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7.40 p.m.

Baroness Carnegy of Lour: My Lords, I am sure the whole House has been looking forward to the noble Lord's speech and he has not let us down. He has lived nearer to the question that we are debating as regards Scotland than have most people, and for a longer time. He knows a great deal about it. We all respect the work he has done on the Scottish Constitutional Convention, whether or not we agree with the conclusions.

Long ago, back in the 1960s, I was one of many Scots who felt that a directly elected Scottish assembly of some sort might be a wise way forward. The problem then, and the problem ever since, has been to find a system for such an assembly that would bring the government of Scotland nearer to Scots without in the process destroying the United Kingdom. Every attempt so far has failed. In 1978 Mr. Enoch Powell made a speech in another place to the effect that there is an incompatibility between home rule, devolved legislative power and the maintenance of the Union of the United Kingdom.

Presumably, when he became leader, Mr. Blair thought that at last he had a plan that would overcome that incompatibility and would work. He came three times to Scotland as the new leader and made his promise to the people of Scotland on each occasion. That promise has been constantly reiterated and elaborated by his Scottish spokesman, Mr. George Robertson. What Mr. Blair had perhaps failed to appreciate was that the convention of the noble Lord, Lord Ewing, which produced the ideas Labour was picking up, had worked to very limited terms of reference indeed. As a result it had concentrated on a scheme for Scotland, and on selling it to Scotland, and had not taken as extensive an account as it might of likely consequences and reactions elsewhere in the United Kingdom. It was not asked to do that, and it did not do it. This, I believe, was compounded by the convention only reporting on that which it could agree. As the noble Lord, Lord Plant, said in his speech, it strove for consensus. Therefore on some of the thorniest and most basic issues of all, such as the position of the Secretary of State for Scotland, it made no recommendation at all.

In its recent report, Delivering Constitutional Reform, the constitution unit, at paragraph 39, concludes--I believe importantly--

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    "In approaching the task of constitutional reform it is vital to understand the interplay between the political, practical and constitutional frameworks".
The Labour Party, it seems, has had a sharp reminder of that dictum in the past week or two as the electorate south of the Border, and indeed in Scotland, began to prick up its ears and the first whiff of grapeshot has wafted to Westminster. Scotland's earlier promise has turned into a promise of a referendum on a White Paper. That does not seem to me a responsible proposal, but Mr. Blair is certainly right to backtrack--if he sees it as a means of backtracking.

I agree with the noble Lord, Lord Jenkins of Hillhead, that without tax raising ability the parliament would not be properly answerable. Yet given the power to vary Scots tax, as the bulk of the parliament's income would come via a block grant decided at Westminster, the level of income tax in Scotland--whether we like it or not--would be seen to be a consequence of the size of that block grant.

Imagine, for example, England's Members of Parliament happily agreeing to an increase in Scotland's United Kingdom funding when the Scots parliament was reducing--or, indeed, failing to raise--Scots income tax. I hope that I am not indulging in what the noble Lord, Lord Ewing, referred to as the politics of fear when I suggest that this is bound to be an immensely divisive notion as regards the other parts of the United Kingdom. In fact whether or not the parliament were to have tax raising powers, the way the block grant was calculated would come into the limelight, as the funding of the Scottish Office has never come into the limelight before. It would become a matter of constant curiosity and probably political controversy--and not only in Scotland.

If the current formula for Scottish Office funding were followed--as the constitutional convention suggests it might be--people south of the Border might well ask questions of the kind that my noble friend Lord Goold posed. Why are the Government spending 25 per cent. more in Scotland than in England? Why is local government support 44 per cent. higher? Why do councils spend 30 per cent. more per head, and 75 per cent. more on capital? Why, over eight years, have their staff in Scotland increased by 6 per cent. when English councils' staff have fallen by 6 per cent? How does health service provision compare? I believe that the explanations are largely due to Scotland's geography, but they are not entirely due to that. Those questions will be keenly pursued.

Likewise, how fair would the system look to people south of the Border with--as might be the picture first time round--72 Scots MPs (more than Scotland's fair share) voting on United Kingdom and English legislation at Westminster; a Chancellor who is a Scots MP, a Foreign Secretary who is a Scots MP, a Government Chief Whip who is a Scots MP, a Prime Minister and Lord Chancellor born and educated in Scotland, while 129 further Scots legislate in Scotland with no one else involved at all, not even the House of Lords as a revising chamber? How fair would that look south of the Border?

