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Baroness Carnegy of Lour: My Lords, before the noble Lord sits down, he has made a very interesting speech. But can he answer the question I specifically asked him? Does his party still intend to allow the Scottish parliament, should it ever be created, to vary tax by 3p, up or down?

Lord Ewing of Kirkford: My Lords, in the last Scottish devolution Bill—the noble Lord, Lord Pym, who was with us at the beginning of the debate, shadowed the late John Smith and myself on the Bill in another place—the great criticism coming from the Conservative Opposition was that the Bill lacked teeth—it had no tax raising powers. Having tax raising powers in the present proposals is actually our response to that Conservative Party criticism.

6.57 p.m.

The Minister of State, Scottish Office (Lord Fraser of Carmyllie): My Lords, it falls to me to wind up this extremely interesting and positive debate. Like other noble Lords, I congratulate the noble Lady, Lady Saltoun, on introducing it and on setting out so fully the important questions that have to be addressed. In congratulating her and thanking all those who have contributed to the debate, perhaps I may particularly single out the noble Lords, Lord Elis-Thomas and Lord Cooke. They have no cause to apologise for participating in a debate that is to do with the governance of Scotland. Those of us who are Scottish and Unionist appreciate all too clearly that others within the United Kingdom have a very real right to participate in a debate on the government of Scotland because any

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changes can affect them just as much. I regret that I have to tell the noble Lord, Lord Tanlaw, that I cannot tell him immediately what might be the proposals in a devolved assembly to deal with the issue of the time standard.

It is now some 16 years since the Scotland Act 1978 was repealed. In this detailed matter of constitutional change—important as it is—we are no further forward. For that reason it has been useful to have this debate. I do not often quote the words of Mr. Alex Salmond, but, as the noble Lord, Lord Ewing, will recall, he absolutely floored his colleague George Robertson when he asked him repeatedly in the course of a televised debate, "Where is the Bill, George?" There is no detailed set of proposals. I understood that the noble Lord, Lord Ewing, was in charge of the bringing together of the detailed proposals. But it would also appear that Mr. George Robertson was to set those out. Your Lordships will be aware that were a Labour Government to be returned, it would be a central pillar of their first Session in Parliament that there should be a Scotland Bill, and that the matter should be settled within the first year. But, above all, there is no resolution of the West Lothian question, and there is no analysis of the financial arrangements and problems that would follow from such a change.

With a typically intellectually rigorous approach, the noble Lord, Lord Ewing, in the course of the debate on the Local Government etc. (Scotland) Bill on 28th June last year, had this to say when the West Lothian question was raised:

    "The situation now is different. A Labour government intend to establish regional assemblies as well as a Scottish Parliament and a Parliament for Wales. So the West Lothian question will not arise. There is now an answer to the question which I freely admit did not exist in 1978. I wish that it had existed, but it did not".—[Official Report, 28/6/94; col. 668.]

That is a perfectly intellectually sound approach to take. But what do we now have from the leader of his party? An expression that there is an anomaly there but the more he has looked at the issue in England, he has appreciated that there is absolutely no desire on the part of any of the English to have regional assemblies which would have to have, if the West Lothian question is to be answered, precisely the same powers that a Scottish Parliament would have. That would mean, for instance, that the great English common law would be fragmented so that those who lived in Wales, Liverpool, Bristol and Newcastle would, as is the case in the United States of America, be subjected to different criminal laws. I have yet to find a single English person who believes that that is a desirable outcome of constitutional change.

Lord Ewing of Kirkford: My Lords, I am very grateful to the noble and learned Lord for giving way, and I apologise for asking him to do so. The answer that I gave to the question on 28th June 1994 was an absolutely brilliant one. But there is an even better answer now provided by Her Majesty's Government in their framework document on Northern Ireland. It has taken the Minister to 4th July 1995 to respond. We have an even better answer now and that is why I used that better answer today. Wait until next year!

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Lord Fraser of Carmyllie: My Lords, Northern Ireland is a delicate and difficult situation. We want to see what comes out of the discussions that are going on at the moment. The noble Lord can rest assured that I have been using that quotation by him the length and breadth of England. Lest he feels that I shall forget about him, I promise him that in the next year I shall continue to rely on his useful and honest answer. Even George Robertson admits that there was an anomaly. He said that it was a "temporary" anomaly. What is not clear to me is that if he regards it as temporary, what is it that he proposes to do to eliminate that in the longer term?

Apart from the West Lothian question, which has not begun to be settled, there has been no proper examination of the implications of this particular form of constitutional change being promoted by the Labour Party, to look to see what is the financial framework under which the new arrangements would operate.

