turnout is higher than for local government, it is lower than for elections to this place, in which turnout is in no way at a particularly high level. Part of the reason for that lower turnout is that Members of the Scottish Parliament can make spending decisions without being directly accountable to their taxpayers and electors for them. I strongly support the Bill's principles in addressing that point.

Speaking as an English Member, I want to put on record the fact that I often hear representations from constituents about why Scotland has free tuition, free prescriptions and so forth, which people do not have in England. I explain that the financial relationship between Scotland and England is much more complicated than the Barnett formula, which people often use as a shorthand to explain the whole fiscal relationship between Scotland
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and the United Kingdom. The point is nevertheless an important one, because if that concern is left unchecked, the Union will suffer. If people in England think that Scotland is getting an unfair advantage from the financial arrangements, the Union will suffer. As a Unionist, I make no apology for saying that; as a Unionist, I say that the Union suffering is the last thing I want to see. If Scotland wants to increase spending in a particular area, or introduce free care, tuition fees or whatever, the Scottish Parliament will now have to find more of that money, and that is an important point for strengthening the Union.

Mr Weir: I am listening carefully to the hon. Gentleman. He talks about the financial responsibility of the Scottish Parliament, but why does he feel that that should be confined to income tax? Does he not agree with Lord Forsyth, a former Tory Secretary of State for Scotland, who said:

The point is that if the Scottish Parliament is to have responsibility, it must have responsibility not just for varying income tax, but for managing the economy.

Iain Stewart: I beg the hon. Gentleman's patience, as I will turn to those points in a moment.

David Mowat: My hon. Friend makes a powerful point about the threat to the Union posed by a perception of unfairness in relative funding, and giving Scotland control over its tax revenue raising will partially address that. However, it is widely accepted that the baseline, under the Barnett allocation, is 15% to 20% higher than it would be in equivalent places in England, and that is an issue for the Union.

Iain Stewart: I am grateful to my hon. Friend. I am not sure whether his birthday is coming up, but I will happily send him a copy of my book, which goes into the matter in some detail. The baseline funding for Scotland is an important point, but whether to have a needs-based assessment is not part of the Bill, although the Bill opens up the possibility that that will be reviewed in future.

Malcolm Bruce: No one can deny that these are legitimate issues for debate, but does my hon. Friend not acknowledge that when we look at the matter detail by detail-my right hon. Friend the Member for Yeovil (Mr Laws), when he was adviser to my party, did some work on this-we see that a high proportion of the spending differential is justified by remoteness, the different balances, benefits and so forth? A part of it is not accounted for, but the gap is nothing like as big as my hon. Friend the Member for Warrington South (David Mowat) suggests.

Iain Stewart: My right hon. Friend makes an important point. The whole subject is difficult and complex, given the shorthand of Barnett and the vast difference between public spending in Scotland and England. In some areas, however, for the reasons that he has set out, there is a big difference, and those reasons will also be found
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in England. For instance, in remote parts of Cumbria or Devon, spending per head will be higher than in central London or Manchester.

Pete Wishart: If the hon. Gentleman looks at the study by Oxford Economics, he will find that London secures more public spending than any region or nation in the UK. If he and the hon. Member for Warrington South (David Mowat) are concerned about grant formula and Scotland's spending relative to England's, I have good news for them: they can vote to change that in the next few weeks and allow Scotland to have full fiscal responsibility. That would allow all the Barnett issues to disappear. If we were allowed to have the economic levers to grow our economy, we would be self-reliant on taxation.

Iain Stewart: As I said to the hon. Member for Angus (Mr Weir), if the hon. Gentleman allows me to make a little progress, I will come to the issue of full fiscal autonomy in a moment.

Clearly, the existing Scotland Act contains some fiscal powers for the Scottish Parliament: principally, the ability to vary the basic rate of income tax by 3p higher or lower than the UK rate. That has never been used, partly because the SNP Administration in Edinburgh has allowed the levy required each year for the mechanism to stay in place not to be paid. There is a more fundamental point, however: the administrative and set-up costs for making that small change in the income tax rate are disproportionate to the revenue that would be raised.

When the House was considering the Bill that became the Scotland Act 1998, it was calculated that it would raise, at the most, an additional £450 million. Given a total Scottish Office budget of over £22 billion, it was a tiny measure and would involve considerable start-up and administrative costs and not generate enough revenue. I can understand why it has not been introduced so far.

Stewart Hosie: The hon. Gentleman talks of the amount that might be raised if the tax rate were put up. There is, however, a built-in perverse disincentive to lower the tax rate. If the income tax rate, for example, were lowered and that stimulated economic growth, and if the benefit were paid from higher corporation tax receipts, the Scottish Parliament would take the hit of reduced income tax, while the United Kingdom Government would gain the advantage of enhanced corporation tax.

Iain Stewart: I am explaining why I do not think the provisions in the current Scotland Act are sufficient, and why I welcome the measures to increase substantially the power of the Scottish Parliament to raise a significant chunk of its own revenue. There are still concerns about how they will be implemented, and I raised that point during Scottish questions yesterday. I have been reassured that proper consultation is taking place with members of the business community in Scotland, who will have to administer many of the new arrangements, but I urge my colleagues on the Front Bench to keep a close watch on the increased regulatory burden on businesses at a time when they can ill afford much additional bureaucracy.

I think the HMRC bodies should consider the possibility of certain unintended consequences. There is, for instance, the question of how payments into personal pension
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plans which attract the adding back on of basic or higher-rate tax contributions should be treated. If in the past contributions have been made at the United Kingdom rate and added back on, a different Scottish rate will create potential anomalies when it comes to how that income is treated. I suspect that a fairly small amount is involved overall, but it is an important detail that ought to be clarified before the Bill is implemented.

I welcome the move to devolve some taxes, and I hope that more can be devolved in time. I hope that, for instance, the issues surrounding the aggregates levy and air passenger duty issues will be resolved. I do not believe that this is the end of the story; I trust that those two taxes will eventually be devolved, and that the Scottish Parliament will be given greater fiscal autonomy.

I referred earlier to the book that I co-authored. Part of our research involved international comparisons.

Mrs Laing: I hesitate to interrupt my hon. Friend, but he has just demonstrated that he is one of the few people who understand, and have carried out an in-depth study of, the relationship between United Kingdom and Scottish finance. He is being modest about his book, but I need not be modest on his behalf. It is an excellent publication, which I have consulted on many occasions. May I ask him to show the House his book and tell us its title, so that every Member in the Chamber- [Interruption.] I do not think he will make any money from it. However, some Members might be better educated in future if they knew more about it. I believe that it is called "It's Our Money! Who Spends It?"

Madam Deputy Speaker: Order. That was a very long intervention. I think that the hon. Lady has given the hon. Gentleman his advertisement; perhaps we can now return to the debate.

Iain Stewart: Thank you, Madam Deputy Speaker. I sense a rising demand for my book. Next Christmas is a little way off, but I have a couple of boxes of back copies which I will happily distribute.

As I was saying, part of our research involved examining the way in which other countries-Australia, Germany and Canada-operated financial relationships between state Governments and federal Governments, or provincial Governments, or whatever the term was in those countries. What struck us was that each of those countries has a system that comes close to what the Scotland Bill is proposing to introduce. Certain taxes are levied at the federal level. The example in each country varies, but some taxes are levied at the provincial level-the state level-and sometimes the state level has the power to introduce specific taxes of its own. That is balanced by a form of fiscal transfers between the federal level and the state level. There are perpetual arguments in all those countries about what the right level of spending, taxes, transfers and so on is-we will never get away from those-but on the whole the arrangements are stable. We can draw some comfort from the fact that the lessons from abroad point to the sort of system that the Bill is trying to introduce.

Conversely, there are few examples of a federal or devolved system of government where the lower level has full fiscal autonomy. Our research encountered only one example that came quite close to such an arrangement, which was in the Basque part of Spain. Since we did our
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work Catalonia has also adopted such an arrangement, but it is still fraught with difficulties. I do not believe that there is sufficient evidence from abroad to warrant the type of policy that the Scottish nationalists wish to introduce.

Stewart Hosie: The hon. Gentleman says that the approach of the Basque country and others may be fraught with difficulties, but that country's gross domestic product growth is now 30% higher than that of Spain as a whole and its credit rating is stronger than that of Spain as a whole. Although that sort of model may need to overcome obstacles, it clearly has had some success.

Iain Stewart: The hon. Gentleman has a more detailed knowledge of the current state of the Basque economy than I do, but our research showed that there were specific problems there. I shall discuss them in a moment, as they are directly relevant to the example in Scotland.

Malcolm Bruce: Does my hon. Friend acknowledge that joining the inland revenue contribution club is not a popular sport in Spain? The Spanish have found that devolving this responsibility results in the tax collection rate increasing substantially. No comparison can be made with the situation in this country, because one cannot escape the Inland Revenue.

Iain Stewart: My right hon. Friend makes a powerful point.

Mark Lazarowicz: Perhaps I should add that the Basque country and Catalonia have always had higher gross national product rates than the rest of Spain, so I do not think that the point made by the hon. Member for Dundee East (Stewart Hosie) has much weight.

Iain Stewart: I am grateful for that intervention. I think it is unhelpful to make an exact analogy with a particular model. Spain has a very curious multi-speed system of devolution between its different constituent parts.

I promised to discuss why I do not believe, certainly at this point, that fiscal autonomy is feasible or desirable for the Scottish Parliament. There are huge unknowns in the fiscal relationship between Scotland and England, for the simple reason that we have never assigned tax revenues or allocated public spending on a straight territorial basis-that just has not happened. As part of our research for the book, I spent many hours enjoying and analysing the various forecasts and documents that the Scottish National party had published over the years giving its view on what Scotland's net contribution to or net borrowing from the United Kingdom had been.

Part of the SNP's criticism was that the official Government figures, as published in the annual Government Expenditure and Revenue Scotland survey, were based on assumptions about what Scotland's share of corporation tax or income tax should be. However, the SNP's own figures are based on assumptions and projections. They
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disagree with the assumptions made, but they could not analyse particularly and exactly what the Scottish revenues were.

Stewart Hosie rose-

Iain Stewart: Before the hon. Gentleman intervenes, I wish to illustrate that point by discussing two SNP publications that examined the period between 1979 and 1997. In one document, published in October 1996, the SNP estimated that Scotland had contributed £91 billion to the UK over that period. Three months later, however, it published a separate report covering the same period which calculated that the figure had been £27 billion. Well, what is £60 billion between friends? The point is that anyone wanting to analyse this has to do it on the basis of assumptions, not hard facts.

Stewart Hosie: I certainly agree that the Government Expenditure and Revenue Scotland-GERS-survey is based on certain assumptions and calculations. Most of the documents, certainly over the past decade, have effectively taken the GERS assumptions and, if they have differed from them, have always explained why. Those differences tended to be marginal. The key question here is not SNP figures versus those of another party; it is the work done by organisations such as Oxford Economics or, about a year ago, Reform Scotland, which calculated a broadly balanced budget of about £50 billion out and £50 billion in. Those seem to be generally accepted pre-recession figures.

