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Lord Sewel moved Amendment No. 271TA:

Page 26, line 15, leave out ("or other person").

On Question, amendment agreed to.

Clause 59, as amended, agreed to.

Clause 60 [Transfers of property and liabilities in connection with functions]:

On Question, Whether Clause 60 shall stand part of the Bill?

Lord Sewel: I must point out to the Committee that, on this Bill, I have not reached my best until about 10.30 at night. Indeed, this is just the opening canter. Clause 60 is no longer required in consequence of Amendment No. 271G, which the Committee agreed to earlier.

Clause 60 negatived.

Clause 61 [Scottish Consolidated Fund]:

Lord Mackay of Ardbrecknish moved Amendment No. 271U:

Page 27, line 4, at beginning insert ("Recognising the needs of Scotland in relation to the United Kingdom as a whole,").

The noble Lord said: We now come to Part III of the Bill which concerns financial provisions. Amendments in this group stand in my name, one in the name of my noble friend Lord Dixon-Smith and I believe two in the name of the noble Lord, Lord Steel of Aikwood. These amendments deal with the question of the money which is to go to the Scots parliament, how much it is to be and how it is to be calculated.

I should explain why I think my amendments are superior to that of my noble friend and to those of the noble Lord, Lord Steel of Aikwood. We have to be clear about exactly how the system works, and how I understand it may work in the future. I shall probably have to help the Government as they do not appear to be able to find their way in their own Bill at the moment.

Noble Lords: Cheap!

5.45 p.m.

Lord Mackay of Ardbrecknish: It may be cheap, but it is true. One of the interesting aspects of all discussion on the money which goes to the Scottish Office currently--and which will, of course, go to the Scottish parliament--is a total confusion about exactly what the Barnett formula does and is. The Barnett formula is not the mechanism for determining spending levels in Scotland. It determines only the annual changes that take place to the totals. The block itself is determined quite separately.

The Barnett formula was devised--but not named--by the noble Lord, Lord Barnett, when he was the Chief Secretary to the Treasury in 1978. It replaced a formula called the Goschen formula which was named after the forebear of my noble friend

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Lord Goschen, and which I believe had lasted for some considerable time. The noble Lord, Lord Barnett, did not name his formula. Interestingly enough, it was named by Mr. David Heald, who is now the professor of accountancy at Aberdeen University. It is amazing how Aberdeen University has cropped up throughout the Committee stage of this Bill, sometimes to the Government's advantage, but sometimes, I suspect, to their disadvantage. In 1980 Mr. Heald wrote when he was then at the University of Strathclyde's centre for the study of public policy,

    "All formulae need a name. In the apparent absence of an official one I now name this the Barnett formula. Perhaps some day this will make Joel Barnett as famous as Lord Goschen".

It certainly has made the noble Lord, Lord Barnett, as famous as Lord Goschen; they talk about little else but the Barnett formula in the pubs of Scotland.

As regards the Scottish Office expenditure--and therefore the expenditure which will go to the new parliament--the block itself constitutes about 96 per cent. of the Scottish Office spend. I know that my noble friend the Duke of Montrose is interested in agriculture, fisheries and food. However, those matters are outwith the block. Perhaps we should establish whether that will continue to be the case. In the deep recesses of the Treasury a decision is made every year as regards what the percentage uplift should be for each department's spending. That is decided on inflation factors. We shall discuss later exactly how that is or ought to be measured. Thereafter there are negotiations between the Treasury and the English, or English and Welsh spending departments. They agree either increases or decreases. If they agree an increase, a proportion of that increase is added to the Scottish block. If they agree a decrease--that does not happen terribly often, but it happens occasionally-- a proportionate cut is made.

Until 1992 the formula was related to population--as I believe one of the amendments in this group states--and it was 10/90ths for English and Welsh expenditure together and 10/85ths for England only. However, in 1992, after the censuses, the formula was changed. Now if there is an increase in an English department, the Scottish Office will receive 10.66 per cent. of that increase. If that occurs in an English and Welsh department such as the Home Office--I think that is the only case where this applies--the figure is 10.06 per cent.

The principle which the noble Lord, Lord Barnett, had in mind was that, over time, spending per head in Scotland ought to reduce to the English level. However, the simple fact is that the noble Lord, Lord Barnett, was wrong in that regard. Convergence has not occurred largely because of advantageous changes which have been made to the block thanks

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to the negotiating power of successive Secretaries of State. To be honest, these are negotiating changes which I--

Lord Dean of Beswick: Is there not perhaps another reason; namely, the emerging SNP? It has nothing to do with negotiations.

