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Those are all options. We are providing the power; it will be up to the Scottish Parliament, elected by the people of Scotland, as to how those options are exercised. However, the Command Paper published in November alongside the Bill stated that for every penny by which one increases income tax, the yield will be around £450 million-or 1.7 per cent of the present Scottish budget. That gives a flavour of the considerable powers that this Bill provides to Scottish Ministers. This is a big shift to the financing of public services in Scotland.

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It will deliver real financial accountability, as more than a third of current spending will be funded by taxes determined and raised in Scotland. It will give the Scottish Parliament a real stake in Scottish economic performance, as a significant proportion of the budget for public services in Scotland will come directly from taxes set and raised in Scotland. Stability to the Scottish budget will continue to be provided by continuing block grant from the United Kingdom Government.

Delivering the Donald Dewar lecture in 2003, my noble friend Lord Steel of Aikwood said:

"No self respecting Parliament should expect to exist permanently on 100% handouts determined by another Parliament, nor should it be responsible for massive public expenditure without any responsibility for raising revenue in a manner accountable to the electorate".

I believe that this Bill addresses that critique. The Calman commission also concluded that the original divide, as I have indicated, between devolved and reserved policy powers was broadly right. The Bill therefore does not seek radically to alter the boundary but instead updates the balance between reserved and devolved powers in specific areas, as recommended by the commission. We are devolving the power to set the national speed limit and the drink drive limit, to regulate air weapons. Recognising that this is a two-way street, where a consistent approach across the United Kingdom is required, we will legislate at a United Kingdom level, specifically over the winding up of companies and the regulation of healthcare professionals, as provided for by the Bill.

The functioning of the Scottish Parliament itself will be improved by measures in this Bill. The Parliament will be able to elect additional deputy presiding officers, it will have greater discretion to set its own Members' interests regime, and there will be greater flexibility about the makeup of the Scottish Parliamentary Corporate Body. Closer working relationships between UK and Scottish Ministers will be required. Scottish Ministers have a role in the appointment of a Scottish member of the BBC Trust, and a Scottish Crown Estate commissioner.

The Bill also provides for some largely technical and relatively uncontroversial updates to improve the Scotland Act and help devolution to operate more effectively. Improving devolution for Scotland is an ongoing process, and while constitutional legislation is rare, the Scotland Bill provides an opportunity to make some amendments. In my role as Advocate-General, I am responsible for providing advice on Scots legal issues to the United Kingdom Government, and I therefore thought it right to take the opportunity to review the existing Scotland Act. There are a number of technical measures in the Bill.

I also took the opportunity to revisit an area of the Scotland Act which was raised with the Calman commission by the judiciary, but on which the commission made no recommendation. I established an expert group under Sir David Edward to consider the way in which acts or failures to act of the Lord Advocate that are incompatible with Community law and convention rights are dealt with. Clause 17 of the Bill implements the findings of that expert group and simplifies process, with human rights and European Union law issues being referred to the Supreme Court.

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The Bill represents a large and historic change for Scotland, and therefore deserves proper scrutiny, which I am sure this House will give it. Alongside the scrutiny it received in the other place, the Scottish Parliament has examined and debated the Bill, and the Scottish Affairs Committee at Westminster provided a rigorous analysis of the Bill's provisions.

Your Lordships' House's Constitution Committee has noted that the Bill is of clear constitutional significance, but also said that there were no issues of constitutional concern in the Bill. I noted that the Committee welcomed the extensive deliberation which preceded introduction of the Bill. Those of us who are veterans of the PVSC Bill and the Fixed-term Parliaments Bill will be very pleased with that particular commendation from the Constitution Committee. The Delegated Powers and Regulatory Reform Committee also noted no issues in the Bill.