Iain Stewart: But surely the point is that, if we want to set up new fiscal arrangements between the constituent parts of the United Kingdom, we should not do it on the basis of assumptions. We should do it on the basis of hard facts, and one of the conclusions of the book is that we need to do more hard research and assign revenues and spending on a territorial basis. Such proposals are not in the Bill, but I hope that the Government will take those matters forward.

I shall give the House an example to illustrate why there would be a huge debate about the revenue. Let us take Standard Life, which is headquartered in Edinburgh. If corporation tax were devolved, the company would be domiciled as Scottish, yet it trades throughout the United Kingdom and has many policyholders in England who contribute to its profits. How would we determine which profits were Scottish and which were English? These are huge issues and they would have to be resolved before a full system of fiscal autonomy could be introduced.

Mr Weir: Surely that is a problem that affects all companies that operate across national borders, of which, in this globalised world, there are many thousands. Why would that present a particular difficulty for Scotland?

Iain Stewart: I believe that it would be a difficulty, and I have seen no evidence from the Scottish National party that properly costs this or assesses what the split would be.

Mark Lazarowicz: Are not the economies of England, Scotland and the rest of the UK so closely integrated and dependent on each other that the consequences would not be the same as might be the case for, say,
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Germany and France? On the hon. Gentleman's point about Standard Life, I am not normally someone who tries to air scare tactics about what might happen to the financial services sector under independence, but would there not be a danger that some companies, faced with the choices and difficulties that he has outlined, might choose to move their headquarters out of Scotland precisely because of the consequences of a differential in corporation tax rates?

Iain Stewart: That is exactly the point. The relationship between Scotland and England is so interwoven that to start to unpick it now would be hugely complicated and difficult. On the point about pensions, I have mentioned the potential difficulties under the current proposals that would need to be clarified. If there were full fiscal autonomy, those problems would be magnified many times over. People might have made national insurance contributions all through their lives. How would all that be untangled to sort out the different rights and contributions? The process would be enormously complicated. I am not saying that it would be impossible, but I do not believe that it is practical at this point in time. I hope that my right hon. Friends on the Front Bench will take up my point that we should move towards assigning revenues and spending on a straight territorial basis, so that in time we might be able to move to a system involving much greater devolution of fiscal power down to the Scottish Parliament.

Stewart Hosie: The hon. Gentleman's speech is throwing up practical issues that would have to be resolved in any circumstances. On his first concern, would the broad principle not be accepted that the tax liability would follow the economic activity? On his second concern about corporation tax rising, I would prefer to see corporation tax falling. Is it not odd that we have a party that is very keen on tax competition until it comes to Scotland's competing? Is that not slightly contradictory?

Iain Stewart: It is not a contradictory at all and I am not saying that I rule out that possibility. My book does not rule it out. All I am saying is that at this point in time it would be an enormous leap in the dark that would throw up so many unintended consequences that it would be a foolhardy move. I welcome the sensible incremental step that the Bill is taking.

I have probably been indulged by the House rather longer than I intended. I want to move briefly to one other point before I resume my seat. It concerns another part of the Bill about which I have a specific concern, and that is the proposal to devolve down to the Scottish Parliament the power to set the drink-driving limit. I am a member of the Select Committee on Transport and we have just concluded an investigation into the drink-driving limit. Part of the evidence we received was a strong representation from the police that we should not have a different drink-driving limit in different parts of the United Kingdom. I am not against the power's being devolved, but want to put it on the record that I would not wish the consequence of that devolution of power to be a marked difference in the Scottish and English drink-driving limits. That might cause some practical problems in border constituencies such as that represented by my hon. Friend the Member for Carlisle (John Stevenson), who is no longer in his place.

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In conclusion, I welcome the Bill. It is a huge step forward, even for people like me who were devolution sceptics to begin with. It will do an enormous amount to strengthen the Scottish Parliament and the Union. I look forward to supporting it in the Lobby tonight.

3.27 pm

Mrs Anne McGuire (Stirling) (Lab): It is a great pleasure to follow the hon. Member for Milton Keynes South (Iain Stewart). I listened carefully to his analysis and, 13 years on, I now realise why the hon. Member for Epping Forest (Mrs Laing) was so well briefed in some of the intricacies of the Barnett formula. The hon. Gentleman has posed some fascinating and interesting questions this afternoon.

I made my maiden speech in 1997 on the Referendums (Scotland and Wales) Bill, which paved the way for the Scottish Parliament. It is fair to say that both the hon. Gentleman and the hon. Lady recognised that, collectively, we have travelled a long way in this House-at least, most of us have. I shall come on to those who are still stuck at the station a wee bit later.

We have travelled a long way and in many ways the Members who are participating in today's debate reflect that. We have a former Member of the Scottish Parliament, who, as the Under-Secretary, will be helping to drive this Bill through along with most of us. Of course, we have two current Members of the Scottish Parliament, my hon. Friends the Members for Kilmarnock and Loudoun (Cathy Jamieson) and for Glasgow East (Margaret Curran), both of whom have extensive experience not only of the workings of the Scottish Parliament but of the workings of government in Scotland, as they are both former Ministers.

Collectively, in the Chamber today we have a unique opportunity to discuss the importance of the Scotland Bill. I recognise its importance and identify with the statement made by Donald Dewar-devolution was

We are all part of that process. In my opinion, there is no doubt that the relationship between the UK and Scotland and their governmental institutions has matured to a point where there is widespread recognition that the devolved approach has strengthened the United Kingdom and its four nations, working together. There are still some cynics among us-the ultra-Unionists, who perhaps do not see this as a way forward for the United Kingdom, and their uneasy bedfellows, the nationalists, who have a fundamental view. I fully accept their right to hold that view. I do not have any problem with their ultimate aim of independence; I just thank God every day for the sanity of the Scottish people, who have never accepted that analysis, but that analysis is obviously still there. The majority of people in Scotland want good government that brings decisions closer to them, so I welcome the principle of the Bill. I particularly welcome the strengthening of the Scottish Parliament's fiscal powers.

Anas Sarwar: Is it not alarming, given the Scottish National party's amendment, that those Members will be voting against the new powers for Scotland? Does that not show that they are now the conservatives in Scotland, supporting the status quo over new powers for the Scottish Parliament?

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Mrs McGuire: I do not wish to interpret the SNP's tactics, but it is certainly bizarre that their amendment says that the "Bill as a whole" is "unacceptable", given that the mover of the amendment, the hon. Member for Perth and North Perthshire (Pete Wishart), tried to appear consensual on some of the areas on which there is agreement. I do not know which part of the brain was not working when the amendment was tabled, but it definitely calls on the House to vote against something that SNP Members agree with in some way. That is a question for them to answer, but I am delighted that my hon. Friend the Member for Glasgow Central (Anas Sarwar) has raised it.

The Bill, like the Scotland Act 1998, was developed as a result of consensus, as the right hon. Member for Gordon (Malcolm Bruce) has highlighted. The engagement of civic society, communities and individuals, as well as of political parties, is the hallmark of the legislation-as it was of its 1998 predecessor. In terms of political party consensus, there have been positive developments over the years. As the hon. Member for Epping Forest has clearly shown, the Conservative party in Scotland and across the UK boycotted the Scottish Constitutional Convention in the early 1990s, campaigned for a no vote in the 1997 referendum and voted against the first Bill when it came through Parliament. However, it is now working in partnership with other political parties that see the strength of the Union as key to the future of our country. I always welcome the sinners that repenteth.

Some things never change, though. The SNP stood apart from the consensus-building up to 1998 and boycotted the Calman commission for reasons that I cannot understand and have not heard properly explained. I think the SNP amendment is somewhat churlish and flies in the face of all the views that have been expressed by the Scottish people through elections and consensus. If the SNP wants an independent Scotland, its first aim must be to prove its case to the Scottish people.

Fiona O'Donnell: As the SNP has fallen silent, will my right hon. Friend tell us why she thinks the party bottled it when offered the chance of a referendum by Labour in Holyrood?

Mrs McGuire: I gave up many years ago trying to get into the political mind of the SNP and I do not know if I want to revisit some of those early nightmares I had in trying to understand it.

I want to concentrate on the additional fiscal powers. Some of us in the House are old enough to remember the 1978 proposals of the then Labour Government, one weakness of which was that they contained no taxation powers-no variation to what was then called the Scottish Assembly was to be allowed. To an extent, that lesson was learned when the 1998 legislation was introduced. The plus or minus 3% provision was intended to deal with the flaw in the earlier legislation, which of course failed the somewhat artificial 40% referendum test. The discussion around Calman recognised that the time was right to build on the 1998 Act and devolve more responsibility for revenue raising to the Scottish Parliament.

In addition, the Bill gives us a package of other changes that will enhance the Scottish Parliament's fiscal responsibility, including new borrowing powers, a stamp duty land tax, a landfill tax and, of course, the
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power to create new taxes, subject to the approval of both the Scottish and UK Parliaments, which I think is a responsible way forward. The assessment of those new taxes, however, must be open and transparent so that it does not feed into the arguments of the conspiracy theorists who will interpret anything less as an attempt to undermine Scotland. However, the Scottish Parliament should recognise, as I am sure it will, that any proposed new tax must be assessed according to its potential impact on economic incentives in Scotland.

I want to raise one area of concern on the new Scottish rate proposals. The implementation and impact of that power must be thoroughly tested and developed, and not only with Her Majesty's Revenue and Customs, important though that is. I know that the qualification for liability of the Scottish rate will be the same as or similar to those already set out in the Scotland Act 1998. Although we can easily see the implications for the basic and higher rate taxes, people in Scotland must also have clear information on the impact on their tax liability of pension contributions, to which the hon. Member for Milton Keynes South referred, and any unearned income, such as dividend receipts and bank interest. That sounds as though it concerns only a small group of people, but many people in Scotland earn interest through bank accounts and from dividends. I ask the Minister, both today and throughout the Bill's scrutiny, to consider how the current regime of tax credits on dividends, for example, will be managed if there are different tax rates in different parts of the UK.

What discussions have there been about the implications of variable tax? What will happen if someone uses an address for their unearned income, such as a bank based in London, Cardiff, Halifax or wherever, that is different from that used for their individual taxation north of the border? I know that those problems are not insurmountable. There might be issues of detail, but frankly, we want the system to be robust and watertight from the beginning, otherwise the Bill will be nothing other than a job creation scheme for accountants-having been married to an accountant for 39 years, I have no problem with that in principle. The Secretary of State, given his previous career as an accountant, will have some knowledge of how accountants can take a piece of legislation, dissect it and then work their way around it. I hope that those issues can be solved properly so that we can ensure a robust system.