Lord Mackay of Ardbrecknish: I imagine that quite often Secretaries of State say to their Treasury colleagues, "If you do not give me some more money, the SNP will obtain more votes". However, that has not been terribly successful in stopping the march of the SNP in the past few months. The Government have now decided that rather than give more money, they will send a Treasury Minister. I am not entirely sure whether she will fare much better. But in fairness to my right honourable friends--some of whom are now my noble friends--they negotiated favourable positions thanks to the clout they had in Whitehall. That clout will be removed. There are therefore two ways in which this money is made up. It is because there are two ways that I think the formula advanced by the noble Lord, Lord Steel of Aikwood, misses the point entirely because his amendment implies--if I read it correctly--that the Barnett formula affects the whole of the block. However, that is not the case: it is not nearly as mechanistic as that.

In 1980 there was an interesting exchange. It was interesting partly because of what was said, but also partly because of the two individuals who took part. There was an exchange between Donald Dewar--now the Secretary of State for Scotland, but then the chairman of the Scottish Select Committee--and the then Secretary of State, my noble friend Lord Younger of Leckie, then Mr. George Younger. In answer to Donald Dewar, George Younger said,

    "There are two different sorts of expenditure which come under my control. Those sorts of expenditure which have comparable forms of expenditure in England like education, health etc., are common to north and south of the Border, and other sorts of expenditure which are not strictly comparable. They are dealt with differently. What you have just asked refers to the main block of expenditure which concerns the comparable programmes. The way those are adjusted year by year is that they are argued on a general basis within government as comparable programmes as a whole".

That is why Scottish Office Ministers invariably accompany UK colleagues at discussions between the Treasury and the spending ministries. The Scottish block expenditure is calculated according to the formula that I have just explained. Mr. George Younger concludes,

    "This is, I should stress, purely for the alteration of the programmes and not for the base line from which they start".

I must warn the Committee against making calculations and inserting mechanistic formulae which do not take into account the fact that the Barnett formula refers only to increases and decreases and not to the block.

The noble Lord, Lord Barnett, is always greatly flattered to be quoted in Scottish debates. He gave

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evidence to the Treasury Select Committee of the other place just recently. He said,

    "I am flattered that the Barnett formula has lasted 20 years. I hope it will last much longer. At the time I must confess I did not think it would last a year or even 20 minutes. I was not sure".

I say to the noble Lord, Lord Steel of Aikwood, that I am not sure the noble Lord, Lord Barnett, will be flattered if his name is put into legislation and therefore acquires the eternity that that brings with it. The noble Lord, Lord Barnett, also said,

    "Can I also make clear, as you also referred to the question of devolution, that the Barnett formula either then or now--although I know somebody said it at the time--has nothing whatsoever to do with devolution. I think that has to be borne in mind".

In the White Paper the Government stated that the arrangements I have explained based on the block and formula,

    "have produced fair settlements for Scotland in annual public expenditure rounds and have allowed the Secretary of State for Scotland to determine spending decisions in accordance with Scottish needs and priorities. They have largely removed the need for annual negotiations between the Scottish Office and the Treasury. The Government have therefore concluded that the financial framework for the Scottish parliament should be based on these existing arrangements with, in future, the Scottish parliament determining Scottish spending priorities".

That is fine as far as it goes, but the reality is that from time to time over the past 18 years--I have little doubt this will occur from time to time in the future--the Treasury had a go at the block. It will not have a go at the Barnett bit of the block as that does not worry the Treasury too much because it has already negotiated that matter with a Whitehall department, but it will have a go at the block, sometimes aided and abetted. When that happens, the Secretary of State has to work very hard to resist it, as I know one or two of my noble friends have had to do in their time.

My Amendments Nos. 271U and 275A get away from the idea of the block and any mechanistic proposal and simply say that the amount of money should be allowed,

    "Recognising the needs of Scotland in relation to the United Kingdom as a whole".

That would be a fairer and better long-term position for Scotland with regard to the money that comes to it. I am sure that it can be argued on a variety of counts that there are good reasons why Scotland ought to receive more per capita than other parts of the UK, just as it can be argued that there are good reasons in relation to Northern Ireland and Wales, and, if I may say so, that certain areas of England should have higher expenditure per capita than other parts of the United Kingdom. I should like to write my amendments onto the face of the Bill to make clear the basis on which any future discussion would be held on the block itself.

My noble friend Lord Dixon-Smith has tabled a much more mechanistic amendment which probably introduces the "Dixon-Smith formula" into the block. I do not particularly like it. It is too mechanistic, and I believe that my amendment is better. My noble friend tries to measure the same sort of matters, such as GDP per capita in Scotland and how it relates to the rest of

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the UK. But there is more to the issue than merely GDP per capita in Scotland. There are questions of needs, sparsity and other factors which are present in Scotland and which require, and deserve, higher government expenditure.

With his Amendments Nos. 272 and 274, the noble Lord, Lord Steel, wants to enshrine the Barnett formula. I do not know where that leaves the block itself. If it leaves it anywhere, it certainly leaves it open to considerable attack by the Treasury.

Perhaps I may say a word about the previous amendment just to give the flavour of my--

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