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6.15 pm

Lord Hannay of Chiswick: Would the noble Lord agree that the whole tenor of his speech-it is something like the sixth time I have heard it, during Second Reading, Committee and Report-is that he supports the Bill because he believes it is a step on the way to us getting out of the Community? That is why he supports it, and I hope that anyone who votes for it understands that.

Lord Pearson of Rannoch: My Lords, as I said on Second Reading, I think that this Bill is a "thus far and no further" Bill, and therefore it is to be welcomed. However, it is also a "shutting the stable door" Bill, because the European Union already has all the powers it needs to continue down its very unfortunate path towards complete integration, in the teeth of the growing opposition of the people of Europe.

Lord Flight: May I suggest to the noble Lord that perhaps the reason why the noble Lord, Lord Kerr, opposes the Bill is that it represents a potential barrier on the movement towards complete European integration which is his objective?

Lord Pearson of Rannoch: I am very grateful to the noble Lord-my noble friend, if I may refer to him as such-for pointing that out, and he pointed it out much better than I did. That is true: the movers of this amendment and the people who oppose this Bill do actually want an integrated superstate of Europe run entirely by the political class, having destroyed the democracies of Europe-which was always the big idea behind the project.

The movers of this amendment and those who will support it are attempting to swim against the tide of opinion here and in Europe. That tide in the end will prove irresistible, so I oppose this attempt to do so.

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Lord Dobbs: I beg the noble Lord's pardon but some of us still have something to say on this. I hope that he will indulge us. You were talking about sunsets and sunset of course is, as we have heard, the time before darkness descends, a time when hobgoblins and wicked elves come out to play-or stand up at the Dispatch Box. On Monday the noble Lord, Lord Liddle, in one of his passionate interventions, suggested that:

"We are not wrecking this Bill; we are trying to improve it".-[Official Report, 13/06/11; col. 582.]

I trust that he will not be standing up this evening to say the same thing or, if he does, I hope he has a different scriptwriter. This amendment is clearly designed to wreck this Bill, to cast it into darkness.

A sunset clause is a wholly inappropriate tool for such a mighty matter. It is like promising to love a woman faithfully for this night and for all nights, but then wanting a review after the weekend. I have never found that much of a basis for a healthy romantic relationship. This amendment once again is an attempt to duck and dodge the will of the people. That is not much of a basis for a healthy political relationship, either.

It has become clear in these debates that the usual suspects have little trust in the people. Indeed, the noble Lord, Lord Hannay, as good as admitted it just a moment ago. But now they go even further-they do not want to trust this Mother of Parliaments either. They want to bind her hands, throw her into the sea, watch her float off into the sunset and disappear. They have made great cause in these debates around the proposition that Parliament must decide, and I must admit that I have some sympathy with their position. They have argued their case with passion, but they have failed to argue it with consistency. It is clear that they are promoting the sunset clause because they do not want this Parliament to decide, any more than they want the people to decide.

The amendment is not only bizarre but unnecessary. There is an alternative, of course, which would cover every one of the arguments put forward by those supporting it. It is simple: campaign at the next election to repeal the Act, campaign on a platform that the powers given to the people should be taken back, fight on that basis, win the election and do it. Then we could all go back to counting flocks of phantom sheep and dumping tens of thousands of tonnes of fish back into the sea-problem solved. To achieve that, they do not have to persuade this Parliament but simply their own party. However, I sense that that will not happen, and I suspect that we all know why. Even if they managed to persuade their party, they fear that they would never be able to persuade the people.

I am surprised that the noble Lord, Lord Pearson, objects to the amendment. If it is passed, it will turn our general elections on their head. It will drench them in one issue: do you want to continue to have your say on Europe or not? I know that the noble Lord is a modest and moderate man, but I cannot understand why he is not jumping to his feet in excitement at the prospect. It would hand him exactly the election tool that he wants.

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Lord Pearson of Rannoch: The noble Lord, Lord Pearson, is also a bear of remarkably small brain. The noble Lord, Lord Dobbs, has made a very good point, and I may well vote in favour of the amendment.

Lord Dobbs: I ask the noble Lord to consider carefully at this point. A sunset clause is like a great sulk. It is like retiring to our castles after the battle is lost and pulling up the drawbridge. The world is not like that any more-although, gazing along these Benches, I see that there may be one or two noble exceptions with castles and drawbridges. Our duty today in this place is clear. We are here not to indulge our own interests, but to serve the people. I mentioned that great film "Casablanca" on Monday. There comes a point in the film, after the usual suspects have been rounded up-it is the most important point of the film-and as the plane is waiting to take off, when Bogart turns to Bergman and reminds her that there is a bigger game to play that overrides their own interests, and that if they fail to recognise that, they will come to regret it: maybe not today, maybe not tomorrow, but soon and for the rest of their lives. There is a higher cause here-a bigger game to play. It is the future of the European Union. It is in question as never before and only the people can rescue that future. That is what this Bill is all about: giving the EU back to the people.

It is also much more than that, for in a sense it is not about Europe but about us and about this country. It is not about little England but about the great British people-about how we govern ourselves and how we show the people, at last, that we give a damn about what they think. The principle of placing our trust in the people is something that is eternal and indivisible. It is not just for a few days or for a single Parliament-and most certainly not for the convenience of politicians who have failed to carry the argument. We have a duty to listen to ordinary men and women of great common sense. If we do not-if we refuse-we deserve to be thrown on that rubbish tip that Mr Clegg is even now preparing for us.

Lord Empey: My Lords, I was amazed that the name of the noble Lord, Lord Pearson, is not on the amendment. I was also surprised at the remarks of the noble Baroness, Lady Williams, who is well known throughout the country as a very wise head. However, the effect of the amendment, and the idea of a sunset clause, would be to give those who want to sever any relationship between this country and the European Union an opportunity at least every five years to have a platform with a specific objective in mind and to achieve it. That would be unwise. I am not sure whether anybody in the Chamber has not made up their mind on the Bill, but I will assume that one or two noble Lords are subject to persuasion. There could be nothing less attractive for somebody who believes in European Union than putting in a sunset clause. It would turn every election into a referendum on the European Union. Nothing would do more damage to the European cause because everybody would come out of the woodwork to oppose it and to run single-issue campaigns. We know that they work, because campaigners for hospitals, and environmental

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campaigners, have won seats in different countries. Single-issue elections are the most dangerous type, and I fear that we would open up a Pandora's box. Those who passionately oppose the Bill are shooting themselves in the foot with this amendment.

The noble Lord, Lord Lester of Herne Hill, made the point that he had seen the Irish constitution in action. The Irish are very proud of their constitution. The Irish Government accepted, after the first referendum on the Lisbon treaty, that they had provided an overcomplicated form of information to the people, and subsequently corrected this at the next referendum. Nevertheless, people are still passionately in favour of their constitutional rights. If one goes to anybody in the Republic and says, "This is too complicated-the Government put forward all this stuff and we could not understand it because it referred to treaties and articles", and then asks them whether they want to retain the right to have the final say, they will say yes. Even though there is a complication in a referendum on a single issue-it can be very difficult-the people in the Republic passionately believe in their right to choose. You would not find anybody in the political establishment in Dublin who would challenge that.

Lord Lester of Herne Hill: The noble Lord has the advantage of coming from the northern part of the island of Ireland. As I said, I have the advantage of having lived in the southern part for many years as a blow-in. Is he aware of the fact that the reason that the constitution has been interpreted to apply so indiscriminately to so many referenda is not that the Irish people decided that but that a very narrow majority of the Supreme Court of Ireland so decided, against the powerful dissents of others? In other words, it was a curious judicial decision and not a popular one.

Lord Empey: I take the point that the noble Lord makes. However, he will also know that if there was any groundswell of opinion to change the constitution, proposals would come forward in the Dàil for that to occur. I know of no current or recent Member of that Parliament who would stand up on a platform to advocate it. While the noble Lord is no doubt correct in his judicial interpretation, there is no support in the Republic for removing the right of the Irish people to make decisions on these issues.

The underlying danger of the proposed new clause goes back to the reason why we have the Bill in the first place. It is the "we know best" syndrome: in other words, in both Houses of Parliament, we know best. In many cases that may be true: I believe in parliamentary democracy. However, the reason that we are in this position is that the usage of that right to represent the people has resulted over time in a breakdown in their confidence in the decisions of Parliament on this subject. That is why, as I understand it, the Government are putting forward a proposal which they hope over time will bring a resurgence in that confidence. Noble Lords have suggested reviews. Perhaps, in time, if that confidence is restored, such measures may no longer be required. It is a response to a particular set of circumstances that we face today.

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I do not wish to put words into the mouth of the noble Lord, Lord Kerr, or to apply a motive to what he said or to his proposal, but this is effectively a kill-the-Bill amendment. The Bill would be better not passed than passed with this clause in it. What we are actually saying to the public is, nod-nod, wink-wink, "We've found a way round this. By the time we get to the next general election, we'll be able to tear it up again and go back to our old ways". That would further undermine people's confidence that we are listening to them and taking this issue seriously. Therefore, I see this as a kill-the-Bill amendment, and I sincerely hope that we do not include it because it will affect every subsequent election. We would open Pandora's Box. Let us suppose that Brussels, as it is perfectly capable of doing, comes out with a proposal a few weeks before the election requiring us to have straight bananas or something stupid. It could turn the election into a referendum on Europe. Everybody who believes in the European Union, and many here are clearly passionate about it, would not be serving their cause. I hope under these circumstances we will vote not content on this amendment.

6.30 pm

Lord Low of Dalston: I have not taken part in these debates, which have been going on for a considerable time, but I have been listening with great interest to the speeches that have been made in this debate. The noble Lord made a very seductive argument against this amendment when he said that if we were to pass it, it would make continued membership of the European Union a cause célèbre at every general election. I wonder whether that is right. There was a proposal to bring in legislation of this kind in the Conservative Party's manifesto at the last general election, but not, I think, in the manifesto of the Liberal Democrats, but I am not aware that membership of the European Union was a major topic during that election. I do not think it featured in any of the television debates. Having initially thought that this was a very seductive argument against this amendment, on thinking it over, I am not quite so sure that it is.

Lord Empey: I thank the noble Lord for his comments. While it was not an issue of huge significance at the last general election, if you put this into the statute book, at the beginning of every Parliament, this issue would be one of the first items on the agenda. It would have to be, otherwise, as the noble Baroness, Lady Falkner, said, nobody in Europe would know where the United Kingdom stood. If you put it into law that this must happen at the very start of every Parliament, I assure the noble Lord that it will become an issue. If that is so, why should we take the risk, even if he is right and I am wrong, because the next Parliament can do what it likes anyway?

Lord Dykes: It is unusual, and I find it surprising, but the noble Lord, Lord Empey, appears to have misunderstood completely the purpose of this amendment. I hope that Members of this House who are listening to this debate or who are outside but will come in later on will reflect carefully on the reality of this amendment. This new clause does not in any way

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damage any other part of the Bill. Whatever one's views about the Bill-and I do not much like it-there is no damage to be done intrinsically and internally to the text of the Bill. The only differences are the three government defeats so far and what may happen with this amendment when the vote is called. That is all. The rest of the Bill goes through intact. That is part of the Government's programme, and no one can gainsay that. The noble Lord is raising fears that should not exist in anybody's mind. I hope he will reconsider because it is very important that the review process that my noble friend Lady Williams referred to, in such a step in the dark with this legislation, is essential at the end of this coalition period to start with and later on too.

Viscount Trenchard: My Lords, I tend to agree with the noble Lord, Lord Empey, that this is really a kill-the-Bill amendment. I listened with great interest to the very erudite and eloquent arguments put forward by the noble Lord, Lord Kerr, and others, but if you go out in the street tonight and ask anybody you come across in a pub or a square whether they think that the European Union Bill, which seeks to prevent Parliament passing further powers to the European Union without your consent, is otiose, I think you will find that people's enthusiasm for this Bill will be further increased.

Amendments to introduce sunset clauses were debated at length in Committee, and I regret that I have heard nothing new today to persuade me that this Bill would gain in any way from the addition of one. It is clear that those who like the Bill do not want a sunset clause and that those who do not like it do. As my noble friends Lord Risby, Lord Lamont and others have explained, there certainly are occasions when the addition of a sunset clause is logical and sensible. Even though another place did not agree, I believe that your Lordships' House was right in trying to amend the Prevention of Terrorism Bill in 2004 and 2005 to include a sunset clause. Similarly, the Anti-terrorism, Crime and Security Act 2001, as enacted, contained a sunset clause. It is surely reasonable to include a sunset clause when a particular set of circumstances, which requires a particular measure to be enacted, prevails, but it is considered that that set of circumstances is likely to change in the foreseeable future. Similarly, it is arguably sensible to include a sunset clause when there is doubt about how an Act will work in practice. In such a case, it would be reassuring to a sceptical public to have a sunset clause that would act as a guarantee that Parliament would have to revisit the question within a specific period of time. However, I do not think such circumstances apply in this case because the purpose of the Bill is to draw a line in the sand and make it clear to the people that the Government will stop doing what they said over a period of years they would not do, but nevertheless continued to do, which is to pass powers and competences to the European institutions without seeking the people's consent in a referendum. The public do not think that it is likely that this situation will change. Rather, the tendency for this Parliament to surrender powers to Europe is thought by many to be likely to increase and escalate.