The Bill certainly has some common-sense adjustments to the devolution settlement, such as the licensing of controlled substances and appointments to the BBC Trust, and there are other changes that are welcome in principle. However, greater discussion and clarification will be needed as the Bill goes through the House. For example, the power to set drink-driving limits, which has been mentioned by several hon. Members, should be considered. Different limits north and south of the border could cause confusion. Again, that is an issue not of principle, but of clarity. If we are to devolve power on the licensing system for air weapons, we will undoubtedly need a clearer definition of what constitutes an air weapon than that currently specified in the Firearms Act 1968. I assume that the Secretary of State will be having discussions with ministerial colleagues in the Home Office to ensure that the power that is being handed over will take account of how technology has changed in the intervening years in the manufacture of air weapons.

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Let me deal briefly with some of the attacks that have been made on the Bill, which are crystallised in the SNP amendment. It has been criticised for not giving meaningful economic powers, and yet the Scottish Parliament will now be able to raise significantly more income as a result. In addition, there will be additional borrowing powers of up to £3 billion. When there is a cyclical fall in tax receipts, which we might see during a recession, there are powers to manage that problem.

I know that the hon. Member for Dundee East (Stewart Hosie) is, or appears to be, an expert on all things fiscal, but, although he might be able to identify some of the problems, his analysis and conclusions are sometimes questionable. I advise him that not all of us agree with his suggested outcomes. Of course, we know that all that is code for fiscal autonomy, which in turn is camouflage for independence. I have no problem engaging with that argument, but we have to be realistic and admit that that is what the debate is all about: it is a debate for those who want to see the United Kingdom broken up and those of us who want to see it strengthened through the greater devolution of powers.

I am delighted to support the Bill, and I resent the almost trivialisation of some of its elements. The Scotland Act 1998 was one of the most complicated pieces of legislation ever to go through this House. It had to unpick legislation dating back over 300 years, since the union of Parliaments, so it was not straightforward. Stage hypnotists might not have been at the top of the political agenda, but legislation on stage hypnotists had to be dealt with as part of the Act. Indeed, given the number of hours we spent on it, I wonder how we did not realise that we had given Scotland power over Antarctica. I do not quite know how that slipped through in all those hours, but we should not trivialise the detailed work that had to be done to present that Act and to deliver a Scottish Parliament, or suggest that it somehow undermines the Scottish people's right to autonomy through devolution.

Issues of detail and clarification will undoubtedly need to be debated in the Chamber over the next few weeks, but the Bill is a natural progression along the road that we set down in 1998, and if Donald is up there on his cloud, he will definitely see that it is part of the process, and that 1998 was not just an event.

3.42 pm

David Mowat (Warrington South) (Con): Before I get into my remarks, may I apologise to the House for three things? First, it is not my birthday; secondly, I have not written a book; and thirdly, I think I am the first speaker in the debate not to have a Scottish accent. I do have a Scottish name, however, so I shall do my best with that.

I really have only one point to make about the Bill to those on the Government Front Bench. Overall, however, it is a good Bill that takes what Calman recommended and implements it sensibly. Indeed, a whole set of well-made recommendations will be introduced. The principal part of the Bill, as others have said, relates to fiscal autonomy, the change in the level of the block grant and the compensatory change to income tax. The theory behind it is absolutely spot on, because it is right that Scotland is given an incentive to nurture its own tax base and to become accountable for how it spends that
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money. The important issue, which is not directly in the Bill but an unintended consequence of it, however, is the baseline for that allocation, the current Barnett settlement. The Barnett formula is not a subject for today's debate, but others have spoken about it, and I shall put in my tuppence-worth.

The formula has been going for 35 years, and the most recent review of it was last year by the Lords Barnett Formula Committee, which produced an excellent report that received a poor response from the then Government. People accept that the formula no longer represents a needs basis for the allocation of moneys. The Calman report accepted that point, too, but the reason why we persevere with the formula is inertia. In the response to the Lords Committee, it was accepted that the formula was straightforward, but there are two reasons why it provides the wrong result. First, there has been no attempt to make any changes based on relative population movement over the past 35 years between the three countries in the Union which are most affected, Wales, England and Scotland. The result, as Holtham stated, is that the settlement for Scotland is about £4 billion more than it would be if it was worked out on a needs basis.

How does that relate to the Bill? The baseline will use that higher amount to set income tax, and to flex it up and down. In consequence, it will be harder to change the Barnett formula in future, because it will be linked directly to the level of income tax in Scotland in a way that it is not at the moment. From a political point of view, it would be hard for people to accept that the UK Government, while making a fairer allocation, were forcing up income tax in Scotland.

A second unintended consequence of the current baseline is that Scotland will for ever have a larger public sector in its economy than in England. I say to colleagues on the Government Benches, of whom there are not many, that it is wrong for us to go on about Scotland having to rebalance its economy towards the private sector and away from the public sector if we approve a formula that makes it arithmetically impossible for that to happen.

Mrs Laing: Does my hon. Friend accept the point made by my hon. Friend the Member for Milton Keynes South (Iain Stewart) that the Barnett formula works in the way it does not just because Scotland is Scotland, but because Scotland has certain features, such as areas of deprivation in its inner cities and very rural areas where transport costs are enormous, that mean that it deserves greater spending in certain areas? Such areas are also found in certain parts of England and Wales.

David Mowat: I thank my hon. Friend for that intervention. She made two points, the first of which was about sparsity. Scotland is more spread out than the rest of the UK. Page 18 of the Holtham report takes that sparsity into account. The Scottish national health service has to take sparsity into account in the allocation of money. Parts of Scotland are very spread out, such as the highlands and islands, Orkney and the Hebrides. The Scottish NHS adjustment in respect of that, which was validated by the Holtham formula, was 1.5%. We are dealing with a figure of 20%.

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The second point that my hon. Friend made was about deprivation. There are areas of deprivation all over the country. That is why it is so important that the formula is based on need. There can be no argument about that.

Anas Sarwar: When discussing the rights and wrongs of the Barnett formula, would it not be sensible to compare the averages for Scotland and Wales to different regions of England, because the north of England receives almost the same amount per head as Scotland?

David Mowat: Paradoxically, the part of England that receives the most per head is London.

Pete Wishart: The hon. Gentleman said that London secures the most identified public spending-that is before we get into unidentified public spending. I am grateful to him because he has been very consistent in his view, which is a valid view held by Conservative Back Benchers, that Scotland's budget should just be cut. Those on the Government Front Bench, with Labour support, want to cut Scotland's budget through the financial measures in the Bill. The hon. Gentleman and I can surely agree that the way to resolve this is to give Scotland full financial autonomy on these issues-he would benefit and I would benefit. Surely that is the right way forward.

David Mowat: What I think we would agree about-I think this has been the consensus-is that we should have a needs-based formula. What possible objection could anybody have to a formula based on need? Members have mentioned adjustment for deprivation, and fine, let us go with that, but the difficulty that we have got into is that we have never adjusted the Barnett formula for population change.

Iain Stewart: I must correct my hon. Friend. The Barnett formula has been adjusted in the past to take account of population changes. He is quite correct to suggest that it was not adjusted for the first 15 or 16 years, which led to a more generous settlement year on year than a strict population count would have allowed, but I believe that it was Michael Portillo, when he was Chief Secretary to the Treasury, who introduced a mechanism by which the percentage by which Barnett changes each year would be directly related to Scotland's share of the UK population.

David Mowat: My hon. Friend is right to say that the Barnett consequentials each year take the correct, current relative population into account. However, the formula does not do that to the body of spending that is adjusted by those consequentials. He will find that very clearly in the reports of the House of Lords Select Committee and the Holtham commission.

Iain Stewart: One of my bugbears in this debate is that when we talk about the Barnett formula, we forget that Barnett does not change the baseline lock, it aggregates the annual changes in UK Departments' spending and then adds on a population share percentage and a relevance factor percentage. My hon. Friend's point is
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about changing the baseline. I believe that the Government have opened up the possibility of that in future, but we must be careful to point out that the Barnett formula deals only with year-on-year changes.

David Mowat: I thank my hon. Friend, but I have two points in response. First, the Government have said that they will not review the formula in the lifetime of this Parliament. Secondly, the outcome allocation that is consequent on what we call the Barnett formula takes into account two things-the spending brought forward and the Barnett consequentials. The first of those is not adjusted for population, and the second is.

Since I have nearly got to the end of my remarks, I will not take any more interventions on this subject, but-

Gemma Doyle (West Dunbartonshire) (Lab/Co-op) rose -

David Mowat: Maybe one more.

Gemma Doyle: I am very grateful. Is the hon. Gentleman aware that the proposals to which he refers, which he seems to support, could actually lead to a £4.5 billion cut in the amount of money spent on Scotland? Is that what he proposes, and does he want to see it happen?

David Mowat: What I propose is that the allocation is done on a needs basis that is fair to the constituents that I represent as well as to hers.

David Mundell: I very much respect what my hon. Friend says. He took part in a Westminster Hall debate on the issue, and I am sure the Chancellor and other colleagues are listening to him. We need to be clear, though, about whether he is arguing for a needs-based assessment across the whole UK. The hon. Member for Glasgow Central (Anas Sarwar) drew attention to the fact that there are significant differentials within England. The difference between the highest and lowest per capita public spending in England is £2,537, which is much greater than the difference between the Scottish and English average. We need to be clear about whether my hon. Friend and those who make the same argument want a change in spending within England, or just between the constituent parts of the UK.

David Mowat: The difference that we are really talking about today is the one between the constituent parts of the UK, but I have no difficulty with also applying that to the constituent parts of England. As I said, a needs-based formula is fair.

If my constituency of Warrington South, which has areas of great deprivation and some better-off areas, were in Scotland, the average constituent would receive £900 more. That is not fair-I get a considerable postbag about it. Today's debate is not on the Barnett formula, but unless we address the matter at some point, it will become a tension in the Union from the other direction. We need to be cognisant of that, and we need to be careful.

Ann McKechin: The hon. Gentleman mentions basing the determination on needs. In last Wednesday's Adjournment debate, to which the Under-Secretary
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referred, there was some discussion about the system in Australia. It is based on needs, and there is a commission that makes a judgment. There is frequent argument between the federal states about the definition of needs, and some commentators are now saying that they want to move back to a per capita formula, just like the Barnett formula. Does the hon. Gentleman agree that stability might be a better prize?

David Mowat: I do not agree that stability is a better prize if it is based on something that is wrong. I agree that it is difficult to compute need, but that is no reason not to try. We have let the matter drift. One of the determinants is relative population movement-I repeat that, notwithstanding the comments of my hon. Friend the Member for Milton Keynes South (Iain Stewart); I guess we can discuss that later in the bar.

I ask the Under-Secretary to table a simple amendment to the Bill to provide for revising the block grant allocation to take account of relative need, in the way that the House of Lords Committee on the Barnett formula and the Holtham commission recommended last year and in previous years.

