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Lord Steel of Aikwood: I am most grateful to the noble Lord for his exposition. It has been remarkably lucid. But surely his Amendment No. 271U, simply saying,

without any mechanistic formula whatsoever, is far more likely to be open to raids by the Treasury. I do not think the noble Lord was present on the occasion when the Secretary of State, Malcolm Rifkind, was going through the same tortuous explanation to the Commons. My noble friend Lord Russell-Johnston asked him about the application of the "OCHTHINE" formula and whether that did not apply. Malcolm Rifkind looked rather puzzled and asked what it was. He was told that it was the well-known Scottish Office dictum: "Och, tae hell, it's near enough"!

Lord Mackay of Ardbrecknish: I do not think we will have that formula, nor indeed a new Russell-Johnston formula.

It is difficult to devise a provision that ties in the relationship between Scotland and the United Kingdom when we move to devolution. I am basing my effort on a broad-brush, broad-principled approach, because it is extremely difficult to tie the matter down. It is certainly very difficult to do so on the basis of the Barnett formula, for the reasons I have given. Perhaps some of us would merely prefer to write into the Bill, "and nothing will ever change". But in reality that cannot be done.

Let us assume for a moment that the new Scottish parliament is as good as some of its advocates suggest, the economy of Scotland hugely improves, and some of the reasons for Scotland acquiring more money begin to disappear--as in many ways they have over the past 20 years; they have been reduced. The previous government were very successful in many regards in changing the Scottish economy, introducing new industry and so on. But if we are to have these changes, there must be some underlying principle by which future Secretaries of State and Treasury officials will judge the matter.

The amendment tabled by the noble Earl, Lord Mar and Kellie, and my noble friend Lord Lindsay, seems a good deal more interested in territory, wildlife and scenery than it does in people. I believe that a formula

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should be devised more on the basis of the needs of the people of Scotland relative to the United Kingdom. I beg to move.

Lord Mackie of Benshie: I rise to speak to Amendment No. 272 and related amendments. I, too, am extremely grateful to the noble Lord, Lord Mackay of Ardbrecknish, for his exposition. It was lengthy but full of good work, and I am the wiser for it. What we are trying to do is elicit from the Government how they intend to lay down a system. The amendment is a probe to find out how in future we are to have a system that will work. It appears to us that one approach is certainly the so-called Barnett formula.

One of the reasons that we like to think that the Barnett formula might be used has already been given by the noble Lord, Lord Mackay of Ardbrecknish. It is that successive Secretaries of State in the Tory government successfully competed with the Treasury for more money under that formula. It is a system whereby at least the supply of money is laid down according to some formula and there cannot be the kind of competition that one always gets in the Treasury--and the competition that there might be from a hostile government. The other point is that, as I understand it, there is competition between Members of the same Cabinet on some occasions. They might well use their enmity to force their own point to the detriment of Scotland.

We are saying simply that we need a formula. If there is a formula, then at least the new Scottish government can begin to tackle the problems that have given rise to the need for more money per head as compared with England. The obvious one is the amount of area that is involved, the distance that has to be covered. Another factor to be contended with is the bad health of the people of Scotland. There is also the decline in heavy industry from which Scotland has suffered since the end of the war, although it is now catching up in the field of electronics and so on. Those are all special problems that Scotland has. If the Scottish parliament works within a formula that has been enough under previous governments, then it can do better and can do more with that money. But to leave matters as stated in subsection (2) that,

    "The Secretary of State shall from time to time make payments into the Fund out of money provided by Parliament of such amounts as he may determine"--

is possibly a little too wide. A formula needs to be provided so that we know that for a recognisable period of time there will be adequate income for the new parliament to overcome the ills that have lowered the income per head and the need for more money per head.

Amendment No. 279 is a simple amendment to determine what is going on, to assess the amount of money coming in from Scotland's industry, to assess the increase, and so on. That is a factor that we shall be examining. In time, if the Scottish parliament is any good at all, then it will depend on the money that it raises on its own. As the noble Lord, Lord Mackay of Ardbrecknish, said, agriculture is presently in a different category. But in Scotland it is a far more important factor proportionately than it is in England. I shall be

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interested to hear the Government's response. I am sure that we shall receive an admirable explanation as to how the system will work.