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Noble Lords should be aware that more than 30 directives covering financial services activities are currently being drafted in Brussels. This morning, I was visited by representatives of a trade association representing a section of the asset-management industry who were extremely concerned about this trend. It is absolutely right that we should work closely and collaboratively with other EU member states on improving the structural framework of the financial services industry, but it is equally important that we work equally closely and collaboratively on those matters with other international partners, especially the United States, Japan, China, Singapore and other countries that have significant financial markets. I believe this is necessary to stop the drift towards a centralised European state. Furthermore, I believe that it will still be necessary to stop that drift in three years, five years or 10 years. There is no reason to include a sunset clause unless you are one of those who honestly and sincerely believe that a federal state is our destiny.

I accept that there are noble Lords who believe that that is the right road for us to follow but I believe that the vast majority of the British people absolutely do not want that. I am delighted that this Government have had the courage to stand up and say that they will not let it happen. Noble Lords who support the amendment have argued that the Bill attacks parliamentary sovereignty. I believe that it does the reverse by preventing the Government permanently surrendering parliamentary sovereignty. If a future Government wish to remove such a safeguard, they will be free to do so-God forbid-but there is no need for this amendment because they will be free to do so by repealing the Act.

Baroness Nicholson of Winterbourne: I fully agree with the noble Viscount, Lord Trenchard. I have listened carefully to all the points that eminent legal and other brains have put forward, including those from no less than former high eminences from the FCO. But I am a former Member of the other place and I prefer to put my confidence in the House of Commons European Scrutiny Committee of which I used to be a member. The committee suggests:

"The arguments over binding future Parliaments are interesting and the debate will continue among constitutional lawyers and experts. But, in our view, as the UK does not have a single codified constitutional document from which legislative power is derived, there are no unambiguously constitutional 'higher' laws. All Parliaments legislate for the future. Laws passed by one Parliament do not contain a sunset clause at the Dissolution. The real point is whether a government can, in law, make it difficult for a future Parliament to amend or repeal the legislation it has passed; in our view it cannot. Our conclusion therefore is straightforward-that an Act of Parliament applies until it is repealed".

As Professor Hartley commented to the committee:

"[T]he Bill, assuming it becomes law, will be an Act of Parliament. We know that Parliament cannot bind future Parliaments, so a future Parliament could always change it. It could repeal it-totally repeal it-or amend it, or repeal it in part. I don't think that this Bill limits the powers of Parliament, any more than the European Communities Act 1972 does-the original one".

I agree with that profoundly. I also welcome and support the coalition Government's commitment to the use of a sunset clause in certain types of regulation-secondary legislation. It is a very good idea because it gives greater scrutiny of secondary legislation, which

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so often has just flowed through and frustrated many of us who wish that it did not. I congratulate the Government on their Sunsetting Regulations: Guidance, which was published in April 2010. The core purpose of this Bill is greater scrutiny by Parliament and the British people, as well as greater attempts at explanation by the Government of the day.

The referendum in Ireland has already been mentioned. I recall very well going to Ireland and promoting the knowledge that flowed throughout Ireland during its referendum. I cannot allow the moment of this sunset clause to pass without reminding noble Lords that in a 2009 survey, which took place at the time of the previous European Parliament elections and was published in April 2011, a huge number of people in the United Kingdom-81.4 per cent-believed that treaty changes should be decided by referendums-no less than 81 per cent, nearly 82 per cent. In all but two EU member states, more than 50 per cent of respondents thought the same. The level of dissatisfaction in the UK with the EU has increased over the years. The only two countries that have bucked this trend are those which have held referendums on treaty changes-Denmark and Ireland.

6.45 pm

In December 2001, I recall very well that, in Laeken, EU leaders declared that EU citizens,

We worked enormously hard from Brussels-in the Commission, the Council of Ministers and the Parliament-to try to "reconnect" with the people of the European Union and we completely failed. It has to be done at grassroots level. It cannot happen from Brussels because it is too far away. The attempt in this Bill is what I would hope would be a beginning of that reconnection. I challenge the Government to offer us more once this Bill has become law, which I sincerely hope it will, but without the sunset clause.

The sunset clause would be a vote of no confidence in the British people. It would say, "Well, we really do not trust you at all. We think that you are okay maybe for this Parliament where we do not think that there is going to be a referendum anyway or at least we do not think that there is going to be a treaty change. But we don't trust you any further than that. We don't really want your opinion. We're going to pick away and pick away at this every single time. We don't have confidence in you the British public".

I do have confidence in the British public. I see this as a reform Bill, which seeks to address-I believe that it will do so successfully-and can achieve some form of resolution of the fundamental requirement from which our authority in this Parliament derives. What do the British people want? It is for us to ask them, which is what happened in the Irish referendum. We went out with the package of information. The European Union opened the office and made a huge effort to allow freedom of information flows.

The comment that this Bill is effective only for this Parliament because there will not be a referendum in this Parliament is not the case at all. This Bill has

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already begun to achieve its purpose. It has got us discussing far more openly for the first time for a very long time the primacy of British legislation and the sovereignty of Britain, which I recall very well we agreed in the coalition document. Yes, we did not agree that there would be referenda on passerelle. In the coalition document, we said that it would be primary legislation but we most certainly guaranteed that no further powers should be transferred to Brussels without a referendum. The passerelle would require primary legislation. We commented on the case for a UK sovereignty Bill, which comes in Clause 18. The coalition document states that there will be,

If I recall correctly, in the coalition document we declared that the Government would pass down power to the people and away from the centre. The coalition agreement states:

"We share a conviction that the days of big government are over: that centralisation and top-down control have proved a failure ... it is our ambition to distribute power and opportunity to people rather than hoarding authority within government. That way, we can build the free, fair and responsible society we want to see".

The sunset clause would give us a long night of further discontent with the British people and rightly so. I urge noble Lords, despite the feeling of frustration that somehow they do not like referenda, to understand that, as the noble Lord, Lord Waddington, has commented, the British people are thoroughly dissatisfied with the fact that they have not been consulted. This is our opportunity. I think we should grab it and forget the sunset clause.

Lord Hamilton of Epsom: My Lords, I will not delay the House for long and I certainly will not repeat many of the arguments that have been made extremely well by my noble friends. But I should like to take up a point made by my noble friend Lady Falkner who was seriously worried that the problem would be one of delay when this Bill has to be renewed at the beginning of each Parliament. I am afraid that I come from a more paranoid side on this. My view is that we do not want a sunset clause because, if we had, say, a non-Conservative Government, it might be quite attractive for them to let this Bill lapse. There would be a bit of a row that would last 24 hours and they would get away with it. It would be much more complicated-indeed, almost politically impossible-to put forward a Bill to cancel this Bill, put it out of business all together and repeal it. So I come from a rather different angle but I reach the same conclusion as my noble friend.

Lord Pearson of Rannoch: My Lords, I congratulate the noble Lord, Lord Hamilton, who has just answered the noble Lords, Lord Dubs and Lord Flight, and has come to the right conclusion. I am no longer bamboozled by this Bill or this amendment.

Lord Hamilton of Epsom: I am not sure that my erstwhile noble friend should take such comfort from that. One of the reasons people join UKIP is that they are worried that they are going to be drawn further into the European Union, and certainly they will be much reassured when this Bill reaches the statute book

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that that is not going to happen. I suspect that he will see his membership going into reverse, but that will be his problem rather than mine.

I was interested in the opening remarks of the noble Lord, Lord Kerr. He said that the whole of this Bill is otiose because it would not have any effect in this Parliament. My noble friend the Minister intervened to say that of course it would in terms of updating the stability and growth pact because it was going to be exempted, and there might be other amendments from the European Union. I am afraid that I do not take quite such a phlegmatic view. The eurozone is in a state of crisis at the moment. That makes one wonder, when one looks at the people proposing these amendments, how many of them would have suggested that it was a good idea to join the eurozone some years ago. We all mistakes in politics, but that would have been a major one. If we had joined the eurozone and we were in it today, I can tell the House now that the asset bubble we have seen over the past few years would have been even bigger because the interest rates we would have enjoyed in the eurozone would have been much lower and this country would be in even greater difficulties than it is today.

Let us return to the eurozone. I believe that it is reaching a crisis point, one where a decision has got to be made. Members of the eurozone either have to let the thing collapse and completely disintegrate with defaults happening one after the other, starting with the periphery countries and moving steadily towards the centre, or they have to completely revamp the eurozone so that there is probably a finance ministry or a massively beefed-up European Central Bank. The reason I am boring the House with all this is that that would need a treaty change. The Government would argue that such a treaty change would concern only members of the eurozone, not the United Kingdom, but I have to say that that treaty change would have come through both Houses of Parliament and possibly could be subjected to judicial review as to whether there were transfers of sovereignty as a result of such a treaty change coming through.

Noble Lords might say that that is not going to happen in this Parliament, but is it not? At the moment there is a guarantee on sovereign bonds within the eurozone that will last until 2013, but we have to ask what will follow after that. I have to remind noble Lords that 2013 comes two years before the time when we are to have a general election in 2015. I give way to the noble Lord.

Lord Richard: My Lords, I am obliged to the noble Lord. Is he seriously suggesting that we should have a referendum in this country on treaty changes that affect the eurozone, of which we are not a member?

Lord Hamilton of Epsom: What I am saying is that I am sure that that will be the position of the Government, and I did say that it would be subject to judicial review. It may not necessarily pass the censor within the terms of judicial review that we do not have any transfers of sovereignty involved in such a treaty change. I think that we may well be involved in a referendum, and if we are, I can reassure the noble Lord-I am sure he would like to know this-that I shall very much advocate

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that we actually support any treaty change of that sort. That is because if the eurozone disintegrates, there might be a bit of schadenfreude from people like me in the Conservative Party, but I have to say that it would give us another major financial and banking crisis on top of the one we have already had. So I will campaign enthusiastically that we should accept such treaty changes.

I do not think we should sit here and imagine that there are going to be no more treaties coming in the life of this Parliament. Things change, and they can change very fast. The eurozone is in a state of major crisis and I am not sure that they can go on putting sticking plasters on it for another four years.

Lord Triesman: My Lords, a short while ago the noble Baroness, Lady Nicholson, said that the legislation had already served part of its purpose in that it has engaged us in debate. I have to confess to her that I have not run into a huge amount of discussion of it elsewhere. Nevertheless, I do not deny the truth of the point that we have had a major debate, but the points made by many noble Lords still bear testing. It is plain from this legislation that it is not intended that anything other than the passage of the Bill and the discussions on it will happen during this Parliament. I listened to what the noble Lord, Lord Howell of Guildford, said in an intervention, but unless I misunderstood it Clause 4(4) provides for an exemption around the stability mechanism, so that will not become the subject of the whole package of a parliamentary decision and a referendum either. So let us start, if we may, with the reality of the position: there will not be an event of that kind.

The tests that may arise would be likely, if they happen at all, to occur either in the Parliament that follows this one or in the Parliament beyond the one that follows this-some way off. Those are exactly the circumstances which my noble friend Lord Grenfell described-I think he was the first person to use the words-as a step in the dark, and the noble Lord, Lord Williamson, made more or less exactly the same point. One of the things that concerns me, and one of the reasons I have added my name to the amendment so that the Front Bench is offering its support, is that inevitably we will have a period during which we test whether these new constitutional arrangements make sense, work well, are deliverable, do not undermine the Government of the day and do not undermine the parliamentary process. But the plain fact is that we do not know. I doubt if there is a noble Lord in this House who could do more than I can do, which is to suppose what might happen, but we do not know. What we do know is that when it is tested, we are more likely to know. Those are the circumstances under which we will gain any kind of authoritative understanding of what this constitutional change may mean. I do not think we do ourselves any favours by pretending that we know when we do not.

There may well be minor issues or whole treaties. On the former, the noble Lord, Lord Howell, may be right to say that referendums would not arise around smaller things. Periodically, if he is right, they could be around whole treaties, which are much larger things. Moreover, I accept what the noble Lord, Lord Kerr,

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said, that these are likely to be very unusual events in themselves. What is more, I shall go on to assert something which is critical to the clause because I want to try to deal with this as a debate on an amendment tabled at the Report stage. I continue to assert that some of things which might be considered to be large and significant issues, and therefore may well call for referendum conditions after decisions reached by both Houses of Parliament, will not themselves create the need for a referendum either.

I say that because I do not believe that any Government in the foreseeable future will carry legislation in either House about joining the euro-I can assure the noble Lord, Lord Hamilton, that I have never advocated it, so I can say that with a clear conscience. I cannot believe that either House will succeed in persuading a majority of either House that we should relax the Schengen conditions and change our border arrangements. I know from first-hand experience as a Minister in the last Government that there was not the smallest chance of that happening, or of anyone believing that it would be desirable for it to happen. I shall not regale the House with arguments about an island people and so on, but noble Lords will understand the temperamental mindset of this country over a very long time. I do not believe for a moment that either House would carry by a majority the need for legislation which would then go to a referendum on changing the fundamentals of our legal system from what it is now to one based on Napoleonic law or some of the other systems of law in Europe, and I do not believe that either House, whoever is in Government, would succeed in conceding decisions on our taxation regime to anyone else and put that to a referendum vote. The things that really might bite on the people of the United Kingdom, if they were asked to think about them, will not be put to them. I shall come back to the insurance policy that the Bill claims to be in that context and why the sunset clause is a reasonable solution.