3.56 pm

John Robertson (Glasgow North West) (Lab): It is a pleasure to follow the hon. Member for Warrington South (David Mowat). I also enjoyed the contribution of the hon. Member for Milton Keynes South (Iain Stewart). I have not read his book and, having listened to his speech, I do not think that I will buy it. [Hon. Members: "Oh!"] Let us face it, anyone who campaigned on a no/yes vote in the referendum for a Scottish Parliament meant, "I don't want a Scottish Parliament, but give us the money anyway." I have some problems with the economics of that position and wonder what the hon. Gentleman was thinking of at the time.

I am a unionist-with a small "u". I am also a member of the Labour party. In the past 10 years, the Labour party has been the Unionist party in the House. We have supported the United Kingdom more than other party. Around 2005 to 2010, the then Opposition, who now lead the coalition, had an anti-Scottish slant. I found it sad that we were treated in such a manner, but I have noticed that, since they came to power, we do not seem to have the same anti-Scottishness from them. I am pleased about that, if nothing else.

Many hon. Members know that I followed Donald Dewar into the House. I had the pleasure of being his election agent in the 1997 and 1999 elections and of representing him in his constituency while he was away campaigning in 1998. Those of us who fought hard for a Scottish Parliament and an excellent vote, particularly in Donald Dewar's constituency, had the reward of getting the Parliament. That is not to say that I agree with everything that has happened. I do not agree with hon. Members who said that this is the first time that we have revisited the Scotland Act 1998, because we have done that a couple of times. Yet Donald Dewar said to me that the Act was not to be played about with. Devolution might be a process and a project that will develop, but the Act should not have been tweaked as often as it has. I hope that, if we tweak it this time, we will leave it to settle in properly. Ten years is not a long time for a political institution.

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We still have to grow up when it comes to Scottish politics, as can be seen by some of the bunfights between the party that will remain nameless-I know that its Members count the number of the times that it is named-and Labour. It should not be a bunfight; we should think of the people of Scotland and try to do what is best for the nation.

The Bill goes a way along that road. Everything in it is not necessarily right, and some things that are not in it should be. Let me concentrate on those for a moment. The voting system for the Scottish Parliament is wrong. I particularly dislike the top-up of Members, and the votes of the people of Glasgow, part of which I have the honour of representing, are not proportionately counted.

There was a great deal of talk in debates on other Bills-they were not consulted on, just like this Bill was not consulted on-about how one person's vote in one constituency is worth more than someone else's vote in another. However, the second votes of 45,000 people in Glasgow area do not count for the top-up list. Not one Member is elected by those 45,000 votes, which I believe is inherently wrong. It is not right to conduct a parliamentary election on first past the post and then, just because a party is so successful in gaining seats, for 45,000 votes to be discounted. I expect that 45,000 to be a lot more come the next election.

Pete Wishart: The hon. Gentleman is the epitome of reason, and his speech differs greatly from some of the incoherent rants from his colleagues-we are likely to hear more such rants from the next few speakers. Is he really suggesting that we get rid of proportional representation for the Scottish Parliament? Surely we cannot go back to the old days of Glasgow council, when Labour members gained majorities on vast minorities of support.

Mr Deputy Speaker (Mr Nigel Evans): Order. Before the hon. Member for Glasgow North West (John Robertson) resumes his speech, I should say that he is now going through things that are not in the Bill. If he goes on at length on those matters, he is clearly going to make a lengthy speech before he even gets on to measures that are in the Bill. Will he now direct his comments towards what is in the Bill?

John Robertson: Thank you for your guidance, Mr Deputy Speaker; I am hoping to speak to amendments in Committee that might deal with those matters, and to develop that argument and discussion in greater detail. To answer the hon. Member for Perth and North Perthshire (Pete Wishart), I have never been spoken to so nicely. He called me reasonable. I have always thought I am a reasonable, but sometimes people say that I rant.

It is important for people to have representation. I do not believe that voting for a loser to represent me is right. I want to vote for a winner, and I believe the person who wins the vote should look after me. That is how I was elected. I like to think that I have done a good job. Admittedly, when someone gets over 50% of the vote, they would say that, but they might not if things were a bit closer. I still believe that people would like to vote for a winner and not a loser to be their elected representative; sometimes even somebody who comes in third place will be elected. I hope to put set out that position in Committee.

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Consensus is important. The SNP has tabled a reasoned amendment, but at the end of the day, SNP Members want the same thing that I want: the best for the people whom they represent. However, you have to listen to the other side. The right hon. Member for Gordon (Malcolm Bruce) made a very good point when he said that the fact of the matter is that the Scottish people do not agree with the SNP. If 70% or 80% of the Scottish people do not agree with you, you might be wrong. You should actually listen to that 80% and find out why they disagree with you. You might want to persuade them in the years to come, but we are not at that stage. To go back to my initial point, we are developing and broadening out what the Scottish Parliament does and trying to make it better. That will not be achieved in one go.

Stewart Hosie: The hon. Gentleman is being unreasonably reasonable. The amendment is not only reasoned, but reasonable, and it specifically fails to seek to decline to give the Bill a Second Reading. If he reads the amendment carefully, he will quickly appreciate that we seek to improve those areas in the Bill that we believe are weak, and that we are criticising the exclusion of recommendations by the Calman commission, which was the genesis of the Bill.

John Robertson: The hon. Gentleman sounds very reasonable, but I do not believe he is being reasonable, and I shall explain why- [ Interruption. ] Let me explain why you are not being reasonable. You have put forward an amendment that-

Mr Deputy Speaker (Mr Nigel Evans): Order. I have not put forward any amendment to the Bill. The hon. Gentleman has used the word "you" several times and I would be grateful if he could speak through the Chair.

John Robertson: Thank you, Mr Deputy Speaker. The "you" is, of course, a Scottish phrase that you have misunderstood- [ Laughter. ]

The hon. Member for Dundee East (Stewart Hosie) has put forward an argument that is wrong, because it would wreck what we are trying to do today. It would be much better to table amendments to improve the Bill. I hope that the amendment will not be accepted so that we can carry on-and that is probably what will happen. The amendment tabled by the hon. Member for Perth and North Perthshire is ill conceived. It is a mistake and he should not have tabled it.

Ian Murray (Edinburgh South) (Lab): My hon. Friend is making a powerful argument about the amendment tabled by the Scottish nationalists. The amendment concludes that the Bill is considered

The amendment therefore suggests that the Scottish nationalists do not want the Bill to go forward.

John Robertson: My hon. Friend makes my point. That is why the amendment was a mistake, and I think that the Scottish nationalists did not really mean to go down that road. If they put that in deliberately, I am wrong and will admit as much. We have to fight them on that point.

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Another aspect of the Bill that needs amendment is the provisions on energy. It is a reserved matter, but if we wished to build a nuclear power station in Scotland, the present Administration say that they would use the planning rules to stop it. By the middle of this decade, we might be short of electricity, so we have to make decisions now. In fact, we should have decided years ago-my party must take much of the responsibility for failing to do so-what we should do in relation to energy, and we cannot have a devolved Administration with the power to stop developments that are happening everywhere else. Each power station that is built is the result of billions of pounds of investment in jobs and future jobs after the station has been built. Some 9,000 jobs are created when a new nuclear power station is built. We should consider having legislation to make such planning issues a reserved matter, with the Secretary of State having the power to put forward reasons why such issues should go ahead.

Dr Whiteford: I wonder whether the hon. Gentleman's constituents would like a nuclear power station in their backyard.

John Robertson: The hon. Lady has obviously not consulted people in areas where nuclear power stations have been built. They want new stations built, because of the investment that that brings for local infrastructure. If the lights were about to go out, people in Anniesland probably would want a new power station. They would like any power station allowing us to keep the lights on. We are digressing on to a subject that has nothing to do with the Bill, and I know that you would stop me talking about it if I continued, Mr Deputy Speaker. However, I hope that the hon. Lady gets my point.

Overall, I welcome the Bill. It has some good points. Fiscal powers have always been a wee bit of a problem. Why is that? Let us have a look: in the mid-1990s, the Conservative party did away with the two-tier system north of the border-we had local government in local and regional areas. Cities such as Glasgow did very well under the old Strathclyde regional council, but once we did away with it, the money started to drift away from the centre of where the work was being done. Under the present incumbent north of the border, business rates for Glasgow were taken into a central pool and spread over the rest of Scotland, so that, in effect, the business rates in a city that created wealth and employment for people living outside Glasgow did not pay for anything. Those people came into Glasgow and used all the facilities, roads and everything else that the city council now had to pay for. I cannot remember the exact figures for now, but of £180 million collected in business rates, Glasgow used to get back £100 million.

In effect, Glasgow-the biggest area for employment-was taking £80 million out of its city centre and giving it to the rest of Scotland. I believe that that was done out of political expediency. It was agreed before the last election that the money would be returned to Glasgow, but we have since seen even more attacks on the city from the Scottish Government. If we are to go down the fiscal road, we have to consider very carefully the political stance, the areas where the money should go and the areas of high deprivation. For deprivation, Glasgow rates higher than any other city in the United Kingdom. Six of Glasgow's constituencies-in those days, it had
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nine-used to be among the top 10 worst in the UK, and certainly plenty of its now seven constituencies are still among them.

Yes, we do need help, and we do need money. What we do not need is money disappearing. The fiscal powers must be used very carefully to ensure that the money taken in goes to the areas that need it. The hon. Member for Milton Keynes South (Iain Stewart) talked about how we could do that. If the Scottish Government are to have such powers, however, I want to be able to know where the money is going. Why am I saying this? There has to be an audit trail if the UK Government are to give to the Scottish Parliament money and the means to collect taxes. For example, if this Parliament is to give the Scottish Parliament Barnett formula increases-my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr Clarke) mentioned this earlier-of about £34 million for disabled children, but that money does not go there, I want the ability to ask where it went. If I were told, "It just went into the budget, and we do not know exactly how it was spent," that would be fine, as I could use it for political purposes. However, I want to know where the money is, and I want the House to be able to audit every penny that comes from the UK taxpayer.

Mr Weir: Is the hon. Gentleman seriously suggesting that the Scottish Government can only spend money coming from the block grant on whatever this place determines? In effect, does he want to export changes in this place, for example in the NHS, into the Scottish system? That is ridiculous.

John Robertson: What I think is ridiculous is £34 million not going to disabled children.

Mr Weir: It did.

John Robertson: Well, I think that the money went to trying to support a Scottish Parliament and a Scottish Government who were trying to keep council payments down, and that people were getting bought off with it. I do not believe that one thought was given about a disabled child going short or a home not getting the money it needs. I take that view, and I am entitled to my opinion. I believe that we have to go ahead with this.

I have ranted on long enough. I support the Bill. I believe that scrutiny has to happen, and that there are areas where we can make it better. I also believe that there are probably areas where we are thinking about making things better where we may have to reign in, but the most important thing is that the Bill proceeds and that the Committee looks at it even more closely.