The Government welcome all these reports, and thank those who have worked to consider this Bill. While the Calman commission's balance and evidence process is the basis for the Bill, the Government have made it clear that we have never ruled out sensible and similarly evidenced suggestions for change. We have listened to recommendations made by the Scottish Parliament and the House of Commons Scottish Affairs Committee, and to advice from other stakeholders, and while we believe that the Scotland Bill package provides the right balance of powers for tomorrow's Scottish Parliament, we nevertheless have made some amendments to the Bill, and the supporting non-legislative package.

These will give Scottish Ministers greater flexibility to exercise their new powers effectively; for example, by bringing forward to 2011 pre-payments-a form of cash advance to allow work on the Forth replacement crossing to begin. The Government have listened to other recommendations and tweaked the finance and non-finance aspects of the Bill and its accompanying package.

We continue to believe that the package set out in this Bill and the associated Command Paper will strengthen Scottish Devolution and Scotland's place within the United Kingdom. It provides strong financial accountability to the Scottish Parliament, and the right balance of additional powers. It provides the Scottish Government and Scottish Parliament with new tools to deliver policies in Scotland to respond to new challenges.

The other place debated the Bill over three days in Committee on the Floor of the House. Committee days in this House subject to the Motion later, will take place as a Committee of the Whole House. It is right that legislation of such constitutional significance gains the level of scrutiny it deserves, and that no one is excluded from the process. The whole essence of the Bill has been about inclusion. All parties were invited to be involved in the Calman process, just as they were in the Constitutional Convention. Those parties and those people who accepted the offer have therefore had the biggest hand in shaping these, and therefore the future of devolution.

There is, of course, a relationship with another place, a place much affected by the provisions of this Bill, and that is the Scottish Parliament. As I have

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indicated, the previous Scottish Parliament overwhelmingly approved the Bill, with 121 MSPs voting for the legislative consent measure in support, three voting against, and one abstaining. The three main UK-wide parties, together with the party which currently forms the Scottish Government, voted in support of the Bill. I think we can say that the Scottish Parliament believes in the Scotland Bill.

A new Parliament with a new focus was elected on 5May, and as we are all well aware, it represented a landmark change in Scottish politics. This new Scottish Parliament will consider the Bill again, and we will consider sensible recommendations for the Bill made in time for this House's final amending stage. We will get the chance to consider any recommendations which come from the Scottish Parliament, and the Government will continue to work with the Scottish Parliament's Scotland Bill Committee, which is considering amendments to the Bill. My right honourable friends the Secretary of State and the Parliamentary Under-Secretary of State will give evidence to the Committee on Thursday of this week.

The noble Lord, Lord Sewel, who is with us today, has given his name to a convention that Westminster would not normally legislate with regard to devolved matters on Scotland without the consent of the Scottish Parliament. This convention has been developed and embodies the respect that this Parliament has for the Scottish Parliament. In keeping with the spirit of the convention, the Government will continue to work closely with the Scottish Parliament Committee reviewing the Bill, and we will look to maintain the support of the Scottish Parliament for the Bill.

As is well known, the Scottish Government have expressed their desire to see additions made. We will look at these further proposals and set them against three tests: that the Scottish Government provides detailed proposals to strengthen the Bill; that the proposals maintain the cross-party consensus that has been worked up and developed; and that any such proposals are beneficial to Scotland, without being prejudicial to the rest of the United Kingdom as a whole. I will of course keep the House appropriately informed of any developments in discussions with the Scottish Government, which will operate under a banner of mutual respect.

I have no doubt that in the course of the next few hours, many noble Lords will wish to debate not only the detailed provisions of the Bill, but also wider constitutional issues of importance to which this Bill is related. Of course, as I have indicated, the political landscape has changed since the Bill was introduced into the other place. Most obviously, the Scottish Government have claimed their election success as a mandate for a referendum on independence.

The Scottish Government have still got a lot of explaining to do when it comes to their main objective of separating Scotland from the rest of the United Kingdom. They do not want to provide any detail on how or when they will conduct a referendum. Nor do they want to explain in any greater detail, to date, what they mean by independence. The people of Scotland deserve to be told, and we will keep pressure on them to provide the facts to the people of Scotland. The

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Government, along with other noble Lords, believe that Scotland's future is a future within the United Kingdom.