7 pm

I said in earlier debates, and it has been quoted back at me, that in those areas we should just say no. It is our belief that any Government in the foreseeable future will just say no. Their just saying no will probably have the consequence of protecting what we most seek to protect; that is, the credibility of our parliamentary system in the eyes of the public.

I think that it was said from the government Benches that it would be pretty much inconceivable that anybody would go back with propositions of this kind at a general election or at any other time in the foreseeable future. I do not believe that our elected representatives-I shall not use the phrase "political class"; it is intended to be derogatory and I am not going there-or those of us who have had the good fortune to be made Members of this House will go back with propositions of that kind. There will be an expectation on the part of the public that, in those fundamental areas, we would say no. It undermines public confidence if they believe that we do not have sufficient courage of our convictions to say no to things that are of such importance, and that we require somebody else to do it.

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I said a moment ago that I have understood the point of this Bill to be that, in an atmosphere where people do not trust politicians to say no and there has been too much drift, we need to insure ourselves against failing the political test in Parliament. I do not believe that we would do so, but the point is, were we to fail the test or to continue to fail it, this Bill as an Act would be insurance against it. It is like saying that you need insurance against that moment when you have totally lost your marbles, when you really have not understood the fundamentals of political life and have decided to embark on a politically suicidal course of action which nobody would have expected. It is like buying very expensive household insurance but routinely trying to set fire to one's own curtains, not in order to claim the insurance but just to prove that, somehow, there was another fallback proposition which would sort it all out once you had set fire to the building. It is essentially a silly proposition.

The test of this Bill as an Act will be a test in practice, but the test in practice has the following characteristic-which the noble Lord, Lord Kerr, introduced and a number of noble Lords have described far more eloquently than I can. It is a test of a very profound constitutional change; it cannot be diminished or dressed up in any other way. It is a profound constitutional change, argued for by those who believe that it is necessary as insurance against setting fire deliberately to one's own curtains.

There is significant merit in bringing together the two themes that I am trying to put to your Lordships this evening. The first is that we are going into an area where nobody can claim to know what will happen; the second is that it is very profound. For those reasons together, I ask what could be the sensible objection to a new Parliament concluding as to whether the legislation was working or whether it wanted to renew it.

I am in absolutely the same frame of mind as the noble Baroness, Lady Williams, in that the one thing that I do not fear is discussion of renewal in a general election. I have heard all sorts of arguments produced during this debate that somehow it would make Europe so contentious that it would hijack the election. Elections are about a wide range of things; we should not delude ourselves otherwise. They are about, among many other things, health, pensions and the economy. It is a very broad canvas. If we had a serious discussion of Europe in the midst of that, I would regard it as a red letter day rather than the opposite, because we have so seldom had that in the past. Discussion of Europe has so often been a set of parodied arguments, on both sides. It has been wholly unsatisfactory and never really given people the opportunity to make a strong assessment of the advantages or disadvantages of our involvement in Europe. I do not accept any part of the argument that, following a general election in which this matter may well have been discussed with great rigour and precision, we should not then say, "Has the test shown us this works? Is the constitutional innovation one that we want to live with for the foreseeable future?". Those are absolutely sensible political preoccupations.

People have playfully talked about the record of the noble Lord, Lord Kerr, as a civil servant rather as

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though that should frighten rather than inspire us all. He put the question broadly in these terms: does each Parliament want to see its authority revoked and, therefore, does each Parliament want to conclude that it does not want to see its authority revoked? It may or it may not-I do not know the answer to that either-but it would be a very bizarre understanding of the authority of successive Parliaments in the constitution, unwritten as it is, of our country for that not to be something that a Parliament would be entitled to consider when it was considering constitutional change of this kind. A sunset clause gives that opportunity.

Lord Howell of Guildford: My Lords, I am, as I have said, in danger of repeating myself in these long debates. As I said in Committee, however, it would be completely unprecedented to bring a sunset clause into this kind of legislation, which has constitutional implications and addresses constitutional developments of a kind which have already gone on in the past. The noble Lord, Lord Triesman, in his eloquent summing-up from his side, talked about profound constitutional change. For many people that has already recurred. That is the problem. That is where we are. That is where the disconnect begins. That is where people feel that great changes have taken place but that Governments have not give them adequate assurance that they were in their interests. It is to give people in this modern age of changed patterns of democracy-still a very democratic age, still a very powerful parliamentary age-a say in profound constitutional change that we are putting forward this Bill and seeking to construct something for the longer term.

A sunset clause, I have no hesitation in saying, would terminate that say. It would seriously undermine our attempt to reconnect the British people with the European Union and with the whole European project as it evolves. It would weaken the whole momentum that we all want to see maintained-and I have been involved in European Union affairs probably as long as anybody in this House-in order to have a healthy European Union that has the popular support and consent in the 21st century which at the present it evidently and dangerously lacks. We need to focus on that point again and again unless we want this trend to grow worse.

The view has been expressed again and again, in this amendment and in previous discussions, that the Bill is an attempt to bind future Parliaments. I have to say again-I am not just saying this as a debating point-that that is simply not so. It is not just an exaggeration, it is a canard. It is a well established constitutional principle-to which we have rarely adhered over some say 200, some say 300 years-that no Parliament can bind its successor. It will always be open to future Parliaments to repeal some of the provisions of a Bill, including this Bill, through primary legislation, just as it is possible for this Parliament to seek to repeal or disapply any existing legislation which may well have been painfully and sincerely built up by previous Administrations. In fact this Administration, the coalition, have inherited many aspirations and some excellent work from the 13 years of the previous Labour Government. It has been done. We did not at the time sit over there and say,

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"You mustn't pass these laws because although we like them it would be binding future Parliaments". That is absurd. I will return in a little while in more detail to the non-validity of the whole line of thought that somehow there is a binding of future Parliaments in the Bill.

If the Bill were to have disastrous effects on the UK's relations with the European Union and tie our Ministers' hands-all of which effects also are canards because they simply do not begin to match with the reality, which is of course that Ministers will be absolutely free to negotiate, deal and involve ourselves in the many articles under the enormous competencies at present available to the European Union-there is a remedy: the Bill can be amended or repealed. In fact, the Government resisted amendments in the other place that would have entrenched the provisions of the Bill and made repeal more difficult.

So although we hope that the provisions of the Bill will become an enduring part of the UK's constitutional framework-that is a perfect, sincere, legitimate and well founded aim and ambition-we did not think it right to single this Act out to be entrenched. However, we do think that it is right that any repeals or amendments should have to go through the same rigorous process as the original Bill. We do not think it right that the powers that the Bill gives to the people and to Parliament should just be snatched back or taken away in a cavalier fashion by minor arrangements. In other words, amending or repealing parts of the Bill should be done through a further Act of Parliament, which is the usual approach for primary legislation. I make that point at the beginning because we have seen common misconceptions run through Committee day after day, and they are not founded on fact, reality, present practice or past experience.

Another misconception repeated today-I was bold enough to intervene when the noble Lord, Lord Richard, was speaking about it-is that the Bill will not apply until the next Parliament. I do not understand how that idea has crept into the debate and gets repeated and repeated, because it is simply not the case. Within three months of the Bill coming into force, as I hope it will, we will use its provisions to make a statement on whether the recent European Union treaty change to Article 136 constitutes a transfer or power competence. As we think that it does not, we will then introduce a Bill to ratify that change. Without the EU Bill, none of that would happen.

The noble Lord, Lord Triesman, is right: that will not trigger a referendum because of the items under Clause 4(4). However, the Bill will certainly operate and apply in this Parliament to a treaty change that goes through the necessary procedures in this Parliament. It is true that we do not expect to hold a referendum under the Bill during this Parliament, because the coalition Government have said that that they will not agree to any treaty or passerelle that could transfer competence or power from the UK to the EU in this Parliament. However, the existence of the Bill is still a binding force. It is binding on this Government and their actions and views. What I have stated is a political view and an intention of the coalition. It is not the will of Parliament or some entrenched and deep unavoidable

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force. It is the will of the Government. As we know-perhaps I should not add this point-it is possible for the will of the most determined Government suddenly to go into little U-turns and reverses from time to time. It has happened to us all.

7.15 pm

The Bill provides for the promise that we have made, and for that promise to be tested. I hope that we can stand up to the test. It provides an additional safeguard of a referendum should the Government fail to keep their promises. In short, it is complete nonsense to assert-and for some reason people I admire very much in this House have kept asserting-that the Bill somehow does not apply to the present Government and the present Parliament. Of course it applies. It will apply from the moment it reaches the statute book.

I also point out that the same noble Lords are coming at the Bill from two opposing directions, which makes defending and promoting the Bill a little confusing for those of us standing in my position. On the one hand, we have had the heavy criticism that it could lay us open to frequent and trivial referenda. The more that one examines how the whole system of Brussels works-works today and has worked in the past, as many noble Lords know very well-the more obvious it is that that will not happen. Yet in the same breath we are criticised for saying that we do not expect there to be a referendum in the next four years. Both those propositions simply cannot be true.

Noble Lords raised the concern that we are setting a precedent for the extensive use of referendums in areas to which they are not suited. First, I do not think that it will be extensive. I will come to the point about the seriousness of the issues to which various items in Clause 6 and Schedule 1 relate, but we are certainly not the first British Government to devolve power to the British people to decide on important issues. Just think back to the Scottish and Welsh devolution referendums at the end of the 20th century, or those for regional assemblies.

We would not be alone among member states in having requirements for referendums on EU matters; one has only to look to Denmark, Ireland or the Netherlands for examples. Indeed, I am advised that only five member states of the present 27 have never held a referendum on an EU matter.

The sunset clause proposed would set a thoroughly undesirable precedent. It is perfectly true that sunset clauses have been used, for example, where the policy is time-limited, as some of my noble friends said and the noble Lord, Lord Risby, pointed out, as is the case with the Public Bodies Bill, or where there is a need for parliamentary supervision of short-term emergency measures such as those relating to counterterrorism, as was pointed out by some of my noble friends. However, sunset clauses have not been used to limit the applicability of legislation on a long-term policy. It would be completely the wrong message to provide for a means to consult the British people on important issues only to use an obscure technical device to remove that provision before it could be used.

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In this case we are not talking about a sunset clause to limit the powers of the Executive-the high and mighty Government-which should, after a while, be removed again. We are talking about a sunset clause to limit powers that have been given to the people: powers that have been devolved from the central authorities, with Parliament fully involved all the way along. Another canard in all this is that Parliament is not involved in any of these arrangements and the referenda processes where they do occur. Clearly the proposition in this case that a sunset clause would limit the powers of Government is upside down: it would limit the powers handed over to the people.

The noble Lord, Lord Grenfell, rightly said that, in this case, it really is different. There is a huge difference. The difference is that we would be seeking to limit and take away powers that had been devolved from the central authorities and from the state instead of using the sunset powers that we normally have to limit the powers of the state for certain purposes over a certain length of time.

If I sound a shade negative to your Lordships, one aspect on which I would like to strike a more positive note is that I welcome very much the acknowledgement put most eloquently by my noble friend Lady Williams but echoed by others that there now seems to be general acceptance of the provision for a referendum lock on key constitutional issues. There is also consensus on the provisions in Part 1 giving Parliament greater control, which is very good. That is certainly an advance. I suppose that one is left with a little puzzle. If this is now accepted as the right way forward, why would we want a sunset clause or legislation to question all those principles? The only difference that remains between us-and it is getting narrower-is what those fundamental issues of constitutional significance are.

The Bill is complex, as I recognised the other evening when answering the noble Lord, Lord Rowlands. It sets out a whole range of what look like small issues but are in fact the wires sticking out of the six big, red-line issues that are of fundamental constitutional importance. Some of your Lordships have found difficulty in grasping that and yet here they are before me. Under my hand are the six great issues of foreign and defence policy, justice and home affairs, citizenship and elections, rights of membership and enlargement, social security and employment policy, and economic and tax policy. Successive Governments, both before and after the Lisbon treaty, have said that these matters must be ones of great significance to our country and that we do not intend to see any further transfer of power or competence in these areas-or, if we do, we have to put a very good case to the people and they should have a say. The proposed new clause goes the other way. It risks disconnecting the British people from important decisions being taken in their name. It removes the certainty that the Bill provides and leaves an unstable foundation for building a better relationship between the people and the European Union.

I will say a word in detail about sunset clauses and legislation because that is what the amendment is about and we must focus precisely on its provisions. I repeat that a sunset clause in this legislation would be an undesirable precedent. We have used sunset clauses

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elsewhere in legislation, for example where the policy objective is time-limited-as is the case, as I have already said, with the Public Bodies Bill-or where there is need for parliamentary supervision of short-term emergency measures. However, they have not in principle been used to limit the applicability of legislation on long-term policy and certainly not for Acts which limit rather than expand governmental powers. That is an extraordinary inversion of the past use of sunset clauses. Prior sunset clauses have generally been for cases where power has been given to the Executive to act on a given issue for a given period of time. The contrast with what is proposed in the Bill is glaring. The Bill seeks to devolve power from the Executive to Parliament and the British people. The amendment would take that power away and in effect give it back to the Executive. That is the big difference. If your Lordships want happily to validate the taking away of power at a certain point in the future from the people then let the amendment go forward on that basis, but it seems a profound rejection of the whole spirit of this age in which we seek to devolve power to the people and not take it from them.