4.15 pm

Mr William Bain (Glasgow North East) (Lab): It is a pleasure to follow my near parliamentary neighbour, my hon. Friend the Member for Glasgow North West (John Robertson). Before I address the substance of the Bill, let me place on record my thanks for the great work done by the previous Government. In particular, I thank my hon. Friends the Members for Rutherglen and Hamilton West (Tom Greatrex)-I thank him in the capacity in which he assisted that Government- and for Glasgow North (Ann McKechin), and my right hon. Friend the Member for East Renfrewshire
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(Mr Murphy), along with those Members from other parties who took part in the Calman process and the leaders of the parties in Scotland. A great deal of thanks for the impetus behind the Bill, as for the original Scotland Bill, should go to Wendy Alexander. It is important that we should thank her from the Labour Benches in this debate for her great efforts on devolution.

The key principle of the constitutional reforms that were adopted by the previous Government was cross-party support. As my hon. Friend the Member for Glasgow North stated, there is a real contrast between the great cross-party consensus that has been achieved in the preparation and discussion of this Bill, and some of the frankly gerrymandered changes that we have seen in the Parliamentary Voting System and Constituencies Bill and the Fixed-term Parliaments Bill. I hope that right hon. and hon. Members on the Government Benches will recognise that when they bring forward further constitutional legislation in this Session, such as the House of Lords Reform Bill.

This Bill is good for Scotland, and that is why Labour Members will support it. As paragraph 2.34 of the Calman report states:

but is directly responsible for

If the Bill is passed, thankfully that will change. The Bill will increase the level of taxes levied in Scotland to 35%, which is comparable to the level in devolved legislatures in Belgium, Italy, Spain and Australia. Added to that, the Bill provides for welcome revenue and capital borrowing powers, which will extend borrowing from £500 million a year, under the Scotland Act 1998, to £2.2 billion. That will release proceeds for much needed capital projects in Scotland, such as a Glasgow airport rail link-a matter on which I have spoken a great deal in the past and on which I will continue to speak-and will raise the opportunity for investment in high-speed rail track between the major cities of Scotland and the Scottish border. That will be a helpful economic lever for Scotland. Added to that, the detail of the tax powers will see a variation of plus or minus 10% from 2016, and the welcome devolution of stamp duty land tax and landfill tax.

I welcome the fact that income tax is the principal lever being used to give the Scottish Parliament extra fiscal powers. Giving evidence to the Scottish Parliament on 18 January, Sir Kenneth Calman set out an important principle for where our economy should be going:

That is right. Speaking about those levers, Professor François Vaillancourt of Montreal university, also giving evidence on 18 January, said:

I agree.

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What we have also seen in the last two weeks is a real weakening of the argument for fiscal independence as propounded by some Scottish National party Members. Professor Muscatelli, whom I believe my hon. Friend the Member for Livingston (Graeme Morrice) has already referred to, makes it clear that the Bill does not seek to adopt some of the more volatile taxes, such as corporation tax and other taxes that would inject more risk into the Parliament's revenues. He expressed the view at Holyrood on 18 January:

Again, this is someone who speaks with real expertise, so the House would do well to take note of his views.

Some issues will have to be scrutinised closely as the Bill progresses, particularly if it receives Second Reading and proceeds into Committee. It will be important to probe the precise detail of the definition of "a Scottish taxpayer" and to deal with some issues that my hon. Friends and Government Members raised earlier.

It is important to emphasise the issue of having proper economic forecasting in Scotland. Given the frankly lamentable performance we have seen from the Scottish Government and their ill-starred cast of economic advisers put together by the First Minister, we need a proper and robust system for forecasting growth and the impact of increases or reductions in income tax that the Bill, if enacted, will permit. I was impressed by the idea set out by the Scottish Council for Development and Industry when I went to meet it in central Glasgow last week. It recommended the establishment of a Scottish office for budget responsibility-a devolved office that would examine the effect of devolved Government policies on growth and would be able properly to forecast and stress test the impact of varying income tax, up or down, which I think is an idea with many attractions. I hope the House will be able to explore it further in Committee.

As my hon. Friend the Member for Glasgow North West mentioned, it is important for the Scottish Parliament to make the most of the totality of powers it has from the Scotland Act 1998, which it will still have if the Bill is passed. That must mean a real emphasis on growth. It is true that the income tax-varying power in itself will not necessarily produce additional growth, but it will be a tool, allied with investment in capital projects and skills and with diversifying the Scottish economy by providing more manufacturing and more help for construction, which the stamp duty tax might afford. All these are important if we are to avoid seeing the gap in employment and growth in Scotland widen in comparison with the UK as a whole over the last couple of years.

This is a good Bill, but by no means a perfect Bill. We shall scrutinise it closely if it reaches Committee, but it has the support of my constituents and it will have the support of all the key political parties that are in favour of a decent and decentralised system of government within the United Kingdom.

4.24 pm

Margaret Curran (Glasgow East) (Lab): I apologise for not being able to stay to hear the concluding remarks today. This is explained by the fact that, along with my
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hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), I have current responsibilities as a Member of the Scottish Parliament. We are still trying to juggle some of those responsibilities, so I hope I can be forgiven by my colleagues, friends and opponents on these Benches. I obviously do not have to apologise to too many of my hon. Friends-we have only a valiant crowd left.

I am in a privileged position as I have the honour of representing the people of Glasgow East in this august institution that has such great traditions, but I can also participate in this debate with the benefit of my experience as a Member of the Scottish Parliament for 12 years, since its inception. This is a significant debate, on which we will all look back in years to come, as we are at a key stage in the devolutionary process. The Scottish Parliament is firmly established in the governance of Scotland and has addressed the fundamental democratic deficit that generations of Scots felt. Many of us campaigned long and hard for the establishment of a Scottish Parliament, and are proud of many of its achievements, as it empowered us to address problems and galvanise responses to meet challenges, within the framework and partnership of the United Kingdom. Perhaps we are in a position where we get the best of both worlds.

My experience is that the Scottish Parliament has, as the right hon. Member for Gordon (Malcolm Bruce) said, acted within the mainstream of Scottish opinion. The Scottish people have strongly supported the Scottish Parliament, which has kept their faith as it has developed. In some ways, its operation is in the character of Scotland. We criticise the Parliament and keep it on its toes, and many of its Members have faced criticism, but the Scottish people would never tolerate its abolition and would wish to protect it.

The Scottish Parliament has not been without its controversies and weaknesses, which we hope to address through the Bill, but it has had notable successes. I am pleased that this august Chamber has also learned from the Scottish Parliament, which led the way on the smoking ban and on free public transport. Scotland has what is called the most progressive legislation on homelessness. With the housing stock transfer, in which I was particularly involved, we managed to develop the means to have perhaps the highest level of housing investment, in the needier parts of Scotland, that has ever been achieved. That speaks to one of the great successes of the Parliament, which is the focus on the experience of Scottish people: to be hard-nosed and hard-edged; to focus always on the Scottish people's interests; not to allow ourselves to be diverted into eccentric political debate; and always to keep the mainstream of Scottish interests at the forefront of our minds. I hope that the Scotland Bill will allow that to continue.

I am sure that my hon. Friend the Member for Kilmarnock and Loudoun, who shares my privileged position, has also often been asked to draw parallels between the experience at Westminster and in the Scottish Parliament. Although I would not want to digress, I make two comments about that. In the early days of the Scottish Parliament, the worst thing that we could do, and that we would be chastised for-I am sure that the Under-Secretary, the right hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell), would agree-was to emulate Westminster. If we behaved in any way that was comparable to Westminster, we were criticised
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enormously. We saw ourselves as a more consensual, transparent and accessible Parliament. I would argue that the high number of women in the Parliament helped to establish that, although I am less on the consensual end of the spectrum than some others, such as perhaps my hon. Friend the Member for Kilmarnock and Loudoun.

I am struck by my experience in this place, however, and I think that the Scottish Parliament now does need to learn from Westminster's much more sophisticated mechanisms for ensuring that Government, as opposed to Parliament, are held to account. The Bill begins to address that. This Parliament's treatment of its authority and reach is also much more thorough than that of the Scottish Parliament. That might be explained to some extent by the Scottish Parliament's youth, but the time is right to consider those big issues. The Scotland Bill allows us to do some of that.

According to international research and assessment, one of the strongest features of the Scottish Parliament is its Committee system. That system allows people to be interrogated about legislation and research to be consulted. It is based on the principles of evidence, engagement and analysis, and serves as a model in that regard. The Calman commission could be said to have copied that system, and to have done so very effectively. Evidence-led policy development must be centre stage.

Like others, I thank and congratulate those who served on the commission. They devoted time to taking stock of where we are in Scotland, and to outline an agenda for taking Scotland forward. I hope that, as we examine their conclusions and the extent to which they have been incorporated in the Bill, we will learn from a process that managed to bring the broader body politic into the detail of some of the commission's discussions, because I think it can enhance democracy considerably.

One of the principles of such a process is that it is cross-party. As those who are familiar with Scottish debate will know, that is not easy to achieve in Scotland, as the current operations of the Scottish Parliament illustrate. The Scottish Government rarely command a majority vote in the Parliament: education motions, for example, are regularly defeated, and the Government pay no attention. I think that that is very serious, but it contrasts starkly with the majority support for Calman's work, which is highly significant.

I recognise the work that the Government have done in the Bill in relation to borrowing powers and financial accountability, which will advance the Scotland debate significantly. However, I want to draw attention to a very important issue that is particularly relevant to my constituency. As many Members will know, it was the death of a very young child that triggered-if the House will forgive the expression-the debate in Scotland about the use of airguns. A young boy, Andrew Morton, who was only two years old, was shot dead in my constituency with an airgun. I pay tribute to the Morton family, who have campaigned for many years. They have lived with terrible tragedy, but ,with great dignity, have managed to pull themselves together and argue the case for the banning of airguns.

I have listened carefully to what many people have said about the difficulties of legislating on such matters. Let me take this opportunity to thank my hon. Friend the Member for Kilmarnock and Loudoun, who at the time of that terrible death was Minister for Justice in
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Scotland. She met the Morton family, and worked closely with them to see what could be done. We appreciate that there is no easy solution, and that simply banning ban something does not mean that the problem will go away. I do not necessarily want to cause difficulties to any sporting communities in Scotland, and I realise that we must test the legislation as we go through it in order to ensure that it is proportionate. However, I plead with the Minister to bear in mind the experience of the Morton family, to bear in mind the fact that 11,000 people signed the petition they delivered, and to understand the basic, essential, human emotion involved.

That airgun was not the most dangerous kind available, and it was a kind that is easily available. However, although it was not particularly dangerous in itself, in the wrong hands it caused terrible tragedy. We must do all that we can to protect people from the worst excesses caused by the use of such guns.

The other key aspect of the Mortons' experience was that they saw the Scottish Parliament as the place to go to protect their family. That was right and understandable, because at the time crime and justice were the subject of a huge debate in Scotland, led by my hon. Friend the Member for Kilmarnock and Loudoun. I think that we too should have that debate, and I plead with the Minister to allow it to take place.

