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Baroness Carnegy of Lour: Hidden in this Barnett formula concept that the noble Lord is describing is a big problem and he has just illustrated it. The health budget is high partly because of our diet. We eat more chips than anyone does anywhere else; we take less exercise; we eat less fruit and vegetables and we have more heart attacks. As long as the funding formula has, in its base, the payment of all of that in the health service, we will not stop eating more chips.

This is all very comforting but, at the end of the day, it is not the best thing for Scotland. I hope therefore that this transitional arrangement will not last too long.

Lord Sewel: I do not think that we will bring about major changes in the diet of my fellow citizens of

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Scotland by changing the Barnett formula. It has great value and power but I do not think that even the Barnett formula can bring about those changes.

Amendment No. 275 tries a different type of approach to the same problem. The kind of indicators which are proposed there are somewhat quixotic in public expenditure terms, if I may say so. I am not absolutely convinced that the number of SSSIs or the hectarage of the country covered by SSSIs is a public expenditure driver of any great moment; nor is the number of rare and endangered bird species. I am exceedingly pleased that the noble Earl, Lord Mar and Kellie, revealed that the provenance of this amendment was the Royal Society for the Protection of Birds. I shall try not to let the amendment colour the way I treat other representations I receive from the Royal Society for the Protection of Birds. However, in this instance the tying of those factors in the noble Earl's amendment to public expenditure need is at best quixotic.

I turn to Amendment No. 287.

Lord Thomas of Gresford: Perhaps I may invite the Minister to reserve his fire on that amendment. I am conscious of the fact that I did not properly put my noble friend's argument. I am sure the noble Lord did not understand it; I am not sure I did. Perhaps I may return to the amendment in its place on the Marshalled List.

Lord Sewel: I was about to say that if I thought we could get away with it, I would welcome it. But I leave the matter at that.

We have come to the stage where we recognise that we seek a fair, acceptable, efficient and effective system for funding the work of the Scottish parliament. We are building on the Barnett formula. We are continuing the Barnett formula because it has stood the test of time. It is seen as being fair and delivering the goods. It will be uprated annually as a result of population changes; so there will be a recalibration. We are committed to publishing the rules which will determine Scotland's annual assigned budget. In the White Paper we have left open the door for future changes but on the basis of agreement between the Scottish executive and the UK Government.

I hope that all those points together will give the Committee reassurance that we can go forward with that important degree of financial stability underpinning the political changes that we are introducing.

The Earl of Onslow: The noble Lord, Lord Taylor of Gryfe, uttered perhaps the most important sentence in the debate: that unless we get right the financial side, the whole thing goes pear shaped and we destroy the Union. I may have paraphrased it somewhat, but that was the underlying point. The Government have not addressed the problem. When the block grant is perceived to be too little or too much, with income tax variable by an increase or decrease of 3 per cent., how do the Government get round the complaint that will inevitably arise from Edinburgh that Westminster is dealing with Scotland unfairly? That point goes totally to the core of the matter.

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If we are to have this wretched devolution, which we obviously are, it would have been miles better to have given the Scottish parliament greater tax raising powers so that it was responsible to its own citizens for the taxes it raised from them and the expenditure it made on their behalf. What we have is a United Nations aid agency dolloping out stuff about which there will be undoubtedly complaints and whinges from both sides, be it the noble Lord, Lord Dean of Beswick, myself or the Scots. It is a formula for disaster. Unfortunately the Minister in no way addressed the intellectual incoherence of the basic formula.

Lord Lyell: Following the fiery speech from behind me, perhaps I may ask the Minister this question. He always likes to say that I am a simple accountant; and I still am. I admired his coverage of all the points.

The noble Lord mentioned a figure of £15 million as a statistical quirk. Am I right in thinking that that was the result of a continual uprating of the Barnett formula? Is it a statistical quirk that will arise every two to three years? It is after all, 1 per cent. of the total budget for the Scottish Office. If the figure can be restricted to that, it is pretty accurate. But what was the statistical quirk? The noble Lord was honest in admitting it. Can he clarify that now or later?