We are all aware in your Lordships' House that we have set out a new approach to reducing regulation by requiring some form of sunset provision for all new regulation where there is a net burden or cost to business. That is in order to reduce the regulatory burden that unnecessarily halts growth, reduce the overall volume of regulation, help improve the quality of design and so on, and ultimately reduce the cost of regulation on business and society. None of these aims will be fulfilled by including a sunset provision of any type in this legislation. Moreover, it has previously been claimed that, where there is a proposal for legislation that would address short-term or specific policy aims, there should be a sunset provision included in that legislation so that it expires once the aim has been fulfilled. That was part of the argument given in favour of the sunset clause put by this House into the Fixed-term Parliaments Bill last month, and was part of the rationale for the inclusion of a review clause in the Prevention of Terrorism Act six years ago. Those things make excellent sense.

The Bill is not being proposed to address a short-term issue. That is not what we are doing. The erosion of trust between the people of this country and the people who serve them and make decisions on their behalf on whether to transfer further powers or competence to the European Union means that we need to do something now. What we do should become part of an enduring, constitutional framework so that the British people can have their rightful say on the issues where they want one. The noble Lord, Lord Triesman, touched on this-that the matter ought to ride above political parties. It is in the interests of the established structure of this Government that we can develop a pattern and framework of this kind. I find this extraordinary, though I can see some people's motives here. I suspect that some of those motives run very deeply and sincerely into issues about our whole attitude to the European Union. The general proposition that we should provide this kind of lasting framework, and not one that you simply knock out with a sunset clause, ought to be supported by all political parties

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and indeed by those of independent mind who play a key part in the legislature and work of both this House and Parliament generally.

It is our firm intention that the provisions of the Bill should become an enduring part of our constitutional framework. That is not a new proposition. Other areas of policy have been established successfully on a long-term basis. I gave the example in Committee of privatisation. A previous Government of whom I was a member established the privatisation provisions in the hope that they would endure-they have done. That was not binding a future Parliament but setting out a new pattern of industrial structure and accountability in this country which endured. I do not remember anyone in the successor Government under Mr Blair saying that they had been bound in some wicked way by the previous Tory Government. It has always been open to Parliament to repeal or disapply the relevant legislation. There are lots of other examples. The national curriculum was set up more than 20 years ago and the essence of it remains in place today. There was the devolution of Scotland, Wales and Northern Ireland, approved by a previous Parliament. The Governments of whom I was a member did not feel bound by that. Then there is the European Communities Act itself.

In short, the amendment would be going back to the old ways. It would take power to the centre again, back to the central authorities and to ministerial discretion. The principle behind it seems to be that we had better not put these matters to a referendum, or not for long, because people might be wrong. I am reminded of Bertolt Brecht's sardonic remark that when the government and the people disagree the answer is to change the people. That is the implication behind those who seem to shy away all the time from sharing parliamentary power with the people through appropriate referenda at the appropriate points. That attitude belongs to the 20th century. The Bill belongs to the 21st century and those who support the amendment tonight are looking backwards, not forwards. They should withdraw the amendment, which damages the Bill to the point of destruction.

Lord Kerr of Kinlochard: My Lords, I thank the Minister warmly for responding with his customary courtesy and patrician patience to our obtuseness. I thank all those who have taken part in this little debate. Sometimes it seemed like Second Reading again but it was good to see some new faces not seen in the seven or eight days of Committee. I am always glad to see new people join the debate.

I was particularly grateful for the contribution from the noble Lord, Lord Jopling, who speaks with great authority and who gave the answer to the noble Baroness, Lady Falkner, on how the procedure set out in the amendment could be made to work. I believe that it could be made to work here in this Parliament and I know that it would work perfectly well in Brussels. I have been there during a general election. I recognise that the night, though it could be very short, will not be short enough for the noble Baroness. I accept that.

I agreed very much with what the noble Lord, Lord Waddington, said. There is no doubt that, at least in the first general election, the two parties would make

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pledges. That is not a bad idea. I agree with the noble Lord, Lord Triesman, and the noble Baroness, Lady Williams, that bringing EU issues into general elections is exactly what we want to happen to deal with the disconnect. It is a far better way of dealing with it than the obscure provisions in this extraordinary Bill.

It makes sense to have a minimum reappraisal of at least once every five years, if we are having fixed-term Parliaments. At the start of each Parliament, it would make sense to ask Parliament whether it agreed that in relation to EU business-though not in relation to any other business-its rights and sovereignty should be subscribed to this extent. It would also make sense to consider who is right about the effects in the outside world, on the developments in Brussels and the British standing there, as well as on the British ability to support and advance the national interest in Brussels. I may be completely wrong, and I accept that, but I think that it makes sense to have a look every now and again and see who is right. Therefore, I would like to test the opinion of the House on this amendment.

7.31 pm

Division on Amendment 35.

Contents 209; Not-Contents 203.

Amendment 35 agreed.

Division No. 2


Adams of Craigielea, B.
Adonis, L.
Ahmed, L.
Alli, L.
Anderson of Swansea, L.
Andrews, B.
Armstrong of Hill Top, B.
Armstrong of Ilminster, L.
Avebury, L.
Bach, L.
Barnett, L.
Bassam of Brighton, L.
Beecham, L.
Berkeley, L.
Best, L.
Bilston, L.
Blackburn, Bp.
Boateng, L.
Boyd of Duncansby, L.
Bragg, L.
Brennan, L.
Brittan of Spennithorne, L.
Brooke of Alverthorpe, L.
Brookman, L.
Browne of Belmont, L.
Browne of Ladyton, L.
Cameron of Dillington, L.
Campbell-Savours, L.
Clancarty, E.
Clark of Windermere, L.
Clarke of Hampstead, L.
Clinton-Davis, L.
Collins of Highbury, L.
Corbett of Castle Vale, L.
Corston, B.
Cotter, L.
Crawley, B.
Davies of Coity, L.
Davies of Oldham, L.
Davies of Stamford, L.
Dean of Thornton-le-Fylde, B.
Deben, L.
Dixon, L.
Donaghy, B.
Donoughue, L.
Dubs, L.
Dykes, L.
Elystan-Morgan, L.
Evans of Parkside, L.
Evans of Temple Guiting, L.
Falconer of Thoroton, L.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Finlay of Llandaff, B.
Ford, B.
Foster of Bishop Auckland, L.
Foulkes of Cumnock, L.
Gale, B.
Gibson of Market Rasen, B.
Giddens, L.
Glasgow, E.
Glasman, L.
Golding, B.
Goldsmith, L.
Goodhart, L.
Gordon of Strathblane, L.
Goudie, B.
Gould of Potternewton, B.
Grantchester, L.
Greaves, L.
Grenfell, L.
Grocott, L.

15 Jun 2011 : Column 846

Hall of Birkenhead, L.
Hannay of Chiswick, L.
Harrison, L.
Hart of Chilton, L.
Haskins, L.
Haworth, L.
Hayter of Kentish Town, B.
Healy of Primrose Hill, B.
Henig, B.
Hennessy of Nympsfield, L.
Heseltine, L.
Hilton of Eggardon, B.
Hollick, L.
Hollis of Heigham, B.
Howarth of Breckland, B.
Howarth of Newport, L.
Howe of Idlicote, B.
Howells of St Davids, B.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L.
Janner of Braunstone, L.
Jones, L.
Jones of Whitchurch, B.
Jopling, L.
Judd, L.
Kennedy of Southwark, L.
Kennedy of The Shaws, B.
Kerr of Kinlochard, L. [Teller]
Kestenbaum, L.
King of Bow, B.
King of West Bromwich, L.
Kinnock, L.
Kinnock of Holyhead, B.
Kirkhill, L.
Knight of Weymouth, L.
Laird, L.
Layard, L.
Lea of Crondall, L.
Lester of Herne Hill, L.
Liddell of Coatdyke, B.
Liddle, L.
Lister of Burtersett, B.
Low of Dalston, L.
McAvoy, L.
McConnell of Glenscorrodale, L.
McFall of Alcluith, L.
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
McKenzie of Luton, L.
Maclennan of Rogart, L.
Martin of Springburn, L.
Massey of Darwen, B.
Maxton, L.
Meacher, B.
Miller of Chilthorne Domer, B.
Montgomery of Alamein, V.
Moonie, L.
Morgan of Drefelin, B.
Morgan of Ely, B.
Morris of Handsworth, L.
Morris of Manchester, L.
Nye, B.
Oakeshott of Seagrove Bay, L.
O'Neill of Bengarve, B.
Pannick, L.
Parekh, L.
Patel of Blackburn, L.
Patel of Bradford, L.
Pendry, L.
Pitkeathley, B.
Plant of Highfield, L.
Ponsonby of Shulbrede, L.
Prosser, B.
Quin, B.
Radice, L.
Ramsay of Cartvale, B.
Reid of Cardowan, L.
Rendell of Babergh, B.
Richard, L.
Rodgers of Quarry Bank, L.
Rooker, L.
Rosser, L.
Rowlands, L.
Royall of Blaisdon, B.
St John of Bletso, L.
Saltoun of Abernethy, Ly.
Sawyer, L.
Scotland of Asthal, B.
Sewel, L.
Sheldon, L.
Sherlock, B.
Simon, V.
Smith of Basildon, B.
Smith of Clifton, L.
Smith of Gilmorehill, B.
Snape, L.
Soley, L.
Steel of Aikwood, L.
Stevens of Kirkwhelpington, L.
Stevenson of Balmacara, L.
Stone of Blackheath, L.
Strasburger, L.
Symons of Vernham Dean, B.
Taverne, L.
Taylor of Blackburn, L.
Taylor of Bolton, B.
Temple-Morris, L.
Teverson, L.
Thomas of Swynnerton, L.
Thornton, B.
Tomlinson, L.
Tonge, B.
Tordoff, L.
Touhig, L.
Triesman, L.
Tunnicliffe, L. [Teller]
Turnberg, L.
Turner of Camden, B.
Valentine, B.
Wall of New Barnet, B.
Walpole, L.
Warner, L.
Warwick of Undercliffe, B.
Watson of Invergowrie, L.
Wheeler, B.
Whitaker, B.
Wigley, L.
Williams of Crosby, B.
Williamson of Horton, L.
Wills, L.
Wood of Anfield, L.
Woolmer of Leeds, L.
Young of Norwood Green, L.


Addington, L.
Alderdice, L.
Allan of Hallam, L.
Anelay of St Johns, B. [Teller]
Arran, E.
Ashdown of Norton-sub-Hamdon, L.
Astor of Hever, L.

15 Jun 2011 : Column 847

Attlee, E.
Baker of Dorking, L.
Barker, B.
Benjamin, B.
Berridge, B.
Black of Brentwood, L.
Blencathra, L.
Bonham-Carter of Yarnbury, B.
Boswell of Aynho, L.
Bridgeman, V.
Brinton, B.
Brooke of Sutton Mandeville, L.
Brookeborough, V.
Brougham and Vaux, L.
Browning, B.
Burnett, L.
Buscombe, B.
Byford, B.
Caithness, E.
Cathcart, E.
Chalker of Wallasey, B.
Chester, Bp.
Colwyn, L.
Cope of Berkeley, L.
Cormack, L.
Courtown, E.
Craigavon, V.
Crathorne, L.
De Mauley, L.
Deech, B.
Dholakia, L.
Dixon-Smith, L.
Dobbs, L.
Doocey, B.
Eaton, B.
Eccles, V.
Eccles of Moulton, B.
Eden of Winton, L.
Edmiston, L.
Elton, L.
Empey, L.
Falkland, V.
Falkner of Margravine, B.
Faulks, L.
Feldman, L.
Feldman of Elstree, L.
Fink, L.
Flight, L.
Fookes, B.
Forsyth of Drumlean, L.
Fowler, L.
Framlingham, L.
Fraser of Carmyllie, L.
Freeman, L.
Freud, L.
Freyberg, L.
Garden of Frognal, B.
Gardiner of Kimble, L.
Gardner of Parkes, B.
Geddes, L.
German, L.
Gilbert, L.
Glendonbrook, L.
Goodlad, L.
Goschen, V.
Grade of Yarmouth, L.
Greenway, L.
Hamilton of Epsom, L.
Hamwee, B.
Hanham, B.
Harris of Peckham, L.
Harris of Richmond, B.
Henley, L.
Heyhoe Flint, B.
Higgins, L.
Hill of Oareford, L.
Hodgson of Astley Abbotts, L.
Home, E.
Howard of Lympne, L.
Howard of Rising, L.
Howe, E.
Howell of Guildford, L.
Hunt of Wirral, L.
Hussain, L.
Hussein-Ece, B.
James of Blackheath, L.
Jenkin of Kennington, B.
Jenkin of Roding, L.
Jolly, B.
Jones of Cheltenham, L.
Kakkar, L.
Kilclooney, L.
King of Bridgwater, L.
Kirkwood of Kirkhope, L.
Knight of Collingtree, B.
Kramer, B.
Laming, L.
Lamont of Lerwick, L.
Lang of Monkton, L.
Leach of Fairford, L.
Lee of Trafford, L.
Lexden, L.
Lingfield, L.
Listowel, E.
Liverpool, E.
Loomba, L.
Luke, L.
Lyell, L.
McColl of Dulwich, L.
Macdonald of River Glaven, L.
MacGregor of Pulham Market, L.
Mackay of Clashfern, L.
McNally, L.
Maddock, B.
Magan of Castletown, L.
Mancroft, L.
Maples, L.
Mar and Kellie, E.
Marks of Henley-on-Thames, L.
Marland, L.
Masham of Ilton, B.
Mawhinney, L.
Mayhew of Twysden, L.
Montrose, D.
Morris of Bolton, B.
Moynihan, L.
Naseby, L.
Newlove, B.
Nicholson of Winterbourne, B.
Noakes, B.
Northover, B.
Norton of Louth, L.
O'Cathain, B.
Oppenheim-Barnes, B.
Palmer of Childs Hill, L.
Parminter, B.
Patel, L.
Pearson of Rannoch, L.
Perry of Southwark, B.
Rawlings, B.
Reay, L.
Redesdale, L.
Rennard, L.
Ribeiro, L.
Risby, L.
Roberts of Llandudno, L.
Rogan, L.
St John of Fawsley, L.
Sassoon, L.