In conclusion, the Bill is a key stage in the development of devolution in Scotland, and I believe that it speaks to the majority view of Scottish opinion. We perhaps need to test some of the powers more thoroughly to ensure that they properly address the economic interests of Scotland, but I emphasise again that on some of the more significant human experiences we have within our grasp the powers to act to address things that matter fundamentally to Scots. I hope that we take the opportunity to do so.

4.35 pm

Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): I am particularly pleased to have the opportunity to speak in this debate. As the hon. Member for Epping Forest (Mrs Laing) said, this is Burns week, which is a week when people across the world celebrate their Scottish roots. I always enjoy this time of year because people are asking me for advice on how to pronounce particular Scots words, rather than gently-or perhaps not so gently-mocking my native Ayrshire accent. Some of my Scottish Parliament staff have found the transition to Westminster slightly more difficult. At one point, my diary secretary had to explain what was meant by the fact that my diary was "stappit" and I was therefore unable to make a particular event. For the benefit of the Hansard reporters and any translators, I should say that "stappit" simply means very full.

In the past week, the new Burns museum opened in Alloway, in the constituency of my hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne), and that superb new venue hosted the Burns humanitarian award ceremony, with Linda Norgrove being a very worthy posthumous winner. With due deference to my hon. Friends the Members for Ayr, Carrick and Cumnock and for Dumfries and Galloway (Mr Brown), we Mauchline residents are fond of saying that although Robert Burns was born in Alloway and died in Dumfries, he lived in our village. It was therefore a pleasure to join the
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Mauchline Burns club to lay a wreath at the Burns national memorial in Mauchline on Burns day this week.

I reassure you that I am not about to continue a treatise on Robert Burns, Mr Deputy Speaker, as there will be other opportunities for that. However, the references to him are relevant, because Burns was intensely concerned about Scotland and the Scottish people and, despite what some SNP Members might claim, not from a narrow nationalist perspective. Burns was an internationalist who looked beyond geographical boundaries and got to the heart of humanity, and that is very much the spirit of Scotland today. We are all proud to be Scots and we will be passionately patriotic at football and on the full range of other areas, but we all know that Scots have made a much wider contribution to the world than simply looking after our own backyard. The vast majority of working-class Scots certainly know that we have more in common with our neighbours who live south of the border in similar communities than divides us.

So when we take forward the debate on the Scotland Bill we must focus on what we can deliver for people in Scotland; this cannot simply be an academic exercise that bears no relation to the lives of the people who send us here to represent their views. I am proud to have represented the Scottish Parliament constituency of Carrick, Cumnock and Doon Valley for more than 10 years, and I will continue to represent it for the next 54 days as I count them down. I hope that, rather than that simply being a matter for the public record, it might help to offer a distinct perspective to the matter in hand, as was the case with my hon. Friend the Member for Glasgow East (Margaret Curran).

As a number of hon. Members have said, the Bill is broadly based on the Calman commission report, and I, too, wish to put on record my appreciation for what was a thorough and robust process involving a broad section of Scottish civil society. Sir Kenneth Calman has produced a significant body of work in which all those associated with it can take pride. I am in broad agreement with the aims of the Bill-perhaps people will say that that is no surprise-and I will be supporting it. However, as I shall set out, I believe that some aspects of it should be thoroughly and robustly examined, not least by the Select Committee on Scottish Affairs, and scrutinised in this Chamber.

In the foreword to the White Paper on devolution, Donald Dewar wrote:

That was the basis of the Bill that fundamentally altered the structure of power in the United Kingdom.

On 11 September 1997, just over five months after Labour came to power, 74% of Scots voted in favour of the establishment of a Scottish Parliament. On 1 July 1999, the Scottish Parliament was officially convened. That date marked the transfer of powers and devolved matters to Scottish Ministers, and it was a time of immense pride for the vast majority of the Scottish people. As my hon. Friend the Member for Glasgow East has observed, those of us who were fortunate
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enough to be part of that day will forever feel that we were part of the history of Scotland. So quick and seamless were the transfer of powers and their incorporation into Scottish life that the enormity of the development and the significance of the change in a relatively short time might not always be acknowledged in the manner that it should be.

Notwithstanding the controversy over the Parliament building, my right hon. Friend the Under-Secretary-I will call him my right hon. Friend in recognition of the days that we spent in the Scottish Parliament-will recall that some of the other debates in those early days were passionate and had a real energy and enthusiasm for the change that was taking place. That was due in no small part to the work of the Scottish Constitutional Convention over almost two decades, as was acknowledged by the right hon. Member for Gordon (Malcolm Bruce). The convention was established in 1989 and consisted of representatives of civic Scotland and of most of the political parties. It drew up a detailed blueprint for devolution and outlined the proposals for the directly elected Scottish Parliament, crucially with the legislative powers that were finally achieved. That also formed the basis for the further proposals that were introduced by the UK Government in 1997.

I am proud to associate myself with the achievements of the Scottish Parliament over the past decade. As a Parliament, we set out to change Scotland for the better. A substantial body of work was undertaken, starting with the abolition of a millennium of feudal tenure, with communities being given the right to buy and manage the land on which they lived and worked. This was symbolic as well as practical. We also ensured that our elderly people could live with dignity and respect by introducing free personal care. We led on public well-being in the UK by introducing the smoking ban in public places, which represented a step change in the way we dealt with health issues in Scotland.

The Scottish Parliament also introduced an unprecedented programme of school and hospital building, ensuring that our children no longer had to be taught in substandard buildings and that our sick would no longer be abandoned to Victorian conditions in hospitals. We abolished up-front tuition fees and introduced bursaries for the less well-off students, which resulted in more young people going on to further education in Scotland than ever before. We also introduced a ban on fox hunting. I was particularly pleased with the establishment of a Children's Commissioner for Scotland, for which I had campaigned for about 10 years before I even thought of becoming a full-time politician. The repeal of section 28 was controversial at the time, but now it is completely accepted as having been the right thing to do in the pursuit of equality. It was a Parliament that challenged Scotland to think about its future. It tried to engage every Scot in the challenges that we faced, and it led public debate in civil society. It is a Parliament that continues to ensure that there is a focus on protecting the most vulnerable, and it has made a real difference to the lives of everyone in Scotland.

The Calman commission came along at the right time, however. It published its findings after just a decade of the devolution settlement, and that seems an appropriate length of time after which to offer an initial assessment of how the Parliament has worked, as well as how we need to move on. Since 1999, the devolution
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settlement has remained relatively static, but I think that that was right at the time, as it allowed things to bed in and allowed the Parliament to take shape. Some minor changes were made. The Scottish Parliament (Constituencies) Act 2004 retained the current level of representation at 129 MSPs. That was done in recognition of the youth of the Parliament as well as the range of work that it was undertaking at the time. We have heard other examples of minor tweaks, not least the Railways Act 2005-perhaps not so minor a tweak-which allowed Scottish Ministers to prepare a strategy for carrying out their functions in relation to railways and railway services. That was another practical and sensible change.

It is now time, of course, to consider the future. The task that the Calman commission was set was:

for me, that is the critical point-as well as to

That is what I want to talk about now.

The Calman analysis of the current settlement, notwithstanding some of the criticisms we have heard in the Chamber today, is persuasive. England and Scotland have been part of the Union for three centuries but Scotland maintains its own identity and now has its own devolved political institutions. Overall, people would say the devolution settlement has been shown to work pretty well. It has not led to the convoluted or confused relationship with other partners in the United Kingdom that some people thought it might; nor has it led down a one-way street towards independence, as others feared. There are changes that we can and must make in order to take forward this work in the future.

There is cross-party understanding that the financial arrangements lack the financial accountability we will want to see as the Parliament progresses. By depending wholly on the Westminster grant, the budget bears no relation to economic performance in Scotland. As we have seen in recent years with differing strands of opinion in power at Holyrood and Westminster, that can result in friction between Governments. The premise of the Calman commission was that election to the Scottish Parliament should be accompanied not just by being there to divide up the block grant but by having fiscal accountability, too. Under the proposed arrangements, Scotland will become more dependent on and more accountable for the tax revenue it raises.

As we have heard, the Bill replaces the Scottish variable rate of income tax with a new Scottish rate of income tax that will be decided by the Scottish Parliament annually and applied consistently to the basic, higher and additional rates of income tax. The grant from the UK Government will automatically be reduced by 10p in the pound and the Scottish rate will be added to it. In principle, I support the proposed measures, but we must ensure that there is proper and thorough scrutiny of what they will mean as the Bill goes through Parliament.

Under the proposals, the UK will retain control of exemptions and reliefs and Scottish tax revenues will be subject to Westminster control. One concern that has been raised is that when the UK takes decisions such as increasing the personal allowance to £9,000 or eliminating the 50% top rate, that will affect Scottish revenues. We
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have heard criticisms of that today as well as some attempted reassurances. A critical point that we must reach in Committee will involve ensuring that we receive reassurances about how that will work as well as assurances that it will not cause further problems or lead to unintended consequences, as has been suggested in Scotland.

Borrowing powers will also be introduced, another move that I broadly support. We have heard that from 2015, Ministers will be allowed to borrow up to 10% of the Scottish budget in any one year subject to an overall limit on capital borrowing of £2.2 billion. In principle, that will be a positive step that should allow key infrastructure projects to proceed as and when the Parliament believes they are necessary. The Bill also provides, however, that the Scottish Parliament will be able to borrow £500 million through new revenue borrowing powers when tax receipts fall short of those anticipated. At first glance, that offers limited flexibility and would mean that Scotland could be under pressure to make spending cuts should a significant shortfall arise. I am sure that that will be considered further as the Bill makes progress.

As scrutiny takes place, we must ensure that we consider the financial calculations and the financial implications of Calman in light of our present economic circumstances. That is the right and responsible approach as we continue to scrutinise the Bill. It is not enough simply to say, as SNP Members appear to be saying, that the Bill does not go far enough, so they are going to vote against the extra powers it will give. That is a rather odd stance for them to take. I might have misunderstood them, and no doubt they will correct that misapprehension if I have, but it certainly sounded like that to me.

I hope that one option we will consider during our scrutiny of the Bill is whether the proposal regarding the Scottish Parliament's borrowing powers can be brought forward slightly quicker than the Bill proposes. That is up for debate and would be useful to allow the planning of key infrastructure. It would also have the benefit of assisting what is currently a pretty beleaguered construction sector in Scotland.

Several issues have not been mentioned and I shall mention them briefly before concluding. The measures on licensing the prescription of controlled substances to deal with certain addiction problems make sense and I am sure we will want to consider that issue in more detail in Committee.

As my hon. Friend the Member for Glasgow East has highlighted, the devolution of the competency over air weapons to the Scottish Parliament will potentially allow the introduction of a different approach and licensing system there. She mentioned my time as Scotland's Justice Minister. In that role, I had discussions with different Home Secretaries-four at the last count-to decide how best to ensure that people in Scotland were protected from those who would use air weapons irresponsibly. We agreed that our approach should not be taken forward in an ad hoc way and should not simply be a soundbite solution that would please a few people but would not actually deliver. That is why I am pleased that we will have the opportunity to scrutinise that issue properly and come up with a workable solution.