As in all government, finance has to be at the heart of the debate. The proposals of the Labour Party will stand or fall very largely on the quality and durability of the financial arrangements. I say very clearly and deliberately that their present proposals fail any test of durability by a wide margin.

The present system that determines expenditure for Scotland is a block and a formula with which many noble Lords will be familiar. Over most of his programme the Secretary of State receives a proportion of the changes to comparable programmes agreed for England; but then he has full discretion within his block to allocate his total resources to meet the needs of Scotland. He remains the Secretary of State and a key member of the Cabinet team—and never more keen than today!—and, secondly, the freedom which he has is important to allocate his resources to meet Scotland's needs.

What that means is that while the changes in aggregate expenditure in Scotland reflect the overall strategy of the United Kingdom Government, their distribution is determined for Scotland by the Secretary of State. If a new system is to be proposed, we have to ask what benefits it would bring beyond the very substantial benefits which we already have.

So far as it can be identified, in Scotland in 1992-93, the total expenditure by Government was something like £27 billion. The total revenues coming out of Scotland were something like £19 billion. As noble Lords opposite will appreciate—because they will have heard it frequently—the Scottish National Party would plead their alibi at this stage and say, "Look at the great resources we would get from North Sea oil". Let us not get into an international league dispute about this. For the sake of this argument let us assume that the totality of the revenue to come from the North Sea is to be given to Scotland. In that same year it amounted to something like £1.2 billion to £1.3 billion. So there would be a budget deficit for Scotland, even with the totality of the North Sea oil revenue, of something like £6 billion to £7 billion. That is half of the Scottish Office's present budget.

We are told that the parliament will have at its disposal the proceeds of value added tax and income tax in Scotland. That is nothing more than a cosmetic exercise since on current estimates those two components would add up to just one-third of the total

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of identifiable public expenditure in Scotland. Massive top-up funding would be needed to bridge the gap to produce a total which will require negotiation with the United Kingdom Treasury and for mechanisms to be put in place to determine such matters. All in all, a Scottish parliament's income would be determined almost totally by the decisions of the Westminster Parliament.

My noble friend Lady Carnegy raised this point. We are told that the Scottish parliament would have powers to vary the income tax paid in Scotland by 3p over the English rate. Let us put that in proportion. As the Health Minister in Scotland, I spend over £4 billion a year. That 3p would raise only something like £450 million. It would be equivalent to only about 3 per cent. of the present total of the Scottish Office budget.

My noble friend's question was a good one. It is an open secret in Scotland that there is a paper now circulating before the Scottish executive of the Labour Party which indicates that that particular proposal should be abandoned. I do not know the author of that paper, but I am aware that there is a Mr. Jim Stevens on the Scottish executive. When it was suggested that this Scottish parliament might vary income tax downwards, he had this to say as regards the equalisation payment coming from England:

    "It beggars belief that English MPs would approve subsidies aimed at allowing Scots to allow tax rates to be lower than those for their own constituents".

It really is a fanciful proposition to believe that any such arrangement could ever be introduced.

The figures I have given should be compared with the additional identifiable expenditure per head in Scotland over and above the UK average. At present that is worth an extra £3.1 billion. An increase of 3p in the pound would therefore raise something like one-seventh of the money needed to keep Scotland's additional identifiable expenditure where it is today.

I am not suggesting that that adjustment should be made. It is right and part of the benefits of the Union that, where it is needed, expenditure is used. That is the position in Scotland. But to believe that this 3p would be sufficient to make the adjustment is complete and utter fiction. The proposed financial arrangements for a Scottish parliament are both superficial and potentially damaging.

There is one issue that has been constant as we have debated this matter over the years in Scotland. That is that there should be no reduction in the number of MPs. Is there then some constitutionally sacred feature about the number of MPs in Scotland? I believe that the answer to that is quickly given. No, of course there is not. The only reason why the Labour Party would want to keep the number of MPs in Scotland at 72 rather than reducing them to 56 or possibly even as low as 44, is not because they believe that it will achieve the better governance of Scotland, but because they want to secure a majority within the Westminster Parliament. That is the basis for that approach; it has nothing to do with constitutional propriety.

A particular proposal from the noble Lord, Lord Mackie, in answer to the suggestion that we could have some arrangements under which Scottish MPs did not

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vote on matters relating exclusively to England would, if he cares to reflect on it for a moment, bring about the extraordinarily curious effect that there would be potentially two governments within the Westminster Parliament at any time. There would be one dealing with matters for England alone. For example, there would be no Secretary of State for the Environment within a Labour Government: a Conservative politician would head up that department. That is clearly nonsense. What worries me is that, if England begins to appreciate that what is behind those proposals for constitutional change is a cynical manipulation to hold one party in power, any strain on the Union will be brought about by just that.