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Scott of Needham Market, B.
Seccombe, B.
Selborne, E.
Selkirk of Douglas, L.
Selsdon, L.
Shackleton of Belgravia, B.
Sharkey, L.
Sharples, B.
Shaw of Northstead, L.
Sheikh, L.
Shipley, L.
Shrewsbury, E.
Shutt of Greetland, L. [Teller]
Slim, V.
Spicer, L.
Stedman-Scott, B.
Stephen, L.
Stewartby, L.
Stoddart of Swindon, L.
Stowell of Beeston, B.
Strathclyde, L.
Taylor of Holbeach, L.
Tebbit, L.
Thomas of Gresford, L.
Thomas of Winchester, B.
Tope, L.
Trefgarne, L.
Trenchard, V.
Trimble, L.
True, L.
Trumpington, B.
Tyler of Enfield, B.
Ullswater, V.
Verma, B.
Waddington, L.
Wakeham, L.
Wallace of Saltaire, L.
Wallace of Tankerness, L.
Warsi, B.
Wasserman, L.
Wei, L.
Wheatcroft, B.
Wilcox, B.
Willis of Knaresborough, L.
Willoughby de Broke, L.
Wolfson of Aspley Guise, L.
Younger of Leckie, V.
7.43 pm

Amendment 36 not moved.

Arrangement of Business


7.43 pm

Lord Wallace of Saltaire: My Lords, as this brings the Report stage to an end we are now able to take 90 minutes rather than 60 minutes for what was to be the dinner-break business. That now becomes the last business of the day, which means that the debate will be time limited to 90 minutes rather than 60 and that speakers other than the noble Lords, Lord Barnett and Lord De Mauley, are limited to four minutes.

Barnett Formula

Question for Short Debate

7.44 pm

Asked by Lord Barnett

Lord Barnett: My Lords, I thank the Minister very much indeed for what he has just said. Perhaps I should wait a few minutes.

Baroness Anelay of St Johns: My Lords, I know that we have just had an interesting afternoon but we still have great interest in the Question for Short Debate asked by the noble Lord, Lord Barnett. There are 15 speakers-a long list. I invite him to start his speech now.

Lord Barnett: My Lords, I am grateful to the noble Baroness. I have spoken on this subject fairly often and I have been pressing this matter for a long time. In many ways, I can do no better than to quote the Select Committee of your Lordships' House in support of everything that I might say this evening. I am delighted to welcome to the debate four distinguished members

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of that committee: my noble friend Lady Hollis, the noble Lord, Lord Forsyth of Drumlean, and others who I see around. We also have a maiden speaker, who I am delighted to welcome in advance. He comes fresh from the Scottish election and he might be able to tell us rather more about opinion in Scotland, although I have a fair idea myself what the Scottish people are now thinking on this subject.

I have been pressing for a very long time for the formula in my name to be changed to one of need. I told the previous Government that if they had become so fond of my name, I did not mind if they kept it provided that it was based on need rather than on population, as it is now-unfairly, as it has turned out. The first question, of course, is: what is it? Most Members who will be speaking in this debate will know very well what it is. However, the question then is: what needs to be done?

I said that we have some very distinguished members of that Select Committee with us this evening. More than that, it was a very distinguished committee. I had difficulty initially in getting the House to agree to an ad hoc Select Committee but we got one and we got my noble friend Lord Richard, the former Leader of the House, to chair it. As I said, it had a distinguished membership including the former Chancellor of the Exchequer, the noble Lord, Lord Lawson. He was a distinguished member of that committee, as were my noble friend and the noble Lord, Lord Forsyth. Many others, including the noble Earl who is a Lib Dem and those from all parties and all regions of the country, were members of that committee and I am happy to say that they came up with a unanimous report. This report needs careful reading because it tells anybody who is the slightest bit interested, first, what the problems are and, secondly, what needs to be done.

The terms of reference were clear. I am not going to bother with quoting too often from the Select Committee's report, because it would take too long and I want to leave as much time as possible to the noble Lords and the noble Baroness who are going to speak in this debate. Even though it has been extended and is now going to be an hour and a half, I am a bit disappointed-I thought it might go on until 10 o'clock. However, I am sure that it will give time to noble Lords to make their feelings felt on the issue, which is: what should be done now? There was a Calman commission, as many will know, on Scottish matters but that had different terms of reference. It was looking primarily at devolution and even though it obviously had to refer to the Barnett formula, it did so almost en passant and did not really dwell on the main issue, as our House of Lords Select Committee did.

I come to the main question: what is the Barnett formula? In case people do not know, I shall quote, which I do not do very often, from paragraph 11 on page 13 of the report. The formula is,

to the regions. Certain parts of public expenditure are excluded, such as defence, foreign affairs and social security, which are already allocated according to need to a large extent, and do not need to come under the

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Barnett formula. When the Select Committee looked at the formula in 2007-08, total managed UK government spending was more than £582 million-rather a lot of money to be left entirely to changes in population, which is what happens now. It effectively results in approximately 80 per cent of expenditure in the UK going to England, 10 per cent to Scotland, 5 per cent to Wales and 5 per cent to Northern Ireland. This has varied slightly over the years because of changes in population and Governments amending the formula slightly.

The plain fact is that the formula was still based on population rather than need. That resulted in gross unfairness, as the Select Committee indicated. It noted clearly that the public expenditure allocated to Scotland has resulted in its obtaining substantially more than it would have on the basis of need. The current leader, Alex Salmond-a very shrewd political operator if I may say so-has used those extra funds to huge political advantage by helping the people of Scotland with, for example, university fees and prescription charges. I am sure that this is very welcome but the people of England do not get that. The people of Scotland have benefited substantially. I am told by many people who tell me what regularly appears in the Scottish papers that my name is reasonably well known there. Indeed, Tam Dalyell, the former Member for West Lothian, drops me notes from time to time to tell me exactly what is being said and how often.

What changes should we make? The noble Lords on the committee came up with a very clear answer: there should be an independent commission. Its name is not terribly important, but the committee thought of the UK funding commission. It would look at how the basis of need should be dealt with, and make clear and firm recommendations thereafter. Because there would be substantial changes to Scottish public expenditure, there should be a transitional period so that any changes would be spread over a number of years.

I know that there are political concerns. Any Government making these changes may lose out in elections. I can say only this about the formula that bears my name: when I published a book called Inside the Treasury, which covered my five years as Chief Secretary to the Treasury, the phrase "Barnett formula" never appeared. It appeared only later because the Thatcher and Major Governments not only created the formula but kept it going for 18 years. That is when it became well known. Those Governments did not want to upset the electors of Scotland or Wales. So what happened? In the 1997 election they lost every seat in Scotland and Wales. Please do not worry about upsetting people in doing the right thing and making the right kind of changes that need to be made.

When the Select Committee report was being worked on, the Chief Secretary to the then Government was Liam Byrne. I regret to say that, as his excuse for inaction on the Barnett formula and the need for change, he said that it was too complex. However, the Select Committee has shown that that complexity is just not a fact. It could have this commission that would look into the question of need, and that would be that. Therefore, I have a simple solution for what

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needs to be done now. My dear friend, the noble Lord, Lord Sassoon, the current Commercial Secretary in your Lordships' House, who deals with Treasury matters, answered a Written Question of mine about what the Government plan to do. He said that,

must wait.

I am sorry for going over my allotted time, but I shall just finish; what I intend to say is very simple. I was delighted to quote the noble Lord, Lord Sassoon, who has pleasure in quoting me from time to time, in support of what I now propose. He said that it should not be done because the priority is now the deficit. However, I suggest that it should be done in 2015. The Treasury cannot believe that all its policies will not have come true by that year. I shall formally move in due course on the Scotland Bill. I hope to hear that the Government's current approach is one that will accept my proposal and hugely endorse everything that the Select Committee said.

7.57 pm

Lord Forsyth of Drumlean: My Lords, I believe that we are heading for a real constitutional crisis. The Scotland Bill, which is still in the other place and heading for this Chamber, introduces powers for a separate rate of Scottish income tax. I congratulate the noble Lord, Lord Barnett, on securing this debate, and the Select Committee on which I sat.

As the noble Lord pointed out, the effect of the Barnett formula has been to give Scotland much more than it would have received on a needs basis. The needs basis is firmly established because it is the basis on which the Scottish Parliament distributes money to health authorities and local authorities. There is no magic about this. Professor David Bell of Stirling University has done some work on the size of that amount. Scotland gets around £4.5 billion extra. You cannot change that overnight. It would need to be phased in over a period of years, as the Select Committee indicated.

We need to get on with this. It is the height of stupidity to give a Parliament the power to set income tax rates, but at the same time not deal with the basis on which the baseline funding is achieved. Baseline funding would alter according to policy decisions taken in Westminster rather than in Scotland. That would create opportunities for conflict. Trying to raise £4.5 billion as a Scottish income tax would involve doubling the basic rate of income tax after you allowed for a loss of yield. It is a huge sum of money.

It is therefore imperative that we have a stable, well established basis on which the Scottish Parliament is funded. It should not be open to criticism, and must be seen to be fair to the rest of the United Kingdom for this policy to work. Otherwise, if the Government down here change their policy on health, education or law and order, that will in turn result in a change to the revenue gain to the Scottish Parliament. We now have-contrary to what we were assured would not happen when we had devolution-a nationalist Administration

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determined to break up the United Kingdom, which will use this as an issue. The noble Lord is right; we cannot have the Treasury deciding how the formula is created; we need to have an independent commission along the lines of the Australian system, which phases its results over a period of time.

I find it extraordinary that the present Government, whom I support, and the previous Government have both taken the same line in saying that it is too difficult to tackle this issue. It should never be too difficult to do what is necessary to maintain the unity of the United Kingdom and to end the resentment which has been created on both sides of the border because of these anomalies. This marriage that was created, the union between Scotland and England, is the most successful the world has ever seen. It is being put under strain because of a failure to address the policy consequences of constitutional change. Parliaments are about raising resources and voting means of supply. It is essential that this is addressed in the Scotland Bill before it has completed its passage through Parliament.

8 pm

Baroness Hollis of Heigham: My Lords, the Barnett formula matters because something like half of all public expenditure in Scotland is funded by it. It is distributed on a population basis. However, as the noble Lords, Lord Forsyth and Lord Barnett, have said, if Scotland can distribute its own public finance downwards on a needs basis, as it does and as it should do, it can receive it on a needs basis, as it should but does not.

The House of Lords committee, this House and the other place in its January debate this year all said so, apart from HMT, whose coalition Minister said that the Government,

Yet since our report was published two years ago, public finances have deteriorated and services have been cut while, as the noble Lord, Lord Forsyth, said, £4.5 billion of unmerited, inherited and unearned money is going to Scotland, allowing the SNP to provide additional services courtesy of the British and English taxpayer.

On the formula, if you assume that England represents £100 per head, Wales gets about £112 per head on population, and should get about £115 per head on needs; it is marginally underfunded. Northern Ireland is about right. Scotland should get about £105 per head but instead gets subsidised to the extent of £120 per head-or a subsidy worth about £1,600 a Scottish citizen or, as the noble Lord said, an overexpenditure of about £4.5 billion. No other public moneys are distributed solely by population in this reckless way. Local government, health and social security are all based on need, as they should be. This is not rocket science. It is not complicated. It is done in all other areas of local government policy. For example, in local government you look at needs, which may be the number of elderly receiving attendance allowance, children with special needs or whatever, and you relate that to resources and the capacity to meet those needs-the revenue support grant is often the difference between

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those two-so that, rightly, Winchester will get less than Wigan, even if their populations are broadly similar, as their needs and resources are different. That is fair.

I do not have much time in which to attempt further financial forensics, although that needs to be done. However, my second point is a moral point. Consider every teenager in Birmingham who is going to lose their education maintenance allowance; every young person in Cornwall who is discouraged from applying to university by virtue of the increased tuition fees; every large family in inner London who will face cuts in housing benefit and may lose their home; every frail pensioner in Norfolk struggling to meet increased care costs. That teenager, that would-be university student, that large family losing their home, that frail pensioner; they are all subsidising-effectively paying for-Scotland's handouts of free tuition, free personal care and frozen council tax. I object. This House faces welfare reform bills with many of us pleading with the Government for £75 million here and £100 million there for some of the most vulnerable people in our community, yet £4.5 billion is going to Scotland on no other basis than that it always has done. Where is the Treasury's much vaunted financial prudence? Where, indeed, is our collective moral compass? It is not fair. It is not right. It is not decent and it should end-gradually, slowly; I accept all that, but it should end.