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It may well be that the Secretary of State for Scotland, whose job would largely be given to the new parliament, would be redundant. But if so, who would fight Scotland's corner in the Cabinet, for example, as regards the block grant? I believe that Mr. Blair should backtrack further and take stock. The Westminster Parliament has in any case come much closer to Scotland of late with the massive devolution to the Scottish Office and, as noble Lords have described, Scots policies, proposals and Bills being regularly discussed in Scotland by the Scottish Grand Committee and by Select Committees of the other place and of this House. I believe we could go further. We could perhaps follow the thinking of my noble friend Lord Bowness in his speech just now and involve the Convention of Scottish Local Authorities--the body comprised of all the new all-purpose local government councils in Scotland. We could perhaps involve them formally in assisting in the drafting and passage of legislation.

All those changes are being developed without putting a strain on the Union, or threatening our existing constitutional settlement. I hope that your Lordships will continue, as you have done up to this point, to support and participate in them. I hope, too, that today's debate, including many able speeches by noble Lords on the Labour and Liberal Benches, will make a small contribution towards persuading the United Kingdom that the Labour Party should not be given the chance of implementing proposals which I believe the Union might not survive.

7.50 p.m.

The Earl of Mar and Kellie: My Lords, I welcome the debate and will focus, not surprisingly, on constitutional change for Scotland. I shall start with some remarks to establish my position in the debate and then consider some alternatives--the disadvantages and advantages of the convention's scheme.

Foremost, I believe that sovereignty lies with the people of Scotland rather than with any parliament. That is a view established in the claim of right 1989. Secondly, an unprecedented agreement has been achieved within the constitutional convention between several parties and other bodies. Thirdly, like others, I allocate some blame to this House for the loss of Ireland from the United Kingdom. Fourthly, I believe that violence is unnecessary. Constitutional change should be the result of the intellectual decision of the people of Scotland. I reject any suggestion of ethnic Scotsmen and that darker side of nationalism. I refer throughout to the residents of Scotland, both born and migrant.

Dissatisfaction with the status quo increases. As regards the democratic deficit, how do we justify a minority government to our children? The Scottish Grand Committee goes round Scotland demonstrating minority government. Why do we have to go to another country for our domestic legislation when that legislation cannot apply elsewhere due to our different legal system?

Why can Northern Ireland have an assembly? Is it a handicap to want greater autonomy within the United Kingdom but not want to join another country?

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The lessons of history, of Irish home rule, are being ignored. The lessons are these: act now and do not leave it too late. There has been talk today that we must not legislate for the break-up of the United Kingdom. This Parliament legislated for the break-up of the United Kingdom when it ratified the Act setting up the Irish Free State; so it has been done before. There is a popular demand for change in Scotland which is not necessarily to do with economic advantage but with freedom for its own sake.

Before recommending the scheme presented by the Scottish Constitutional Convention, I wish to mention three alternatives. The first is to continue the unacceptable status quo and that feeling of colonial rule. The second is to go for a nation state, the republic of Scotland. That is rather 19th century and, I believe, unnecessary. The loss to Scotland of the United Kingdom single market, with its existing common currency, common interest rates and business regulation, would be destabilising and disadvantageous. But it might be easier to organise if there is total opposition to a scheme of Scottish self-government within the United Kingdom; that is, opposition to such a settlement, or by the rise of completely contradictory political attitudes, say, over Europe, or arguments about nationality or defence postures.

A third and quite promising development might follow Professor A. V. Dicey's proposals in the 1880s for a Grand Committee, with the leader of the Scottish majority party as Secretary of State. I should like to quote from the Scotsman in January 1996. It states:

    "A precedent does exist, however, for a Scottish Grand Committee with teeth. And sharp ones. In 1882, Professor A. V. Dicey ... wrote to his friend James Bryce, the MP for Aberdeen, that Westminster should grant Parnell (who would be Chief Secretary for Ireland in the Cabinet) full autonomy in terms of Irish legislation.