The Scotland Bill is a vehicle for upgrading Scotland's devolution settlement. It is a Bill founded on evidence. It is a Bill with a clear purpose and clear principles: to strengthen devolution within the United Kingdom and to make the Scottish Parliament financially accountable. It fixes some things that have not quite worked; it makes the Parliament and the Government of Scotland more responsible for money they raise; and it allows the Scottish Parliament itself to run more effectively. Crucially, it will leave the Scottish Parliament with more powers than it had before; mature powers for a maturing Parliament.

The package strengthens the United Kingdom, by providing a settlement with financial responsibility, but it maintains the key elements of risk and benefit sharing that help the United Kingdom as a whole to perform effectively on the world stage and deliver fairly for all people. Stronger devolution which works for Scotland works for the United Kingdom, and I believe strengthens the United Kingdom for years to come. I commend this Bill to the House. I beg to move.

5.58 pm

Lord Davidson of Glen Clova: My Lords, we welcome this Bill in principle. Of course, it has been Labour, both in government and in opposition, which has been consistently in favour of devolution. It was the Labour Government who took the initiative in setting up the cross-party Calman commission, on whose work the Bill draws.

We must, however, recognise that the Calman commission produced its report in 2009. Many matters of significance for Scotland have occurred since the report. I will seek to look at a number of issues which have arisen in debate in Scotland that are not as yet found in the Bill. I accept immediately that not every new issue should be reflected in the Bill, but where an issue has emerged of constitutional importance, it should not be lost sight of. One does not anticipate that Scotland Bills will be a frequent occurrence, nor will opportunities arise often to correct constitutional difficulties.

First, perhaps I should say that at a time when economic growth in Scotland is hardly vibrant and unemployment threatens many in Scotland as well as in the rest of the United Kingdom, a focus on purely constitutional issues may seem to many to be at best a skewed priority. True, the Bill contains borrowing powers that could be useful if properly applied at this point in the economic cycle, but the welcome that such powers might receive will be muted if they are not put in place quickly.

I think that I understood the Minister to say that the borrowing powers may come into place in 2012. We certainly have called for them to be advanced to that year, and the Scotland Bill Committee and Scottish Affairs Committee reports both recommend that those powers be brought forward. We would welcome the Government bringing them forward to 2012. It would be useful for people in Scotland to know exactly when in 2012 the Government accept that capital borrowing powers will become available.

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One should also observe the attention given to demands for new expanded powers, all claimed to be essential to the regeneration of the Scottish economy. This has led to scant scrutiny of the use of existing powers. The Scottish Government already have a wide portfolio of powers to contribute to economic growth. Their use, their non-use and the ostensible priorities might perhaps be subject to greater assessment and accountability.

I turn to the issue that the noble Lord, Lord Forsyth, has already referred to: a referendum on the question of the separation of Scotland from the United Kingdom, a subject that has engaged substantial debate in Scotland over a number of years. Since this year's Scottish Parliament election, the issue of a referendum has come very much to the fore. Although there is scant evidence of public demand for such a referendum, the SNP Administration have committed themselves to this at some unspecified point before 2015. While we see no public demand for such a referendum, the issue will not simply vanish, given the SNP's apparent commitment to it.

The prior constitutional question of law regarding any referendum is by what legal process such a referendum can be held lawful. To put it more acutely, can the Scottish Parliament lawfully put in place its own referendum on separation, set its own timing and questions and possibly ignore the obligations of Scotland to the rest of the United Kingdom? The question of lawfulness is inevitable, as in the Scotland Act 1998 the intention of Parliament was, unsurprisingly, not to put in place a mechanism for decisions on separation but solely to establish devolution in Scotland within the United Kingdom. It would have been remarkable if such a dramatic power to break the union by way of referendum had been included in the 1998 Act. After all, Section 29 of the Act provides that any reserved matter is outside the competence of the Scottish Parliament. Schedule 5(1) states:

"The following aspects of the constitution are reserved matters, that is ... the Union of the Kingdoms of Scotland and England".