As I have said, the financial relationship between the Scottish Parliament, the people of Scotland and the rest of the UK is vital. Let me respond to some of the comments from SNP Members about our scrutiny of
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the Bill. I do not recall being given much quarter by Labour Back Benchers when I was a Labour Minister in the Scottish Government-I have no problem calling it that although it is technically called the Scottish Executive-and I am sure that during our debates on this Bill, Labour Members will properly seek to scrutinise every clause and line of the Bill to ensure that we are doing the right thing.

We should keep at the forefront of our minds the reason why we are doing all this. It is not a dry, academic exercise only for text books and discussion in learned tomes. It is about making a difference for the people of Scotland whom we represent. We must make the Bill relevant to people because nothing will drive them away faster from engaging in the process than if they believe it is not a Bill for them-that it is only for politicians and will not affect their lives. If that happened, we would lose a considerable amount because we would be moving away from the intention of the late Donald Dewar, which was to make the Government more accountable to the people of Scotland.

There is plenty of public opinion and evidence in Scotland that people want a stronger form of devolution than at present, and they look to us to find the way forward. They might not know exactly the chapter and verse-where they want the t's crossed and the i's dotted in the legislation-but they look to us to take forward the principles and spirit of devolution and to come up with solutions. We have a unique opportunity in this Parliament to reshape how devolution works with a more comprehensive approach, so I welcome the Bill and look forward to our continued scrutiny of it as it goes through Parliament.

4.54 pm

Stewart Hosie (Dundee East) (SNP): It is a genuine pleasure to follow the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), who said a number of things with which I agree entirely. Twice she said that this should not be a dry, academic exercise, the first time stating that it was not about the powers, but the policies that they are used for.

On the Bill's proposals for enhanced financial powers, with which we agree, I wish to set out in a little detail precisely what we would do with them and why we back them. I would also like to clear up a slight misunderstanding: we will absolutely not stand in the way of the Bill. The SNP will never stand in the way of additional powers coming to Scotland. The reason for the reasoned amendment, and for the amendments that we will table in Committee and beyond, is to strengthen the Bill by ironing out some of the flaws and making it better. That is what we should all be doing. Notwithstanding the fact that we are only 100 days away from the Scottish election, at heart we all want the Bill to be as good as it can be.

David Mundell: I am afraid that I do not understand the logic of the hon. Gentleman's argument, because his so-called reasoned amendment suggests that the Bill is "unacceptable". The logic of his argument is that if he does not succeed in making the amendment-and he must accept that he is unlikely to do so-he will be unable to support the Bill in an unamended form.

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Stewart Hosie: It is rather obvious that we are seeking to make the Bill better. In its current form it will not work, and I will explain why in a moment. I do not believe that it will meet even the honourable objectives that the Government have set out.

David Mundell: I think that the House deserves some clarification from the hon. Gentleman. If the amendment that he is promoting does not prevail and the Bill progresses in essentially the same form, perhaps with only some minor amendments, is he saying that his party will not accept it?

Stewart Hosie: I now see what the Minister is asking. I have every confidence that, when we coalesce in Committee, the common sense of Members from all parties will lead to a number of successful amendments that will improve the Bill, perhaps by addressing the weaknesses in the financial powers, for example, to which the hon. Member for Kilmarnock and Loudoun alluded. We will wait until the subsequent stages before deciding on the Bill, which might have been changed substantially by then.

Cathy Jamieson: Will the hon. Gentleman give way?

Stewart Hosie: I will take one more intervention before starting line 1 of my speech.

Cathy Jamieson: My understanding was that the hon. Gentleman indicated earlier that he would divide the House on the amendment, the last line of which states that the House

Given the spirit of consensus that appears to be breaking out, will he now consider withdrawing the amendment so that we can move forward on the basis of consensus?

Stewart Hosie: The arguments in favour of the reasoned amendment will be made and they will explain, I hope with some support, why there are flaws in the Bill.

The Bill contains two fundamental fiscal measures: first, the reduction in the basic higher and additional rates of income tax by 10p, and the setting of a Scottish rate to compensate for that; and secondly, the availability of limited revenue and capital borrowing powers. Revenue borrowing will fill a part of the gap left when revenue decreases and a limited increase in capital borrowing will enhance direct capital investment.

However, the income tax powers are inadequate and include an in-built, long-term deflationary bias in the Scottish budget. The borrowing powers, particularly the revenue powers, are so tightly controlled that they are unlikely to be effective in delivering the sensible outcomes that many of us want. It is also worth noting that even the devolution of the income tax, the small stamp duty land tax and the landfill tax means that the Scottish Parliament will still have direct control of only 15% of the taxes raised in Scotland, with the remaining 85% accruing directly to London. I do not intend to talk about full fiscal autonomy, which there has been some talk of, but as a comparator we can look to the Basque country, which has been mentioned. It controls around 86% of its revenue.

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I want to concentrate on the specific problems with income tax provisions. Receipts are sensitive to changes in economic circumstances and might fall dramatically in a downturn, as I will explain later. That presents an instability to the budget in Scotland, because we are talking mainly about income tax and the shortfall that would not be matched by the Bill's provision of very limited borrowing powers. Growth in income tax revenue is low when compared with that of total tax revenue, and that is obviously deflationary, because only the modest growth in income tax will accrue to the Scottish Parliament, with the higher growth in total tax accruing still to London.

The figures between 2004-05 and 2008-09, for example, show that total tax revenue increased by £13.7 billion, but under the proposed plan the Scottish Government, although they control 15% of the tax, will receive only 9% of the increase. That automatically begins to squeeze the Scottish budget. Even within income tax, the most significant growth comes from the higher rates, and most of that growth will not be available to Scotland.

Historically, higher rate taxpayers account for a larger share of the growth in tax receipts, and therefore the majority of the growth in income tax receipts will accrue directly to Westminster, not to Scotland. We might, in fact, receive a declining share of Scotland's income tax yields, because we are assigned half the basic rate, one quarter of the 40% rate and only 20% of the 50% rate. The impact of that deflationary bias can best be demonstrated by assuming that the powers had been in place since 1999-2000. Since then, the impact of the shortfall against forecast departmental expenditure limits would have represented an accumulative cut of about £8 billion.

David Mowat: I understand the hon. Gentleman's point about a deflationary bias vis-à-vis the total tax take, but, in comparing the proposal before us with the status quo, what is relevant is the increase in income tax versus the increase in public spending. That is the basis on which the current Barnett allocation works, and on that basis Scotland is likely to do better in the short term.

Stewart Hosie: That is not necessarily true, and we need to look at both these measures: the growth in income tax versus the growth in total tax, and the percentage of the share of growth that we receive from income tax alone, owing to how it will be assigned to Scotland, with most of the higher parts being accrued still by the UK, where growth is likely to be higher.

Anas Sarwar: Does the hon. Gentleman accept that, under the arrangement imposed by the Bill, we would share not only the potential benefits, but the potential risks?

Stewart Hosie: Notwithstanding the deflationary bias, there might be growth in some elements of income tax revenue, but in terms of sharing risks the downsides for Scotland are much greater. In an intervention, I said that, if a future Scottish Government chose, for example, to reduce income tax to stimulate economic growth and it worked, they would take the hit in reduced income tax revenue, but the UK Government would benefit from the additional corporation tax yield. There are probably
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more downsides than upsides, because the range of devolved taxes is limited and, in cash terms, involve almost exclusively income tax.

The other problem is that the provisions fall foul of not being fully devolved. Income tax rates do not stand on their own; they must be looked at alongside allowances and thresholds, neither of which is being devolved. So the consequence of a significant change, in particular the UK Government's plan to increase personal allowances to £10,000, which in principle is a very good policy, could mean a reduction in funding to Scotland of between £800 million and £1 billion a year.

Iain Stewart: Will the hon. Gentleman give way?

Stewart Hosie: One second.

I am sure that such a change will not be allowed to happen, but UK Governments have announced 17 changes to income tax since 2007, and they would have affected the proportion of income tax revenue or receipts assigned to the Scottish Government. Those changes included not only the big headline splash on the £10,000 threshold, but 16 others, each of which would have affected the assignation of receipts to Scotland.

Even if the provisions did not result in a real-terms cut to the Scottish budget, which I believe they do, and even if they did not create an in-built deflationary bias, which I believe they do, they would still provide an unstable platform for the Scottish Government, precisely because of the volatility of income tax receipts in difficult times. At no time was that clearer than between 2007-08 and 2009-10, when income tax receipts fell by 7.3%. Over those two years, that would have led to a drop in Scottish revenue in excess of £1 billion, and that is presumably the point at which the revenue-borrowing powers are meant to kick in and help. I shall take the hon. Gentleman's intervention now, because the next part of my speech is complicated.

Iain Stewart: I want to return to the hon. Gentleman's point about changes to income tax allowances and other changes to the UK rates of income tax that would have a consequential effect. If I have read the Command Paper correctly, there will be a no-detriment rule. Therefore, if a change in the allowance structure has a consequential effect, the block grant will be adjusted appropriately.

Stewart Hosie: That is what the Command Paper says, but because the Barnett rules have the effect of squeezing income, we will have to see precisely how the no-detriment clause works. Will it be an up-front no-detriment clause that pays against forecasts, or will it be retrospective that pays should the estimate be lower than the forecast? None of that is at all clear yet. That is precisely the kind of issue that we want to probe with more detailed amendments in Committee.

The limited borrowing powers are slightly poorly designed and would constrain the Scottish Government, rather than assist them. Fundamentally, the borrowings can be made not against forecast reductions in revenue, but against reconciled outturn receipts 12 months after the end of the financial year. That means that revenue borrowing cannot even act as an automatic stabiliser to fill the tax gap during a downturn-something that every party accepts is necessary and supports. In short, the powers will expose the Scottish Government to
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the full negative impact of the economic cycle, rather than present them with the ability to mitigate those problems.

Secondly, revenue borrowing will be capped at £200 million in a single year and at £500 million in total. Therefore, even if the timing of the borrowings could have been sorted out, the limits would have been inadequate to close the revenue gaps in 2008-09 and 2009-10, when the calculated budget shortfalls were £400 million and £800 million respectively. That might be what the hon. Member for Kilmarnock and Loudoun meant when she referred to the economic parts of the Bill.

Thirdly, the repayment of borrowings within four years almost certainly means that repayments will have to be made at precisely the wrong point in the economic cycle. To make that point more solid, the proposals would have required the revenue borrowing needed to cover the shortfalls between 2008-09 and 2009-10 to be repaid in the current comprehensive spending review period, when the Scottish block grant is already under pressure from proposed cuts of more than £3 billion. Borrowing and repayment should be possible over the entire economic cycle and should not have arbitrary timelines attached to them. Cyclical borrowing can mitigate volatility, but the proposals will generate additional volatility in future budgets.