    This would be 'a bona fide attempt to treat Irish members as persons entitled to decide on Irish legislation', so long as they acknowledged Parliament's overall sovereignty, which would be latent, restrained by convention.

    Bryce demurred, on the grounds that a basic loyalty to Westminster was necessary, and that a degree of confidence simply didn't exist in Ireland. Hence his own backing for an Irish parliament.

    [Bryce] did not favour a Scottish parliament, as he thought such conventions already applied. As, indeed, did Dicey, who recognised this as early as 1867: 'Few governments would dare to legislate for Scotland or Ireland in the face of the united opposition of the Scotch or Irish Members'".
Unfortunately that has not been carried on. We have had examples of the poll tax, the VAT on heating--it is particularly crucial in our colder climate; it is one of the ultimate London taxes--and the Skye Bridge tolls which defy the Union by imposing a higher toll in Scotland than in England, when under the Act of Union tolls are supposed to be equal.

The home rule scheme, agreed following the resolute search for consensus, plans for a democratic parliament to control the functions of the Scottish Office: a parliament subsidiary to the UK Parliament. The previous parliament was undemocratic, being elected by but 2,000 electors. The proposed parliament will be elected by proportional representation using the additional members scheme similar to that devised

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by the UK for West Germany in 1945. Of the 129 members, 73 will be first-past-the-post constituency members and 56 from the eight Euro-constituencies, seven from each. Powerful committees of the proposed Parliament would consult widely and be able to propose legislations as would the ministers of the Scottish government. That would give a big role to back-benchers. I agree with the point raised by the noble Lord, Lord Kingsland.

The constitutional settlement will continue the policy of equalisation of UK funds, recognising the greater difficulty of administering Scotland, with one-third of the UK land mass and one-twelfth of the UK population. The parliament will have autonomy over its spending programme and the power of variation over income tax alone, if necessary, to achieve that programme. Above all, the Scottish parliament will be accountable to the people of Scotland.

I now speak to the party on my left--or perhaps on my right. British Labour has to convince the Scottish people that it will not renege on the scheme to which Scottish Labour has agreed. Scottish Liberal Democrats are most unhappy, to put it mildly, with the British Labour decision not wholeheartedly to promote a home rule parliament and to offer something less--a devolved assembly without tax-varying powers as an alternative. Scottish Liberal Democrats worry that British Labour will impose a U-turn on the commitment to proportional representation. I hope for confirmation that British Labour will not repeat last week's change of policy.

A pre-legislative referendum can ask only whether it is expedient to proceed--and expedient means that, broadly speaking, it is a good idea to do so. I liked the suggestion of the noble Earl, Lord Perth, because it was positive yet cautious.

I now turn to some of the disadvantages of the home rule scheme. Such a scheme requires considerable tactful and willing co-operation. Everyone must want to make it work. Similarly, the rise of incompatible policies would put the settlement in jeopardy. That refers to those powers not transferred to the Scottish parliament, which are foreign policy, defence, macroeconomic policy, social security and nationality.

Devolution of parliament without tax-varying powers may be tempting for the faint-hearted, but it will have little effect and generate much frustration and more whingeing. Even Scottish local authorities have tax-varying powers. There is the possibility of a democratically demanded increased taxation which would be offset by better services. There will be more MPs' salaries to pay. That will be offset presumably by a reduction in MPs at Westminster and, more significantly, a reduction in unelected members of quangos, which would become more democratic, presumably using members of the Scottish parliament.

I now wish to look at some of the advantages. We have the transfer of powers from Westminster to a truly democratic parliament accountable to the Scottish people. Scots law will be decided by Scottish representatives, recognising that only activity in Scotland is subject to Scots law. The Civil Service is

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already in place, awaiting democratically elected Scottish masters. There is no extra tier of government proposed, as Westminster's task is merely transferred to the Scottish parliament. It is a balancing manoeuvre. Scottish local authorities have just been altered to fit in better with a future Scottish parliament.

By staying within the United Kingdom, we shall avoid a trade war, as is the "unmentionable" status as awarded to Ireland after 1922. There can be better economic management, as business leaders will be more accessible to members of the Scottish parliament and vice versa. Education, training and health can be rebuilt to Scottish standards. That way, we can invest in our people.