Various ingenious attempts thus far to imagine some kind of power to hold a referendum-for example, "It's just an opinion poll, not a referendum; it's only advisory"-may at least be unlikely to survive a challenge in court. And no doubt they would be challenged, either by the law officers, the Presiding Officer of the Scottish Parliament or indeed by any concerned citizens or group of citizens. The question for the Government may become whether they should create a proper statutory power in the Bill for, say, a one-off referendum or whether they would countenance a unilateral, potentially unlawful declaration by the Scottish Parliament of its own power to run its own referendum, whenever. That would hardly be the chosen route of any Government committed to the rule of law. It would set a precedent with the most remarkable consequences for the UK. In any event, it would remain vulnerable to third-party challenge with potentially hugely embarrassing results. I encourage the noble and learned Lord the Advocate-General to pursue this issue with his ministerial colleagues, perhaps before he is obliged to consider it as one of his statutory duties in his separate role as law officer. To waver accelerates tension on this issue. I accept that there are many political arguments for the Scottish

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Parliament to run its own referendum, but the rule of law does not yield to political convenience.

I move on to another constitutional issue: the Supreme Court. This has come to prominence recently because of certain criminal cases in which the role of the Supreme Court has been challenged. Contention has arisen regarding cases involving criminal matters due to some recent cases where an appeal has been made to the Supreme Court on human rights points from the Criminal Court of Appeal in Scotland. In those high-profile cases, the Supreme Court has overturned the Court of Appeal decisions. This has precipitated much debate, not least because of wholly inappropriate criticism of the Supreme Court by the First Minister and the Justice Minister in Scotland.

This Opposition agree that the UK Supreme Court should retain its sole role in determining human rights and European treaty issues. Section 17 of the Bill, however, seems to create a number of obstacles to the speedy testing of compatibility issues. We will want to scrutinise these closely in Committee. One concern is that where Scottish procedures contain an incompatibility, some such obstacle may simply defer and hence magnify the difficult consequences of any finding of incompatibility. The Minister will of course be acquainted with the problems that arose over the slopping-out cases in Scotland and the way in which delay can magnify problems. The Scotland Act 1998 permits a challenge to be made at any stage, thereby potentially avoiding the entire criminal process being run through, where there is an incompatibility discoverable by early challenge.

Another concern is that, in respect of the certification of leave to appeal, Scottish devolution issues will be subject to an obstacle that does not apply to either Welsh or Northern Irish appeals on devolution issues. This seems to be creating an anomaly, and I look forward to hearing the explanation for it.

The apparent fortifying of the position of the Lord Advocate in that regard will also require scrutiny. It is presumably not the intention of the Government to erode the access to justice by persons prosecuted in Scotland. As a member of the legal profession, the Minister will be aware of the considerable disquiet that the Bill has caused in the profession in this area.

The Minister is also one of the many law officers required to look at Scottish arrangements. I move on now to look at the question of Scottish law officers. One of the notable constitutional features of the Scotland Act 1998 was the substantial role given to law officers in Scotland-namely, the Lord Advocate and the Solicitor-General. As part of the Government in Scotland, they are Ministers and bound by collective responsibility. The Lord Advocate-this is the unusual feature-is also the head of the system of criminal prosecution and may in fact lead any prosecution in court, make decisions directly on any part of any prosecution and make the decision on what plea in any prosecution may be accepted. These are wide-ranging responsibilities for a Minister, as I think this Minister would accept, and are increasingly seen as powers that do not belong as part of the responsibility of Ministers.

Having been appointed myself in the past to the position of Solicitor-General in Scotland, I was immediately struck by the tension between the roles of

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politically appointed Minister and prosecutor. It appeared that there had been no assessment of why Scotland did not have the equivalent of a Director of Public Prosecutions appointed by an open and objective process. When the Minister was Justice Minister in Scotland, he described the role of the Lord Advocate as both prosecutor and Minister as anomalous, and he was right. He would remain right if he were still of that view today.