Lord Dixon-Smith: I am grateful to the noble Lord, Lord Mackay of Ardbrecknish, for, in a sense, introducing my Amendment No. 273. During the course of his remarks, although he rejected it, he actually began to make the case for it. I do not need to remind the Committee that we are discussing the Scottish block--not increases to that block, but the block itself. I have tabled an amendment which attempts to protect the Government from the slings and arrows of outrageous politicians--or perhaps it should be outraged politicians. Without something on the face of the Bill, it is my view that the Government's position will become increasingly difficult as we go forward into the future.

I have a formula of sorts which relates expenditure in Scotland to population. It picks up the factor that my noble friend Lord Mackay of Ardbrecknish mentioned of sparsity. It has an escalator clause in it in relation to prosperity. The escalator may go up and down too rapidly or it may be that the sparsity proportionality is not absolutely appropriate. However, I took the trouble to work it out in relation to existing expenditure, with a view to not causing too great a shock. Expenditure in Scotland is just below 20 per cent. greater than the average United Kingdom expenditure. I shall not trouble to compare it with the English per capita average.

If I take the wording of the amendment proposed by the noble Lord, Lord Steel of Aikwood, literally and apply it to the Scottish block, as it is intended to be applied, it is my belief that it would lead to a dramatic reduction in the size of the Scottish block. I am sure that that is not quite what the noble Lord intends. I assume that he is applying the proportionality of the increase to the total public expenditure budget and bringing it back as a proportion to create a figure for Scotland. On my arithmetic, I think Scotland would lose if that were done. It may be that I have misinterpreted the way it is intended to be used.

Lord Mackie of Benshie: All we are saying is that we continue the block negotiations as at present. So how that can block the expenditure or reduce the amount of money coming into Scotland, I fail to follow.

6 p.m.

Lord Dixon-Smith: The problem with the block is that it is not a definable sum. The block itself reveals the weakness to my mind of the amendment proposed by my noble friend on the Front Bench. The block consists of a sum of money calculated annually after a negotiation between the Secretary of State for Scotland and the Treasury in which it seems that, unusually, over the years the Secretary of State for Scotland has beaten the Treasury and been successful.

However, they will both argue that that calculation is made recognising the needs of Scotland in relation to the United Kingdom as a whole. It has always seemed to me that that is the present situation and I am sure that when the noble Lord, Lord Sewel, winds up he will tell me that that is the case. I shall be surprised if he does

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not. If the government of the day, in arriving at that kind of calculation, do not take account of the needs of Scotland in relation to the needs of the United Kingdom as a whole, then frankly, I do not know what they would be doing. They would certainly not be doing their proper job.

I seek to provide protection for the Government for the future. Let me illustrate the problem. The exam questions will become more difficult as time passes. The noble Lord, Lord Sewel, will need no reminder of the differences between secondary education in England and Scotland. We had a debate on the subject a little while ago in relation to payment of fees at Scottish universities. We know that Scottish secondary education is based on a five-year module and that English secondary education is based on a six-year module. The fact is that the five-year module costs just over £900 more per pupil, but in order to make the point we will take £1,000. That is £1,000 more per pupil than the English six-year module. If I were a tight-fisted canny Scot, I would begin to wonder why this supposedly superior system, which costs £1,000 more, actually produces a product which then requires four years of university education to achieve the same degree for which an English pupil, having had less spent on him in an inferior system, only requires three years.

Of course, I am not a canny hard-nosed Scot so I do not have to ask the question. But if I were standing as a member of the Scottish parliament I would see enormous opportunities here for re-jigging the budget. It seems to me that there are elements of excess expenditure. The point I make is this. These questions will arise and be examined in detail. They will be examined more and more from an English perspective. As the questions are asked, pressures will increasingly be put on the Government. The result will be that the Scottish block will come under critical examination and there will be pressure for it to be reduced.

The Government will then have a choice. They can reduce it and become the enemy of Scotland or maintain it and become the enemy of England. That is not a situation in which the Government of the United Kingdom should ever permit themselves to be put. That is why I have devised a formula. It may be inadequate, it may even be that it needs considerable improvement. But I suggest in all seriousness that the Government will put themselves in jeopardy for the future if they do not put something like this on the face of the Bill.

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