Unlike the 1979 scheme, this one avoids central belt domination. The three island seats and the 56 seats from the eight Euro-constituencies, five of which are rural, ensure a more than adequate representation for the Borders and Galloway, Grampians, Highlands and Islands.

The result of a Scottish general election is not a foregone conclusion either. This is a parliament in which the government must secure more than 50 per cent. of the popular vote. Based on their 45 per cent. share of the vote, Scottish Labour would need a coalition partner or even face a rainbow coalition in opposition, as does Fianna Fail at present in the Dail.

The home rule scheme brings choice to all UK citizens--the choice of living within different regimes and societies without having to change citizenship. People already migrate to Scotland for its sense of community and values. Others will come for its education, health, social services and enterprise and that sense of communal responsibility.

To conclude, this new parliament will enable the United Kingdom to be a more democratic and less resentful place. The prize is ultimately a federal Britain with its single market, all within a fair and democratic constitutional set up. Perhaps it will ultimately be necessary for Scotland to repeat the 1918 general election in which Sinn Fein won a huge majority, despite the majority of voters wanting home rule. It certainly led to the 1920 Government of Ireland Act, but by then it was too late. Do we Scots have to vote for separation en masse in order to achieve home rule? I commend to the House these plans for Scottish democracy as wrought by consensus in the Scottish Constitutional Convention.

8.4 p.m.

Lord Nickson: My Lords, it is a great privilege to take part in this debate. I wish to approach it from the view of the Scottish businessman. Perhaps I may give my credentials in that connection: I have worked for over 40 years in various Scottish businesses, mainly in Glasgow but also in Edinburgh. I have seen Scottish business through the other end of the telescope, through my time at Centrepoint. I have also lived within sight of the Wallace Monument, in "Braveheart" country, one might say, although not for as long as the noble Lord, Lord Ewing of Kirkford, nor the ancestors of the noble

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Earl, Lord Mar and Kellie. However, it is long enough to understand what I might call the Braveheart mentality and the extreme patriotic fervour that exists in terms of what is needed in Scotland. I suggest that it is at a peak which I have not known in my lifetime and that England and the English are probably less popular than they have been for a long time.

That does not mean that I am in favour of the proposals that come from the party opposite. Indeed, my concern with the referendum is that the tide of emotion might lead people to opt for something that is not fully understood. My great worry is that a referendum without a devolution Bill thoroughly spelling out the consequences might mean that what Scotland might vote for is not fully understood and has grave consequences for the United Kingdom.

I said that I would speak from the business point of view and that is what I intend to do. What does business anywhere need? It needs a sound economy and sound money. It needs an enterprise culture; it needs a competitive infrastructure; it needs access to markets and a skilled, motivated and well paid workforce, and it needs a level playing field in relation to costs. I suggest that Scotland has all those and Scottish business has prospered and thrived in that environment for many years now. The proof and test of it is how Scotland has leapt up the regional league in relation to other areas of the United Kingdom over the past few years. It is disadvantaged not at all. It is seen as a good place in which to do business.

One of my concerns is business costs. Many noble Lords referred to the percentage of public expenditure which Scotland enjoys. The figures are arguable, but roughly Scottish gross domestic product is about £50 billion. Public expenditure for the whole of Scotland is probably about £23 billion. Per capita that works out at £4,500 per head as against about £3,500 in England and rather more in Wales. There is a great fiscal benefit.

The CBI in Scotland has just issued 39 Questions to all four political parties. It seeks to establish their answers to Scottish business. It behoves every political party to answer the questions before an election because that will determine the attitude of Scottish business to the parties' election manifestos. I suggest that the figure of 39 questions has probably more to do with John Buchan and The Thirty-Nine Steps than the 39 articles of the Church of England.

I wish to speak for large Scottish companies. Small and medium-sized enterprises are hugely important in terms of employment. But Scotland has benefited from having a number of highly successful very large companies that are now centred in Scotland and wish to remain there. That was not true not so long ago. Perhaps I may list companies like the banks, the life insurance companies, the mutuals and, in composite terms, General Accident, Scottish & Newcastle and the two great private utilities, Scottish Power and Hydro-electric. Although it is not a plc, United Distillers is included. Thanks to my noble friend Lord MacFarlane, it is firmly based in Scotland.