Over the past decade, law officers have increasingly eschewed involvement in political issues. First the Solicitor-General, then the Lord Advocate, and now both law officers, have been drawn from the Civil Service staff of the prosecution service, a de facto if not de jure Director of Public Prosecutions. Given the awareness of the anomaly in having prosecuting Ministers and the desire on their part to avoid political association and political responsibility, this Scotland Bill is surely an opportunity to remove the anomaly.

The issue also contains within it the risk of yet further human rights challenges to the conduct of prosecution in Scotland, which has been somewhat embattled of late. The Government might consider modernisation of the position. This is not merely a desirable adjustment. It raises profound issues as to the constitutional position of the Scottish prosecution system.

Another feature of the constitutional arrangements under the Scotland Act I wish to look at is the position of the Auditor-General, who examines the economy, efficiency and effectiveness of Scottish Ministers discharging their functions. In the light of the trend to give greater financial powers and responsibilities to Scottish Ministers, the Auditor-General is likely to have, and certainly should have, a role of greater importance in scrutinising ministerial expenditures. A clearer, more transparent view of the Auditor-General's responsibilities might be helpful. It is hardly good government where the auditor is powerless to act when he is aware of proposed unlawful or wasteful actions, involving expenditure of public money. We suggest that this is an area which calls for clarification of powers and we may look at this more closely in Committee.

I move on to taxation. Part of the statutory purpose of the Bill is to create greater financial responsibility and accountability in Scottish Governments. The Bill sets out a Scottish rate of income tax. One understands and welcomes the purpose, but we will wish to examine in Committee the scheme of taxation proposed. One notes, for example, the provision that envisages the Scottish rate of income tax being set each year by resolution of the Scottish Parliament. In a sense one is familiar with such a process in annual UK Finance Bills. But one is also familiar with the potential for disruption to business and to the economy more generally where substantial shifts in taxation occur.

Some questions arise. What consequences do the Government foresee from this transfer of fiscal power to the Scottish Parliament? What costs to business will result? What greater administrative burden will the transfer impose on business in Scotland? Is the tax base in Scotland sufficiently resilient to absorb the use of income tax for the budgetary purpose envisaged?

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What problems do the Government foresee in respect of the residence definitions, and the checking of days spent in Scotland by those who may work or reside in more than one part of the United Kingdom? We consider scrutiny of these issues in Committee to be necessary.

In conclusion, I repeat the welcome that we gave to the principles guiding the Bill. However, it should be clear that we consider that this Bill should not miss out the areas where the experience of more than 10 years of devolution shows a need for constitutional clarification, at least. We look forward to examining the Bill and its various amendments in Committee.

6.14 pm

Lord McCluskey:My Lords, I declare an interest, and not a patrimonial one. The First Minister of Scotland asked me and three distinguished lawyers to look into the relationship between the Supreme Court and the Scottish criminal courts. That of course followed the somewhat acrimonious debate which the noble and learned Lord, Lord Davidson, has just mentioned. The review group's report will be published in a few weeks, perhaps less, and I hope that the Government will take notice of what we recommend.

However, when addressing your Lordships, I speak entirely for myself and not on behalf of my review group. I had intended to speak for between 20 and 25 minutes with plenty of forensic flourishes, as your Lordships would expect from an aged lawyer, but over coffee the noble Lord, Lord Hughes of Woodside, persuaded me that four or five would go down very well. Despite being a lawyer-bearing in mind that I am an unpaid lawyer of course-I shall try to be as brief as I can, and I shall concentrate on the one issue on which I can claim a degree of expertise. However, Clause 17 is a matter that will need to be looked at very carefully when we come to Committee, as both previous speakers have intimated.