Of course, the federalist arrangements which operate in some very mature democracies are perfectly acceptable. It is a sound way to run a country, as we know from the United States, Canada and Germany. Indeed, the examples are endless. However, as I have already said, so far as I am aware there is no desire in England to break up the Union into regional parts. That point has been well made during the debate.

I also query whether there is anything worth while in seeking to draw parallels with other federal countries. After all, if a Scottish parliament were to be established, it would want to legislate on the criminal law of Scotland because our criminal legal system is distinctive. That is not the case in Germany, which is proud of having a single code. Bavaria would no more think of trying to change the criminal law than of doing anything else like that. It is a distinctive part of the arrangements there. I observe in passing our dislike of national police forces. Can any noble Lord tell me a federal country that does not have a national police force?

A particular parallel has been drawn with Spain. The noble Lord, Lord Ewing, referred to that, as did a number of Liberal Democrat Peers. It surprises me that the Spanish system is in fashion at the moment. That may be because there is some idea that you can blur the edges by moving gradually towards a form of federalism. However, I wonder how keen those who live in the United Kingdom would be if they fully appreciated that, in the 10 years since the federal structure was introduced in Spain, there has been an increase of some 300,000 civil servants. I doubt whether those who believe that the advantage of self-government in Scotland is that it would be simpler and less bureaucratic would be much persuaded by that parallel. Indeed, the parallel becomes even weaker when one considers the tax-raising powers of various parts of Spain away from central government.

The noble Lord, Lord Carmichael, accused my right honourable friend the Secretary of State for Scotland of blurring the edges between separatism and devolution. The noble Lord, Lord Ewing, said that he has fought separatism as hard as anybody. The noble Lord might find that a few people wish to challenge him for that particular role. I detest separatism and believe it to be entirely wrong. I do not seek to confuse separatism and devolution, but it is important to point out that the particular problems that are spelt out in relation to the financial arrangements (given that there would be a

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massive deficit) would be even greater with separatism because there would then be no question of an equalisation formula between Scotland and the rest of the United Kingdom. I am confident that if we were to go down that route there would be serious job losses in Scotland. The noble Lord, Lord Taylor, seemed to disagree with that point, but if the noble Lord were to go round Edinburgh again—I know that he knows it well—I am sure that he would find that insurance companies there which do 80 per cent. of their business this side of the Border would, if there were any question of separation, do as happened in Canada—they would quietly and stealthily move their head offices from Scotland to England, just as Canadian companies moved from Quebec to Ontario.

I propose to leave the issue of separatism with one final point. Although my noble friends Lord Sanderson, Lord Weir and Lord Gray have referred to the matter, I have yet to hear of any significant proportion of people working in any single sector of the Scottish economy who would advocate that their part of the Scottish economy would do that much better if the countries were separate.

I am sure that it will not surprise your Lordships if I conclude on the line that the Union should be maintained because it has been particularly good for Scotland. As my noble friend Lord Balfour pointed out, it offered us access to job markets and resources and that helped us to improve. It has also brought us a political and financial stability that we had not enjoyed previously. We do not operate within an absolutely static constitution. There are opportunities within it to improve. I believe that our recent White Paper Scotland in the Union—a Partnership for Good spelt out a number of proposals which have improved government in Scotland. I am certainly prepared to acknowledge the contribution that was made by my noble friend Lord Campbell of Croy before we put that White Paper together.

Tomorrow evening we shall be dealing with the Children (Scotland) Bill on Report. The progress of that Bill has followed a unique set of arrangements. Perhaps I may briefly take your Lordships through them. The Bill received its Second Reading after a Scottish Grand Committee sitting in Edinburgh. Before that Committee, evidence was taken from interested bodies not only in Edinburgh, but also in Glasgow. The Bill then went to a Special Scottish Standing Committee. It has now been before your Lordships' House and I think that it is generally agreed that we had a useful, constructive and even-tempered discussion of it in a Committee of the Whole House off the Floor of the House.

Other arrangements are now in place which are equally successful. Recently, for the first time as a Minister in your Lordships' House, I went before the Scottish Grand Committee to make a Statement and to answer questions. All 72 MPs from Scotland can attend the Scottish Grand Committee if they wish. We envisage that in the autumn the committee will meet in Aberdeen to debate Scottish affairs. There is no reason why the Scottish Grand Committee should not meet in Inverness—or in many other places in Scotland.

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I believe that such positive changes, which do not put strains on the Union and which are not damaging to the supremacy of this United Kingdom Parliament, are indeed appropriate. As both the Prime Minister and the Secretary of State for Scotland have said, we would be perfectly prepared to look further at any other changes that might be made, subject to one clear proviso: we simply are not prepared to countenance anything that would put at risk the Union between Scotland and England.

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