8.05 pm

Lord German: My Lords, I congratulate the noble Lord, Lord Barnett, on his fame in Wales. In fact, he is almost a household name, but not perhaps for the reasons for which he would like to be known. The Barnett formula now has a sort of infamy as it is referred to as a formula in disrepute. The case is perfectly well made about a needs-based formula which would serve Wales much better.

The main problem with the formula is what is known as the Barnett squeeze. If any noble Lord can imagine being squeezed by the noble Lord, Lord Barnett, please carry that image in your mind, but the eventual ending of the Barnett formula-we are running towards it at a rate of knots-will result in every person in Wales being paid the same contribution from the public purse as anybody else in the United Kingdom. In other words, no matter where you are, you will be paid the same. The realisation is quite obvious; Wales is the part of the United Kingdom in greatest need. Two-thirds of the population of Wales are in a convergence zone of the European Union because their GDP level falls below 75 per cent of the average across the European Union. That has occurred not just once but twice and is likely, given current performance in Wales, to fall into that category for a third time, so Wales is in greater need than any other part of the United Kingdom as a whole. In fact, two local authorities in Wales compete in terms of their populations having the worst health of people in Britain. The money that is required to treat people well and appropriately across our country should be distributed according to need. The squeeze must be imposed over a period of time and we must move to a needs-based formula.

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You could simply transfer the money from Scotland and give it to Wales but I am sure that that is not appropriate. That is probably why the previous Government always said that they were opposed to changing the Barnett formula. Alternatively, you could provide some new money to cushion the change which will take place over time. Timing is important because we now have devolution across many parts of the United Kingdom. We have asymmetric devolution, which means that powers have been handed over at different rates in different areas of public life in Northern Ireland, Scotland and Wales, but gradually the devolved regions are moving closer together in terms of the devolved powers that they have. Devolution involves being responsible for your finances as well. The Scotland Bill, which will come to this House very shortly, as has been said, looks at one side of that coin. It gives fiscal responsibility to Scotland. Undoubtedly, that will occur in Wales as well over the next few years. However, the other side of the coin is that in a United Kingdom it is important that we balance the needs of our country by offering the opportunity of a grant which is disbursed according to need around our country. It is just as important for Cornwall as it is for the north-east of England, Wales, parts of Northern Ireland and parts of Scotland. We need to address that need; it is two sides of the same coin.

Therefore, we will need that change over the coming years. It means that we will make a start on the process of moving towards a needs-based formula. It will take time. To get the financial accountability right, the Scotland Bill itself looks to 2018, and I hope that the Minister in his reply will tell us what steps can be taken now that will lead to the post-2015 change that the noble Lord, Lord Barnett, quite rightly talked about.

8.10 pm

Lord Wigley: My Lords, the number of speakers in this short debate is surely evidence that this issue should be much higher on the political agenda. I thank the noble Lord, Lord Barnett, for this debate and for his long-standing recognition of the problems that have grown over the years.

I well remember debating in another place, in 1978, I think, the appropriateness of a formula that should be based on needs-in particular the need to help to bring up the level of GDP per head in Wales to the UK average, whereby we could stand on our own two feet. Since that time the GVA in Wales has fallen from 88 per cent of the UK average to 74 per cent. Wales has pressing economic and social needs, but the formula does not take these on board.

The problems are the assumptions that underpin the formula: first, that the base position of expenditure patterns in 1978 was a valid starting point; secondly, that the changes in spending levels in England represented a valid mechanism on which to base the changes in Wales, Scotland and Northern Ireland; and, thirdly, that circumstances in Wales had changed over the years in a way that reflected the changes in England, ignoring the massive changes in the basic industries, such as coal and steel, over that period. All three assumptions are faulty. Over 30 years those changes

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have compounded to undermine the validity of the formula. On top of this, as the noble Lord, Lord German, said, we suffer the effects of the so-called Barnett squeeze.

Successive studies have shown that the Barnett formula is underfunding Wales, as a number of speakers have generously recognised. A decade ago, papers were produced at Nuffield College showing the unfair nature of the problem. According to last year's Holtham commission report, the extent of the problem is a shortfall of approximately £400 million a year for Wales. The Calman commission noted that the Barnett formula,

and the excellent report of the House of Lords Select Committee to which reference has been made-I thank noble Lords here for their contribution to that report-emphasised that the Barnett formula fails to take into account,

The report recommended,

The response of the Labour Government was, frankly, flimsy, totally unpersuasive and showed contempt for the excellent work of the House of Lords committee. Labour refused to change the formula at all.

We need to get rid of the Barnett formula, which has been acknowledged by the noble Lord, Lord Barnett, as outdated, and urgently to replace it with a needs-based formula. The basic question is what the objective should be of any redistributive funding formula. Should it try to sustain broadly comparative levels of public services across these islands? Should it merely reflect the resources that can be raised within the territory of the devolved Administration? Or should it be a mixture of the needs and resources, as was for such a long time the basis of local government equalisation mechanisms?

Frankly, we have had enough of studies, commissions and investigations. What we need is action. In Wales, we need action very soon indeed. We need it urgently and we want it now.

8.14 pm

Lord Lang of Monkton: My Lords, it is a particular pleasure to follow the noble Lords, Lord Wigley and Lord German, because, having had the honour to serve on the special Select Committee on the Barnett formula and having seen the outcome of our deliberations that were unanimously agreed, I feel particular sympathy for Wales and the circumstances that it faces in this battle. I will speak this evening on the Scottish front, but we are happy to join the noble Lords in that battle, because we think that the formula is unjust to Scotland also-not because it gives us too little money, but because it completely distorts the picture in Scotland when we have important matters to deal with.

I start with a word of sympathy to the noble Lord, Lord Barnett. Most former Ministers would be thrilled to have a formula named after them-one that may resonate through history. However, the misery on the face of the noble Lord is tragic to see. I have some

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good news for him. His formula actually worked. The squeeze-which as a former Chief Secretary, although he will not admit to it, he must have really wanted-did work. When I was Secretary of State for Scotland, I commissioned an annual report on government expenditure and revenue in Scotland that persists to this day. It was a kind of balance sheet. In the years 2000 to 2002, it showed that the Barnett squeeze had taken £17 million off the Scottish block. Unfortunately for the noble Lord, Lord Barnett, the special deals that we managed to negotiate with the Treasury at that time added £340 million to the Scottish block.

Barnett has been used as shorthand for the whole complex of public expenditure. In reality, of course, one of Barnett's problems was that it did not deal with the underlying block, the baselines in each of the countries; it dealt only with the annual increase. Many of those baselines were historically justified. They were the products of battles fought and won in difficult circumstances in parts of the United Kingdom where there were particular problems. Indeed, this happened in England also, because there were parts of this country-there may still be parts of the north-east and north-west-where, for all I know, public expenditure per capita in a defined area is higher than in Scotland, Wales or possibly Northern Ireland.

Scotland's worst single problem was the nationalisation of all its primary industries. That was a tragic socialist disaster that led to those industries being badly managed, starved of capital investment and riven with industrial disputes. However, that was way back in the 1950s, 1960s and 1970s. Scotland was transformed in the 1980s and 1990s and, as a result, with new investment, increased productivity and unemployment falling below the English level, the baseline Scottish block began to look particularly out of place.

The real problem, as the noble Lord, Lord Barnett, identified, is that no account has been taken of need. That is unforgivable. It was all done in an arbitrary way, with special pleading. Inevitably, when you have territorial departments, you will get special pleading from their Secretaries of State and Ministers. Inevitably, they will win some of those battles. That is now less easy with devolution, but it is another reason why devolution is a less than perfect solution to the world's problems. It was always hard to define need; and when we sat in the Lords Select Committee looking at this matter, we tried to find an easy way to find an accessible, simple and identifiable way of defining need that would be universally acceptable across the whole United Kingdom. We believe that we succeeded, and that is why it is particularly hard that the Government ignored the findings and shelved our report, almost before the ink was dry.

Add to that the constitutional change that besets us-the slow landslide of devolution, and what is now following, that some of us predicted. The demand for realism is absolutely overwhelming. Contemplating major constitutional change through the Scotland Bill and other measures that are happening, without realism and accuracy over the funding of these parts of the United Kingdom, is simply unacceptable. It would be disastrous. Billions of pounds are at risk, and it is demeaning to Scotland, if it is unfair to England, to be in this position whereby it cannot honourably and

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decently calculate the true justification of its case or of other cases without the facts. We must have the facts before any further damage is done.

8.18 pm

Lord Foulkes of Cumnock: My Lords, I, too, welcome the initiative and success of the noble Lord, Lord Barnett, in achieving this debate. I mean no disrespect to him or anyone else when I say that I fear that events have overtaken not just the Select Committee and its report but the Calman commission and its report.

Frankly, block grants are wrong and the Barnett formula should not be revived on a needs basis, or on any other basis, and should be scrapped. Block grants mean that all the easy decisions about spending money and priorities are made by the Scottish Parliament, which does not make any of the difficult decisions about raising that money. That is why no one has suggested the use of the plus-or-minus three pence in the pound that Scotland already has. The Auditor-General in Scotland has already indicated that free higher education, free prescriptions and free personal care will not be sustainable in the near future without substantial additional income. They will be under threat. What will happen? Alex Salmond, like Oliver Twist, will say, "I want some more". He is already doing it-asking for more in the block grant and more taxation powers. If he does not get them, who does he blame? He blames Westminster.

That is why I think that the time has now come when we must seriously consider a more radical change in funding devolved Governments. It is described by some as full fiscal autonomy; I would describe it more appropriately as full fiscal responsibility; so that the responsibility for raising money as well as spending it goes to the Scottish and other Governments. Of course, there has to be an agreed pre-eminence of the United Kingdom Government in defence, foreign affairs, welfare and other reserved areas.

It also means that we have to start moving on from our present asymmetrical devolution towards a fully federal system. I am astonished that the Liberal Democrats, who, traditionally, have espoused federalism, are so quiet. Apart from the centralised system, which we have abandoned, or the break-up of the United Kingdom, it is the only stable, justifiable system. We should all be getting together to argue for it. If we do not, if we do not move towards a fully federal system with each of the devolved parts-I am open to argument whether it should be England or regions of England; we have tried regions of England-raising their resources and putting money into the central United Kingdom Government, if we unionists do not become federalists, we will see the break-up of the United Kingdom, which would be a disaster for all of us.

8.21 pm

Lord Stephen: My Lords, it is a great privilege and honour to speak in this historic Chamber for the first time. It is exactly 20 years since I gave my maiden speech in the other place, but I guess that I am unusual as, in the intervening period, almost all of my political career has been spent in another other place-the

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Scottish Parliament. It is very supportive and reassuring to see many of my friends and close colleagues from across political parties-the noble Lord, Lord Foulkes, being one of them-in the Chamber this evening. I agreed with much of what he had to say.

It has been a great experience for me to be back in these Houses of Parliament, with all the history and ceremony, although, obviously, I was slightly disappointed that, unlike in the other place, there was no pink ribbon under my coat peg on which to hang my sword. Most important of all has been, not the surroundings that we see here, but the people. I have had incredible help from so many noble Lords and so many people who support the working of this House, from the doorkeepers through to Lyon, Garter, Black Rod, the Clerk of the Parliaments and many more. Never did I think that I would be present for a phone call that began, "Lyon, this is Garter calling", and far less that it would be about my future title in this place.

In the Scottish Parliament, never would a week go by without mention of the House of Lords, and two noble Lords in particular. There was the noble Lord, Lord Sewel, and the so-called Sewel Motion, and the noble Lord, Lord Barnett, and his Barnett formula. The noble Lord, Lord Barnett, will be pleased to hear-or perhaps not-that he has outlasted the noble Lord, Lord Sewel, as the term Sewel Motion has now gone, to be replaced by the term Legislative Consent Motion, which is very disappointingly dull.

The Barnett formula, in contrast, is never dull. At times, it has taken on totemic proportions in Scottish politics, often seen as a touchstone of a political party's commitment to Scotland and supported over the years by all of the main political parties and- somewhat ironically, because under them there would be no such formula-by the Scottish Nationalists. That includes my party. It is not my place to be controversial this evening, but I fully share the objective of the noble Lord, Lord Barnett, of avoiding the break-up of the UK. However, as the noble Lord, Lord Foulkes, pointed out, not all share their view. The events of 5 May this year now mean that Scotland's political future is once again centre stage.

In my view, it was unsustainable for the Scottish Parliament to continue simply to receive this cheque, this £30 billion payment, under the Barnett formula, with its only role being to decide how to spend that money. I am very pleased that there was cross-party co-operation here and in Scotland between the Liberal Democrats, the Labour Party and the Conservatives to create the Calman commission and to progress so speedily now to deliver on its recommendations through the Scotland Bill. Creating a stronger Scottish Parliament with new powers, including tax-raising powers, is a vital step. It is a crucial test of any Parliament that it should have real fiscal responsibility. If the Barnett formula has helped, as I believe it has, perhaps through its controversy, to make that change more possible, it will have played a vital role in Scotland's history. It opens up the possibility of further change.