Lord Sewel: It is the product of changing the concept of the block grant to the departmental expenditure limit. I said that it is infuriating when the concepts keep changing. Non-domestic rates were included in the block but excluded from the near-comparator of the departmental expenditure limit. That accounts for something in excess of £16 million. That is why we have the point identified by the noble Duke, the Duke of Montrose.

I must clarify a figure. It is not £16 million; it is £1 billion.

Lord Mackay of Ardbrecknish: I was puzzled about that. I think that £1 billion is more than a statistical quirk. My noble friend the Duke of Montrose made a smart flanking attack on the Minister worthy of his noble ancestor. I found the answers interesting, especially as regards the departmental expenditure limits, which I suppose we should treat as chips off the old block, so to speak. We shall have to look at this statistical quirk and how £1 million less can be trumpeted in the Scottish press as an increase in public expenditure.

However, that is not what we are discussing. We are discussing how the Scottish parliament will be funded in future and whether we need to write that into legislation. I detected that some people do not think it worth while to continue the debate; they tend to be those who have not taken much part in the long Committee stage of the Bill. As the noble Lord, Lord Taylor of Gryfe, said, this is the heart of the matter. My fellow citizens have been persuaded that the Scottish parliament will bring with it huge improvements. I do not go so far as to say a land flowing with milk and honey; and many of the improvements can come about

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only by increased public spending. If that is not coming, people will be disappointed. That disappointment will turn them, I regret to say, to the Scottish National Party.

Lord Gordon of Strathblane: I thank the noble Lord for giving way. I am sure he will agree that our fellow citizens are not daft. But they believe that it is possible to spend even the same amount of public expenditure rather more wisely by having it spent closer to the people than at present. It is not simply a question of throwing money at the problem but of being more responsive to needs and having government that is closer to the people. That will apply in English regions as well as the Scottish parliament.

Lord Mackay of Ardbrecknish: I look forward to the expressions of delight when those parts of the Scottish Office which will receive less money in order that others receive more realise that. I hope that industries such as the tourist industry will be happy when it sees some of its money being spent, for example, on health, which is one of the areas which needs increased money on the basis of what I hear in Scotland, although we do quite well.

The Minister and I are in a fair degree of agreement. That always worries me. When the two Front Benches agree, it is not a good thing. However, I am certain that there is no way to devise a mechanistic formula to deal with the issue. I differ from my noble friend Lord Dixon-Smith. Government spending, wherever it is in the country, has inevitably to be based on discussions of needs and priorities. The two are linked. I do not believe that we can find a simple formula.

The interventions and speeches of the noble Lord, Lord Dean of Beswick, and my noble friends Lord Onslow and Lord Dixon-Smith illustrate a problem that we have to face. When I was at the Department of Social Security, I had to visit the north-east of England on a fair number of occasions because the Department of Social Security has major enterprises in the north-east of England. My noble and learned friend Lord Fraser of Carmyllie was the Minister designated with responsibility for the north-east of England. A great deal of successful effort had to be put into bringing new industries to the area in order to replace those which had closed. None of us should dismiss the points made by the noble Lord, Lord Dean of Beswick, about the areas of England which I mentioned in my original speech and which need additional help. They are more like the valleys of Wales and Clydeside and have many of the same problems. Nor should we dismiss problems such as those so understated by my noble friend Lord Onslow in his usual manner. We must guard against that, but I do not believe that we can do so by a formula.

I return to my problem with the amendment in the name of the noble Lord, Lord Steel of Aikwood, who is no longer in the Chamber. It ties in the Barnett formula. I say to the noble Lord, Lord Mackie, that nobody competes for the Barnett formula; it is automatic. The competition takes place between spending ministries in Whitehall and the Treasury. I say to the noble Lord, Lord Thomas of Gresford, that it is nothing to do with increased or decreased need in Scotland. It is the one

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thing which is mechanistic. It simply moves with what has been decided by the big negotiations between the English spending ministries and Scotland.

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