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I must declare an interest. I am a pensioner of Scottish & Newcastle. I retired last year as a director, and I was chairman of that company through the 1980s. I must declare an interest so far as General Accident is concerned, as I am deputy chairman of that company. I am also a small shareholder in both.

I do not believe that Scottish & Newcastle would have survived in Scotland today if there had not been a very powerful Secretary of State for Scotland with a very strong voice in the Cabinet at that time. I do not believe that we should have survived the takeover bid from John Elliott, the chairman of Elders. That is the second bid that I have tried to resist. The other was from Rupert Murdoch in Collins. That, sadly, is no longer a strong Scottish company. It is very important that there is a strong Scottish voice in a strong Cabinet prepared to give support.

Perhaps I may quote from an article in yesterday's edition of the Scotsman, which said that devolution "would cost money". The article states:

    "Scottish & Newcastle [is now] a true European player ... a world away from S&N of only a few years ago ... it is disappointing to find that its management appears to be in the vanguard of opposition to devolution in Scotland. It is one thing for the knights and peers of Scotland's establishment"--
that presumably excludes me--

    "to frown on such developments ... But when a chief executive of the authority of Brian Stewart says bluntly 'it would cost us money', he is only reflecting the concerns of a substantial part of Scotland's business community".
The article goes on to say:

    "It is late, but not too late, to change the policies being cooked up in an Islington kitchen. Mr. Stewart is ... worth listening to".

Why is he worth listening to? Let me go on to say. First, because of a potential tax on employees which, as noble Lords have pointed out, might be up to 10 per cent. It is a difficult matter running an international business from Scotland. People have to cross borders and travel to and fro. You have to move people about. It is not easy to attract very senior executives. That is one reason why it might be difficult. My own family, the Nicksons, came I believe entirely from the Western Marches, where Border reivers were quite independent and free to choose which side of the Border they would be on, where the pickings were best. That might happen again.

The second concern is that of cost to business. It was not very long ago that the ratio of costs to produce a barrel of beer was 1p in Burton-on-Trent to 8p in Edinburgh. Not long ago, if a tourist laid his head on a pillow in a hotel in Edinburgh, the price was £3, whereas in a similar hotel in London it was £1. Not long ago, the business rates on Jenners were very nearly as great as those for Harrods. Not long ago, as the noble Lord, Lord Ewing of Kirkford, will recall, the rateable value of the chemical and oil plant at Grangemouth was about 40 per cent. of that in Central Region. So, to be headquartered in Scotland depends very much on those factors.

I am not threatening. I am not talking fear. I am merely stating fact when I say that it would be just as easy for Scottish & Newcastle, with just as much justification, to be in Newcastle--with which the north

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east of England might be delighted--if it became a disadvantage. General Accident offers in a global market-place. Its senior executives come from all over the world, from the United States, Australia, New Zealand--and from York. The life company is in York. There are very strong reasons why it would be better for it to be situated elsewhere than in Scotland. I suggest that the same applies to a lot of other fund management. It requires very positive board decisions to say, "We are Scottish, we want to stay here, and we are convinced that there is no disadvantage to our employees or our shareholders".

Inward investment has been mentioned. I am not threatening. I am not talking fear. I have a little experience. The noble Lord, Lord Irvine of Lairg, made one or two somewhat disparaging remarks about quangos. I have to confess that I have been on many quangos in Scotland. I was appointed to my first quango by Eric Heffer when Mr. Wedgwood Benn was Secretary of State. I was the last chairman of the Scottish Development Agency. That had a wonderfully representative board, composed of a lot of my friends from local government and the STUC. It became Scottish Enterprise. In that capacity I had the good fortune to learn a certain amount about inward investment through the Locate in Scotland board and the Scottish Economic Council.

I am saying only that I fear lest the climate and the perception of Scotland change, lest the certainty and the business base change. It is a very fragile thing. Inward investment has been highly successful. I would not want to see it put at risk.

Those are my reasons. I am not threatening and not speaking to arouse fear. I am merely saying that that is why I am so concerned about some of these matters. There are three dangers from a business point of view. I call them the three Cs. They are: confidence, continuity and a competitive climate. I fear that devolution might produce the three Ds: doubt, disunity and disadvantage.

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