It has been a great privilege to participate in the debate led by the noble Lord, Lord Barnett. I have a hunch that the fame of the noble Lord in Scotland and, indeed, across these isles, will live on for quite some time.

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8.25 pm

The Earl of Mar and Kellie: My Lords, it falls to me to congratulate my noble friend Lord Stephen on his excellent and constructive maiden speech. We will have to guess which parts we would have been denied had the two minutes not been extended. My noble friend has excellent experience across a range of governance. Firmly rooted in Aberdeenshire, his career in law and politics has prepared him well for this House. Ten years as a Grampian councillor, a Westminster by-election winner for Kincardine and Deeside, an MSP for 12 years for Aberdeen South, a Minister for education and transport in Scotland, leader of the Scottish Liberal Democrats and Deputy First Minister. "Aye, and he's looking so young".

My noble friend has, to his national credit, the signing of the order abolishing tuition fees in Scotland and, vital for those who live in Clackmannanshire, his coming to Alloa to speak up for the return of the railway after 39 years to the Railway Bill Committee, which wisely chose to sit in Alloa for its scrutiny of the Sterling-Alloa-Kincardine Railway and Linked Improvements Bill.

The last time I congratulated a maiden speaker was two weeks before the end of the hereditary peerage in 1999. I hope that my noble friend's career will last substantially longer than that of the hereditary noble Lord whom I was congratulating then. Again, on behalf of the whole House, I hope that we will hear from my noble friend often.

I was also a member of the Select Committee. I am very happy with the conclusion of our report: that the Barnett formula should be urgently brought to an end on account of its current unfairness to all constituent parts of the United Kingdom. Proceeding to a needs assessment approach would contribute to the much-needed reform of governance in this United Kingdom.

The unfairness which the outdated, but easy-to-use, formula delivers is as follows. My native Scotland receives more than it is due-perhaps £1,600 per person-largely because of a slight decline in population. Wales and Northern Ireland entered the scheme at a lower than accurate level. Wales has more chronically sick and Northern Ireland has disproportionately more young people. The English regions are treated in widely differing and, frankly, mysterious ways. Resentment against Scotland is, surprisingly, still only smouldering. For the people of Scotland, it is bad to know that you are being subsidised, even if there may be a justification, in part, based on the UK Treasury raids on the oil and gas fields by the Crown Estate Commissioners and the siting of the nuclear deterrent at Faslane and Coulport.

I hope to hear my noble friend say that the Government fully intend to sort out that fiscal unhappiness by adopting our suggested scheme, the bones of which are that each devolved institution would receive a universal sum of so much per head, with premiums paid for certain groups: the very young, the very old and the chronically sick.

Therefore, I encourage my noble friend to commit the Government to ending the Barnett formula, but I believe that it will be important that all citizens in

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Scotland become aware of the inevitable reduction in the block grant, which will certainly be morally correct. This will be a major consideration for all citizens who are likely to take part in a referendum on Scotland's future governance. The challenge for those wishing to continue with the parliamentary union is to demonstrate that there is a way to distribute UK resources more fairly, as would be achieved by a Scottish Treasury collecting and spending Scotland's taxes. I look forward to my noble friend's reply.

8.30 pm

Lord Empey: My Lords, it can truly be said of the noble Lord, Lord Barnett, that he is a great man. His name is, in government-speak, legendary. Having seen it operate from the inside, I do not know what the Department of Finance and Personnel in Belfast would do without the name Barnett. Everything is consequential now that we have Barnett consequentials, and these things are looked at with great interest and concern. However, there are a number of very serious issues here.

Ten years ago, the Northern Ireland Executive entered into negotiations with the Treasury and we started a process of establishing a needs basis. It was our initiative. Work started and, before the first Northern Ireland Executive came to an end, the Treasury produced some needs-based assessments for a limited number of departments. Those established, for example, that we did not have enough money for health but they also established that we got more money for industry than we should have needed at that time. That process was not pursued because the then Executive did not survive and there was an interregnum. Northern Ireland does not fear a needs-based assessment, although the Barnett formula has, by and large, been good to us. We have had the fastest-growing population in the UK and therefore that has been reflected in the formula, but we have also had substantial pockets of real need, and the statistics are there for all to see. With a younger population, there is clearly huge pressure on our education and health systems. We have had substantial inward migration in recent years, and that is also now putting great pressure on housing, jobs and other services. Of course, we also have legacy issues that go back over 40 years to the Troubles, and we are still trying to come to terms with those.

I believe that, whatever other faults it might have had, the formula of the noble Lord, Lord Barnett, at least found an efficient and effective way of distributing resources, which was one of the main problems. If it is proposed to move away from that, agreement will first have to be reached on how needs are assessed, because to some extent need is in the eye of the beholder. What I might consider to be a need, others might not. For example, we have industrial legacy issues, which we share with Wales and Scotland-in particular, the west of Scotland-where huge pockets of people suffer from asbestosis and other industrial-related injuries; we have climatic issues; and our pattern of population distribution is linear rather than grouped, which of course means that more money is required for services.

Because of the political and economic significance of this proposal, it is important that there is national consensus on how it is carried out. Otherwise people

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will feel a sense of injustice, which will have a political knock-on effect and will be used rigorously by those who want to smash up the union. That would be an economic disaster for any part of the country and we must not contribute to it. Therefore, consensus on the mechanism for assessing these matters will be a critical factor before we carry out this exercise. I urge noble Lords to bear that in mind when we come to take a decision on this issue.

8.34 pm

Lord Dixon-Smith: My Lords, I feel a certain wry amusement in this debate because I agree with almost everything that has been said this evening. I last spoke on this subject on the Scotland Bill on 30 July 1998. On that occasion, I moved an amendment to suggest that the formula for distributing funds between the United Kingdom and Scotland should be based on the comparator of GDP per head, which is a pretty good comparator for needs. The late Lord Mackay of Ardbrecknish, in keeping with the philosophy of the times, quietly put me back in my box-I was a relatively new Member of this House-by saying that he did not like my formula because it was too mechanistic. It was mechanistic and I do not apologise for that, even today. If we had been able to work it out and apply it, it would have exposed everything that has been described tonight and brought it out into the open.

So here we are 13 years later discussing the same subject, and I could say, "About time too". However, we now have to face a different problem. Whatever we do, it cannot be a unilateral decision by this country; there will have to be an element of negotiation with the devolved Assemblies and Parliaments, and I suspect that those negotiations will be very tense and difficult. In Scotland, another potential problem looms: the issue of whether there will be a referendum and a move towards independence there, in which case we will have a very much more difficult and very different type of negotiation.

I am speaking in this debate tonight partly to issue a word of caution-not to anyone in this Chamber or the Palace of Westminster but to the people of Scotland. My view, for what it is worth, is that, if they were to go down that road, they would be sacrificing a milch cow in Westminster for a very uncertain future in which they would assume that the oil and gas in what would become their section of the North Sea might provide an equal source of revenue. Looking at the long-term future, which we do not think about often enough, the fact is that we, together with the rest of the world, are going to have to move away from fossil fuels. They may be an asset at present but over time they are likely to become a diminishing asset. Therefore, the people of Scotland might run the risk of swapping what I would call a moderately safe and secure future for one that, in my view, holds the prospect of a steadily reducing income base for their country if that is the route they choose to follow.

I welcome this debate and pay tribute to the noble Lord, Lord Barnett. I bumped into him in the corridor the other day. That is why I am speaking tonight and I have enjoyed every minute of it.

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8.38 pm

Baroness Morgan of Ely: My Lords, I have had a really pleasant surprise tonight. I came here expecting to see an ogre in the shape of the noble Lord, Lord Barnett-such, I am afraid, is his reputation in Wales-but he will be delighted to hear that after his discourse tonight I shall be going back and singing of his many virtues to the people of Wales.

Ever since I entered the political scene about 17 years ago, the need to reform the Barnett formula has been top of the political agenda in Wales. Sometimes I feel that it dominates the political agenda too much because it hampers our ability to talk about other issues where we need to increase our GDP and work on other methods in order to do so. None the less, I am afraid that the term "Barnett" has become synonymous with unfairness in Wales. It is something that we need to correct and the only way of doing so is to reform the formula. Of course, there is unanimous cross-party support within the Welsh Assembly for such reform. The current formula, as we have been told, rests on an allocation based solely on population. This year alone, £50 billion of public sector funding has been distributed to the devolved Administrations without even the most cursory attempt to see whether it is based on need or not.

The Assembly set up a panel, led by Gerry Holtham, which concluded that through the methodology that is currently used based on the English regions, Wales is being short-changed to the tune of about £300 million compared with its needs. The problem is that this situation will persist and will become worse if and when we see an increase in public expenditure. Something needs to happen. We need an intermediary step to ensure that we put a floor in the system, to ensure that things do not get any worse when that happens. I do not think any of us believe that this will happen any time soon. We need an immediate response and I would like to know whether the Minister has any plans to put that floor in place sooner rather than later.

I endorse the setting up of an independent commission. We need to ensure that there are representatives from all the devolved Administrations on that commission. I agree with my noble friend Lord Barnett that it does not need to impact negatively on the attempts at budget reduction. Indeed, a member of the Holtham commission, David Miles, made it clear that there is no reason to believe that replacing the Barnett formula with a needs-based system should be costly in aggregate for the UK Government. In fact, the reverse is true. Reform would be completely consistent with the UK Government's focus on deficit reduction. The key point to remember tonight is how unjust the current system is. A civilised society should distribute on the basis of need and not on the basis of the number of the population.

I have a number of questions for the Minister. In the mean time, what is the current thinking on introducing a floor to the current Barnett system so that we have an intermediary step? Will the Minister commit to an open-minded dialogue, particularly with the Assembly, to progress the wider issue of Barnett reform? What is

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the timeframe for reform? We need to take account of much broader constitutional issues which are at play here.

8.42 pm

Lord Shipley: My Lords, I am grateful to the noble Lord, Lord Barnett, for his continuing determination to bring an end to the distortions of the formula that bears his name. Years ago, it was understandable to introduce the formula, but ever since it has been right to want to get rid of it because it was always meant as a temporary solution to a specific problem.

Not long ago, I was interviewed by BBC Scotland and asked whether I approved of the Barnett formula, given my interest in it as the then leader of Newcastle City Council. I said I could be a strong supporter of it, just as long as the Scottish border was redrawn along the River Tyne.

I have a serious constitutional point as well as a serious financial point. First, the principle should be that public spending should reflect public policy which should then be financed on the basis of need, irrespective of nation or region. The Government's official measure of need includes such matters as age, housing conditions, health, crime levels, unemployment rates, travel costs, and scarcity of population. This is right. Needs assessments may not be perfect but they are better than just using proportionate population figures.

The public spending figures published by the ONS by nation and region in July last year show that planned public spending for 2009-10 was £8,559 per head of population in England; in Northern Ireland it was £10,662; in Wales it was £9,597; and in Scotland it was £10,083. In London it was £10,139, second only to Northern Ireland. In my own region, the north-east of England, it was £9,588, only the fifth highest. It is very hard for people in England to comprehend how this financial anomaly has been allowed to continue for so long when every English region has lower public spending per head than the four devolved Administrations and in some cases significantly higher needs.

That takes me to my constitution query. Why is it that all the devolved Administrations receive more from the Government than English regions? We must understand better the reasons for this, which is why I believe a UK funding commission should be established to assess relative need and a new method for distributing funds in the context of recent and pending legislation. We need fairness for all parts of our United Kingdom.

8.45 pm

Baroness Quin: My Lords, I begin with my own words of congratulations and welcome to the noble Lord, Lord Stephen, and I hope that next time he addresses us he is able to do so at much greater length in a more leisurely debate. I also congratulate my noble friend Lord Barnett on his persistence in trying to abolish, in its present form, the formula that bears his name. I have very much agreed with his views over the years and I feel that his persistence should be rewarded with a new Barnett system that is based on needs and that, I hope, is agreed by all parts of the UK as a sensible way forward.

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I would also like to express my general support for the conclusions of the report on the Barnett formula, which was the work of the committee chaired by my noble friend Lord Richard. I was taken by the comments of the noble Lord, Lord Forsyth, and my noble friend Lord Foulkes in talking about the new political situation and our need to keep that in mind as well as simply looking at the issue, as we have done over recent years.

I was very tempted to respond to the challenge laid down by my noble friend Lord Foulkes in talking about a federal system for the UK. However, he immediately hit on a particular problem in that suggestion, which is, given the size and the population of England, whether England would be treated as one unit or in devolved units. Despite the failure of the referendum in the north-east of England, I would be rather upset if we simply ended up with a very centralised English system within a devolved UK. I hope that that will not happen in future.

Like the noble Lord, Lord Shipley, I am very much influenced in my comments about the Barnett formula by my experience of belonging to the north-east of England. As he well knows, the formula and the way that it operates has been the subject of much public criticism in the north-east-in fact, it is almost as hot a political potato as it is in Wales. That criticism has also been supported by at times a very vigorous media campaign against the formula.

I certainly know from my own experience, having represented a north-east constituency in another place, that it was impossible to defend the formula to my constituents. I did attempt to do so once as a loyal Minister defending government policy and I very soon found that I was on a hiding to nothing. However, I will pay tribute to the way that, despite the operation of the formula, certainly under the previous Labour Government, many programmes of expenditure were directed to areas such as mine, and that has helped to redress the balance.