The highly limited revenue borrowing powers that are proposed will be further constrained because the first 0.5% of any shortfall-about £127 million in 2014-15-will have to be found from cuts in the cash reserve before retrospective revenue borrowings can even be found.

The second borrowing power in the Bill is for capital expenditure. It is welcome, but could be improved. The cumulative borrowing total that is set out is £2.2 billion. That is quite low compared with recent Scottish Government investment of more than £3 billion a year. Borrowing in any year will be limited to 10% of the capital DEL-approximately £230 million by 2014-15-not the total budget. For example, a replacement Forth crossing costing between £1.7 billion and £2.2 billion would use up the entire additional capital borrowing, if we were able to secure it under the constrained limits set out by the Treasury. The only way to increase the limit to allow additional borrowing would be for the UK Parliament to agree to a legislative amendment. I am not sure that that is the best approach for securing long-term sustainable capital investment.

The borrowing powers in the Bill will limit the Scottish Government to certain types of borrowing. They will be able to use loans, rather than bonds or other instruments that would provide greater flexibility. Transport for London, which is a local authority in respect of its borrowing powers, is currently issuing commercial paper worth £7 billion for Crossrail and other projects. Birmingham city council issued paper to the tune of £250 million in 2006, and it seems passing strange that what should be seriously enhanced powers for the Scottish Parliament would not even put it on a par with TFL or Birmingham city council in its ability to raise cash through commercial paper for important national infrastructure works.

We are also concerned, like the hon. Member for Kilmarnock and Loudoun, that the Bill might not provide access to capital quickly enough to meet Scotland's
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needs. The proposal is that access will commence from 2013, subject, as we heard earlier, to Treasury approval on a per-project basis. In the face of the budget cuts and the urgent need to invest in infrastructure, that is not soon enough.

The remaining tax proposals in the Bill are limited, although welcome. I have to say, however, that the Conservatives appear to have U-turned on some of the taxes that Calman said should be devolved. As I said, this is not a dry, academic exercise, and we would like stamp duty to be incremental, so that people do not pay the full whack for hitting the threshold. I am glad that responsibility for that is being devolved. It was worth £593 million in Scotland in 2008-09, but that was only 1.4% of all the non-North sea revenue raised in Scotland.

Fiona O'Donnell: The hon. Gentleman has been very reasonable in acknowledging the parts of the Bill of which he approves. Would his amendment not therefore have been more reasonable if it had said "on the whole" rather than "as a whole"?

Stewart Hosie: There are forms of words that can be accepted, tabled and selected and forms of words that cannot. I stand by the amendment, because it is important to challenge the Bill in areas in which we do not believe it comes up to scratch, and it would appear that many of our concerns are shared among the parties. To have a dry, sterile debate about the words in the amendment rather than its substantive nature does the Labour party no good. That is the only time I have been partisan in my entire speech, and I will stick to that.

Ian Murray rose-

Anas Sarwar rose -

Stewart Hosie: I am going to go on with my speech.

We would like the landfill tax to be used to support waste separation at source, recycling, waste minimisation and packaging reduction, so we welcome its being devolved. However, at £85 million, it represents only 0.2% of Scotland's non-North sea revenues. We welcome parts of the Bill, but there are significant weaknesses and flaws in it, and I believe that I have explained the potential deflationary bias in its main economic powers.

I have said that there are bits of the Bill that we like and bits that we need to change, and it is hugely disappointing that some of the Calman tax proposals have been excluded. The Government have decided not to devolve air passenger duty or aggregates duty. They argue that since aggregates duty is subject to challenges at EU level it cannot be devolved, but had it been devolved, the Scottish Government would have been required to take exactly the same cognisance of an EU decision as the UK Government. The same applies to other taxes. The Government argue that air passenger duty is under review and cannot be devolved, but the whole purpose of devolving responsibility is to allow the system to be different if it is sensible or necessary. They should devolve the matter first and then have the review in England. If the Scottish Government decided that they needed to have a review, they could do so in their own good time.

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I am further disappointed that, as the right hon. Member for Stirling (Mrs McGuire) said, the Calman proposal on revenue from savings and dividend income was not included in the Bill. That would have been extremely important because of the link with income tax, and because of the complexity of the rates about which she spoke.

We will not stand in the way of the Bill, although we have set out a series of issues in our reasoned amendment.

Anas Sarwar: The hon. Gentleman has been very generous in giving way. He says that he will not stand in the way of the Bill, but the amendment clearly states that the SNP

That means that if the amendment is not accepted, he will vote against the Bill and against new powers for the Scottish Parliament. Is that the wording in the amendment wrong, or is it just the wrong politics from the SNP?

Stewart Hosie: We are 10 years into devolution. We have a Scottish Parliament, of which everyone speaks highly. The Bill purports to devolve some significant powers and give additional responsibility, which is good. However, those powers are not good enough. If all Labour can do is snipe, "They didnae do that, they didnae do this", rather than consider the substantive issues- [Interruption.] I shall tell hon. Members what we will do: we will press our reasoned and reasonable amendment to a vote, but we will not oppose the measure. I hope that, when we deal with the matter seriously, through amendments on issues that we have identified in common, we will have less Second Reading, pre-election banter and make the Bill much better.

5.15 pm

Gemma Doyle (West Dunbartonshire) (Lab/Co-op): The hon. Member for Dundee East (Stewart Hosie) mentioned banter, and before I deal with the substance of the debate, I wish my hon. Friend the Member for East Lothian (Fiona O'Donnell) a very happy birthday. She made an excellent speech, despite the rather churlish sedentary comments of another hon. Member. It was not quite as good a speech as she made last night-but for those who missed that particular speech, I am afraid that it is not in Hansard, which is probably just as well.

I welcome the opportunity to speak about the Bill, which will strengthen devolution and increase the accountability of the Scottish Parliament to the people of Scotland. It will build on the historic work of the Labour Government in establishing the Scottish Parliament.

I campaigned for a Scottish Parliament as a teenager in 1997, even though I was not old enough to vote in the referendum. In the past decade, devolution has proved to be the right form of governance for Scotland. The Parliament has delivered free personal care for the elderly, guaranteed a nursery place for every three and four-year-old and led the way for the rest of the UK, as my hon. Friend the Member for Glasgow East (Margaret Curran) said, by introducing the smoking ban, among other measures.

The Scottish Parliament has been a great success, but after a decade of devolution, it was time to review how it works in practice. That is why the Labour Government established the Calman commission in response to the
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cross-party calls in the Scottish Parliament. The exception was, of course, the Scottish National party, which refused to have anything to do with those much-needed discussions.

Calman made several recommendations, including on tax-raising powers and responsibilities for capital borrowing. The Scottish Government have been accountable for spending taxpayers' money for the past 12 years, and it is now appropriate that they are accountable for how it is raised. The powers will increase the proportion of revenue that the Scottish Parliament raises from around 15% to 35% and give the Parliament the ability to borrow nearly £3 million in capital and revenue expenditure. Greater powers over taxation will give Members of the Scottish Parliament a significant ability to stimulate sectors of the Scottish economy.

Pete Wishart: I am sure that the hon. Lady listened carefully to my hon. Friend the Member for Dundee East (Stewart Hosie) when he explained his problems with the Bill. He described a deflationary bias that is built into the heart of its financial provisions. Why does the hon. Lady not think that there is a deflationary bias? How is there no deflationary bias in the proposals as they stand?

Gemma Doyle: If the hon. Member for Dundee East (Stewart Hosie) would like to discuss that with me, I would be happy to do so when he is in the Chamber or on another occasion.

In addition to new powers on funding, Calman also recommended devolving powers to regulate air weapons, set the drink drive limit and determine national speed limits. The inclusion of the transfer of those powers in the Bill is welcome. However, some points of concern obviously remain, such as the aggregates levy, food labelling and charity registration. We would welcome an update from the Under-Secretary on those matters. On the whole, the Bill is the right approach to strengthening devolution and preserving the Union.

In addition, the vast majority of Scots want that approach. Polls show that most want more powers for their Parliament while remaining within the UK. Indeed, some might say that Scottish people know that they have the best of both worlds: an effective Parliament that enables them to find Scottish solutions to Scottish problems while being part of the fifth largest economy in the world.

As the nationalists encourage us to engage in flag waving and sentimentalism, we should keep sight of the vital importance of our economic and cultural partnership in the UK. As I have already mentioned, Calman was established as a consequence of cross-party support, but it did not receive unanimous backing. Far from seeking to strengthen devolution within the Union, it is the ultimate goal of the SNP to break up Britain and to break the historic, cultural and economic ties that bring strength to Scotland and breadth to Britain.

Rather than engage in the process of making the Parliament stronger, the SNP chose to indulge in its own national conversation, as my hon. Friend the Member for Glasgow Central (Anas Sarwar) mentioned. By its own admission, it spent nearly £2 million on a conversation with itself on the terms of a referendum on full independence, which would have cost £9 million but was later abandoned anyway. That was a complete waste of money.

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So obsessed is the SNP with its separatist agenda that it refused to accept that most Scots do not want independence. The SNP does not understand that the priorities of ordinary Scots are protecting and creating jobs, better schools and hospitals, and making our communities safer. That is why Scots are not listening to the SNP any more.

Ian Murray: My hon. Friend mentioned the SNP obsession with independence. Does she agree that it is a sad indictment of the SNP that it was so desperate for a Conservative Government-against the wishes of the Scottish people-further to advance its independence agenda?

Gemma Doyle: That is very worrying. Before the general election last year, Alex Salmond in fact said that he would prop up a Tory Government if necessary, and as such I agree with my hon. Friend. When I talk to people in my constituency in West Dunbartonshire-

Mr MacNeil: Will the hon. Lady give way?

Gemma Doyle: Not at the moment.

People in my constituency tell me that their biggest concerns are about jobs. There are reports that there could be 1,700 local redundancies- [ Interruption. ] That illustrates the difference between Labour and SNP Members. I am talking about jobs in my constituency and not about independence, which is why I am not giving way at the moment. My constituents are concerned that there could be 1,700 local redundancies in my constituency alone as a result of the actions of this Tory-led Government. They are concerned about the impact of the VAT increase, spiralling fuel price increases, and the effects of cuts to tax credits and child benefits on their families. They fear the impact on local hospitals and their children's schools of the SNP's cuts to teachers and NHS staff.

Mr MacNeil: Would the hon. Lady prefer that powers over aspects of Scottish life that are important for keeping jobs in her constituency and my constituency were controlled in the Scottish Parliament, or would she prefer them to be controlled by the Tory-Liberal Government here in London? Does she prefer the Scottish Parliament or the Tory-Liberal Government?

Gemma Doyle: At the moment, I am afraid that I am not too keen on either, but we must work in both Parliaments.

People in my constituency do not share the SNP's obsession with the constitution, which is another reason why Scots do not listen to the SNP anymore. Who can blame them, given its record in government? Before the Scottish election in 2007, the SNP promised the earth to the people of Scotland, but it has broken promise after promise. It broke promises on schools and promises to scrap the council tax. Its promise to write off student debt and many others were also broken.

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