However, it remains true that over the years the less well-off regions in England, as well as Wales, have understandably felt disadvantaged by the formula. My noble friend Lady Hollis made the point to the committee that obviously there are more badly off people in populous, prosperous areas. Despite that, in any formula based on territories, a territory such as the north-east, which has a similar population to Wales and a slightly higher population than Northern Ireland, will compare its receipts to them, as it has compared its unemployment rates and general economic performance with Scotland, Wales and particularly Northern Ireland over the years.

We should learn from the international examples mentioned in the committee's report. We should bear it in mind that although the systems are different to those of the UK, having a regular and automatic review of any funding system is important if you are to have a proper system based on needs. I hope that the Government will take that dimension into account in their future deliberations.

8.49 pm

Lord Tunnicliffe: My Lords, I, too, thank the noble Lord, Lord Barnett, for raising this debate. I also

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congratulate the noble Lord, Lord Stephen, on his participation, and we all look forward to future contributions.

I am praising the noble Lord, Lord Barnett, not only for his enormous contribution to political life in this country, both in office and subsequently in your Lordships' House, but also for the Barnett formula. Whether one likes it or not, it has a characteristic of having survived; it has a characteristic of having done what it initially set out to do-to stabilise expenditure and allow planning in Scotland and Wales; and it has a characteristic that it has allowed devolution to take place. It has some good points-the sorts of points that the previous Government made in reacting to the Select Committee's report.

We speak as though the Select Committee report was an answer in itself. It was not. What it said is, "You want to get yourself a commission, then we have this thing called needs and we will write some words about it but the commission has got to fill in the gaps"-a non-trivial task. The committee made a case that there is concern about this formula in Scotland, Wales, England and, I suspect, Northern Ireland. However, one should also remember that any change will be enormously difficult to change again so it has to be got right.

What does getting it right mean? First, it has to be fair. The idea that the word fair is not political is absurd-it is actually a deeply political word-so it has to be both fair and it has to enjoy political consensus. If it does not, it will not sustain, and falling apart quickly would be much worse than where we are. The facts of life are that we are a long way from political consensus. As the noble Lord, Lord Foulkes, points out, perhaps we should consider something a great deal more radical. It has been pointed out by other noble Lords that we need agreement across parties, across the stakeholders, for this to work. We do not have that. The SNP simply failed to engage with the Select Committee-never mind disagreeing with it, it failed to engage. With its recent success in the polls we have to recognise it is a force and it has to be a force in anything that comes out of it.

We have had continuous change and we are going to see this change in the Scotland Bill. We all look forward to the debate on the Scotland Bill because a lot of these issues will come out and we will be better informed after that. There are clear concerns in Wales that mean that any solution has to be a solution for all parts of the United Kingdom, not just for Scotland.

It is perfectly proper that the Government should be concerned about the issues raised tonight and I hope that they will indicate that at some point they will look at how to address these. Equally, I do not urge them to move in haste on this issue. In far too many places in the latest legislative programme we have seen legislation in haste. We do not need it in this case. They have to take a careful, measured approach to secure agreement about fairness and consensus. So I am not going to urge them tonight to act in haste.

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8.54 pm

Lord De Mauley: My Lords, I am most grateful for the opportunity this evening provided by the noble Lord, Lord Barnett, to debate his eponymous formula. It is an important subject that is of great interest to all parts of the United Kingdom. I thank all noble Lords who have participated. I listened carefully to what they said. I congratulate in particular my noble friend Lord Stephen on his maiden speech, and look forward to many more of the quality that he showed us this evening.

It might help if I explain briefly the background. Changes in the departmental expenditure limit block budgets of the devolved Administrations are determined by the Barnett formula. The calculation in outline is the change in provision of the respective United Kingdom departments in the spending review, multiplied by the relevant departmental comparability factor-which, for example, would be 100 per cent for health, as health is fully devolved-multiplied by the appropriate population proportion. The population figures are updated at the spending review to reflect latest ONS estimates of population, and the comparability percentage is also revisited.

The previous Government decided at the time of devolution in 1999 to retain the block and Barnett formula arrangements for determining the budgets of the devolved Administrations. This was the basis on which the devolution referendums were held. It is worth noting that responsibility for allocating spending in England to the English regions and local authorities lies with UK departments. They make these decisions once departmental settlements have been announced in the spending review. There is no single formula for allocating money within England.

Several reports have recently been published that examined the funding of the devolved Administrations. All were referred to by noble Lords this evening. The Calman commission on developing the Scottish devolution settlement, which was commissioned by the previous United Kingdom Government and the Scottish unionist parties, reported in June 2009 and covered funding to Scotland. The Holtham commission on Welsh funding, commissioned by the Welsh Assembly Government, published in the summer of last year its final report on the Barnett formula and on devolving taxation and borrowing in Wales. The House of Lords Select Committee on the Barnett Formula reported in July 2009.

On the subject of the Calman commission, the Scotland Office published a Command Paper in November 2010. It accepted the recommendations that there should be improved financial accountability, including more tax devolution-the noble Lord, Lord Foulkes, referred to this-and that as a consequence the Barnett-determined block should be reduced by the forecast amount of the 10p devolved income tax receipts. It also accepted taking forward the devolution of other taxes, including stamp duty and landfill tax, and introducing new borrowing powers for the Scottish Executive. Implementing the Command Paper will require legislation: a Scotland Bill has been published and is currently going through Parliament. I listened to the comments of my noble friend Lord Forsyth and

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of other noble Lords, and certainly I will pass them back to Her Majesty's Treasury. The noble Lord will have ample opportunity to make his points on the Bill as it passes through your Lordships' House.

Lord Forsyth of Drumlean: Why did my noble friend leave out, in his list of conclusions from the Calman report, the acknowledgement that we would have to move to a needs-based system of funding?

Lord De Mauley: I was going on to say that the House of Lords report recommended replacing the Barnett formula with a needs-based formula. I will deal later with needs-based issues. The previous Government welcomed the House of Lords report, as noble Lords said, although they remained opposed to replacing the Barnett formula. Following the Holtham and House of Lords reports, the coalition Government said in their programme for government that they recognised the concerns expressed about the system of devolved funding, but that the priority must be to reduce the budget deficit and therefore any decisions to change the current system must await the stabilisation of the public finances. In addition, the Government announced in the spending review that there will be consideration with the Welsh Government of the proposals in the final Holtham report, consistent with work being taken forward in Scotland following the Calman commission.

The Government welcome all views on the future of the Barnett formula. I will ensure that Her Majesty's Treasury is made aware of what has been said this evening. In the past, the formula proved to be a durable and robust method of calculating changes for the devolved Administrations. Even the House of Lords report concluded that the Barnett formula had qualities such as simplicity, stability and the absence of ring-fencing. However, we recognise the concerns that are often expressed about it, and were expressed this evening.

There is perhaps a perception, especially in English regions such as the north-east, that Scotland in particular is overprovided for. Comparisons tend to be made using figures published in public expenditure statistical analyses on identifiable total managed spending per head. My noble friend Lord Shipley mentioned some figures. Those for 2009-10 are £8,531 per head for England, £9,940 for Scotland, £9,709 for Wales and £10,564 for Northern Ireland. On a comparable basis, the north-east has the second highest spending per head in England at £9,433.

The perception in England that the devolved Administrations may be overfunded may be exacerbated because they can afford more generous policies; for example, on university fees and the free provision of services. The noble Lord, Lord Barnett, referred to this. I must emphasise that the devolved Administrations have not received any additional money to fund those policies. They have accommodated them within their existing budgets. One of the purposes of devolution is to allow the devolved Administrations to make these different policy choices. This was set out in 1997 in the previous Government's statement of principles:

"The key to these arrangements is block budgets which the devolved Administrations ... will be free to deploy ... in response to local priorities".

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I am sure that the devolved Administrations themselves do not regard their spending review settlements as generous.

My noble friend Lord German and the noble Lord, Lord Wigley, were concerned about the Barnett squeeze convergence property of the Barnett formula, whereby the percentage increases in spending tend to be lower than in England. The Holtham commission in Wales, in particular, has called for a floor to be placed under the formula to prevent further convergence with England. The expression "Barnett squeeze" reflects that the Barnett formula provides the same absolute increase per head but a lower percentage increase because of the higher baseline levels of spending in Scotland, Wales and Northern Ireland inherited from the past. Of course, the percentage reductions will tend to be smaller than those for many UK departments when spending is cut, as it was in the last spending review. I will return to the subject of Wales in a moment.

Some have raised concerns about the transparency of the existing system. The House of Lords report itself concluded that the quality of data on public spending has improved since 1999. The Government have provided further information about the allocation of grant to the devolved Administrations, based on data which the Treasury provided to the committee and which was published in the committee's report.

Several, if not all, noble Lords criticised the Barnett formula because it does not take sufficient account of needs. In a similar discussion in your Lordships' House in 2009, the noble Lord, Lord Davies of Oldham, said for the then Government,

The Barnett formula has indeed provided a simple, stable and robust method for funding the devolved Administrations over the past 30 years. It is, of course, for the devolved Administrations to decide how to allocate their overall budget to individual programmes reflecting their own policies. The Barnett formula allows them the freedom to do this, without being second-guessed by the UK Government or any other body on their needs.

Baroness Hollis of Heigham: Nobody tonight has queried the propriety of a block grant that allows the devolved Administrations to determine how they allocate their expenditure within that block grant, nor was it raised during the debate that my noble friend Lord Davies answered. The criticism has been about the size of that block grant, which is based on out-of-date, inappropriate and deeply unfair estimates.

Lord De Mauley: Yes, my Lords, but as the noble Lord, Lord Tunnicliffe, highlighted, there are complications in reaching a consensus on a needs-based formula. I understand that in the 1970s a formal interdepartmental needs assessment was carried out by the Treasury in consultation with interested departments. It was published in 1979. The study was extensive, involved a number of experts and a large team of people and took two years to complete yet, despite a great deal of time-consuming work, it was

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unable to reach an agreed conclusion about the basis for a needs-based assessment, and therefore it was not implemented. Indeed, the Barnett formula was introduced at around that time. There is, of course, no consensus across the UK on how to measure needs at the country level and, as in the 1970s, it would inevitably be a contentious and very time-consuming exercise. The noble Lord, Lord Empey, explained some of the problems. A needs-based system would be highly sensitive to the chosen weightings and indicators, on which there is no generally accepted methodology or consensus. The perception of needs and the understanding of the relevant factors may vary over time. Additionally, as policies change, so may the relative cost of implementing them in different countries. The picture may be very different in, for example, 2015. A number of changes are being progressed, such as the Scotland Bill, discussions on the Holtham report, and Northern Ireland consultation on corporation tax. I am sorry to disappoint noble Lords but the Government's position remains that the priority is to reduce the budget deficit and that any decision to change the current system must await the stabilisation of the public finances.

The noble Lord, Lord Foulkes, raised the arguments in favour of fiscal autonomy. The union dates from 1707 and is one of the oldest and most successful in the world. It has a single currency, central bank, monetary policy and system of financial regulation, which fosters trade, monetary stability and economic growth. Non-devolved risks are pooled and financed centrally. Fiscal autonomy could mean further spending cuts in Scotland, Wales and Northern Ireland, assuming uniform levels of taxation. Also, as my noble friend Lord Dixon-Smith cautioned, it would not be prudent to rely on volatile and uncertain future North Sea oil receipts. However, we believe that financial accountability can be improved in Scotland through greater devolution of taxation, as proposed by the Calman commission.

I spoke earlier about Scotland and I said that I would return to Wales. I know that some consider Wales to be underfunded, which was raised by the noble Baroness, Lady Morgan, among others. In fact, spending per head in Wales is 12 per cent above England and, furthermore, spending has more than

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doubled in cash terms since devolution. Wales also benefits from very large EU structural fund spending, which amounted to £208 million in 2009-10 and is expected to rise to £233 million by 2014-15.

On Northern Ireland, the Government attach priority to improving the security situation, including by confirming the £800 million financial package which accompanied the devolution of policing and justice just before the general election last April. A further £200 million was announced earlier this year for policing in response to the security situation. In addition, the Government believe that it is important to rebalance the Northern Ireland economy from the public sector to the private sector. They published a consultation paper in March, which included examining possible mechanisms for varying corporation tax. No decisions have been made yet.

Some are concerned that insufficient attention is paid to the English regions. The Barnett formula is not used to allocate spending within England. The Government have chosen to prioritise the NHS, schools and early years, security and the capital investment that supports long-term economic growth for reasons of prosperity and fairness. This means tough settlements for some other areas but, because we have chosen to reform welfare, departmental budgets other than health and overseas aid will be cut by an average of 19 per cent over four years, which I emphasise is the same pace as planned by the previous Government.

There are also claims that the Treasury is judge and jury, and that the Barnett formula should be administered by an independent body. The noble Lord, Lord Barnett, and my noble friend Lord Forsyth raised that. It is the Treasury's core function to control public spending. But the statement of funding policy sets out the dispute resolution procedure under which, if all other avenues have been exhausted, disputes may be remitted to the joint ministerial committee.

The Government have no plans to change the Barnett formula at present but we will continue to keep all aspects of public spending under review. The Government listen to all views and I thank all noble Lords for contributing to the debate today.

House adjourned at 9.09 pm.

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