Judicial decisions on human rights issues that have aroused public debate over the years have included the right to slop out, mentioned by the noble and learned Lord; the right of prisoners to vote; and, going back some years, the duty of the British Government to pay compensation to IRA hooligans, and their relatives, who had sought to murder a large number of people in Gibraltar. These decisions follow a kind of pattern from the court in Strasbourg, but ever since the Human Rights Act came into force in 1999, these decisions have been taken in this country. It is our own domestic courts that apply the human rights law in our domestic circumstances and in particular in Scottish criminal trials. Some of the decisions in those cases mentioned have caused enormous problems for the Scottish prosecution system.

The jurisdiction of the Judicial Committee of the Privy Council, created in 1998, has now been passed to the Supreme Court, which has taken some of the more recent decisions. As has been said, the debate about the Supreme Court was couched in offensive and unparliamentary language, and I totally and utterly deplore that. However, I shall confine myself to the merits of this particular clause, Clause 17. As has also been said, we are not just legislating about a case or two, an insult or two, or a judge or two. We are

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legislating about a system that will probably endure for decades, so let us please concentrate on the principles and let us try to get it right this time.

The decision to create a right of appeal from the High Court in criminal cases, for the first time since 1701, was enacted in the Scotland Act 1998. The system that was set up was inserted into that Act as if it were a necessary by-product of devolution. In my view, that was clearly a mistake. The creation of a non-Scottish court with final say on the interpretation of the European Convention on Human Rights listed in the Human Rights Act 1998 for the Scottish criminal courts was necessary, but had nothing to do with devolution. I accept that there was a need, flowing from the new devolution system, to have a United Kingdom supreme court with a jurisdiction relating to the vires question: that is, the possibility that the Scottish legislature and Executive might exceed the limited and well-defined powers that were conferred and devolved to them under the Scotland Act.

We talked about this question of vires in 1978, when I had the privilege of helping to conduct the 1978 Bill through this House, and we reached certain views then about the need for the Judicial Committee of the Privy Council to look into these matters, which have nothing to do with human rights. As a consequence of devolution-I emphasise these words-there was no need to give the Supreme Court or its predecessor any right whatever to be involved in criminal cases except in relation to vires, and possibly in relation to defining the law.

Therefore, while I accept fully that legal disputes regarding vires must go to the Supreme Court and must be appealable to the Supreme Court-I have no quarrel with that because these are truly devolution issues-the decision to make the European Convention on Human Rights part of our domestic law was entirely separate from the matter of devolution and should not have been dealt with in the Scotland Act at all. It was an accident that it was, and probably came about because during the passage of the Bill it became plain that it was not going to come into force the same day as the Human Rights Act. A temporary expedient was invented and it went into the Bill without proper scrutiny of any kind.

The Human Rights Act 1998 imposed duties on all public authorities to act in accordance with the human rights in the convention. However, the public authorities included such people as the Attorney-General, the Director of Public Prosecutions, the police and the Lord Advocate, whether or not they were devolved persons. The Attorney-General was plainly not devolved, and nor was the DPP, but the duty was imposed on them, too. The acts of the Lord Advocate, in exercising what are properly called his retained functions-the functions, mentioned by the noble and learned Lord, of being in charge of prosecution and investigating deaths in Scotland-are, as they have always been, functions of a very special character. The Lord Advocate shares no responsibility with his fellow Ministers for his or her decisions in relation to these matters. There is no collective responsibility either way.

Therefore, it was constitutionally inept to do what was done by the Scotland Act 1998-to ask the courts to treat the acts of the Lord Advocate in exercising his

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retained functions as though they raised devolution issues. That was precisely what the Act did. I borrow from the expert report of Sir David Edward, which was mentioned by the noble and learned Lord the Advocate-General. I think the noble and learned Lord, Lord Boyd of Duncansby, was a member of that group. It got it absolutely right; it was constitutionally inept to do what was done. Sadly, however, I fear that what is now contained in Clause 17 is also constitutionally inept and seriously flawed. That is a matter on which I shall not detain your Lordships in any detail this evening. We can look at it in detail in Committee.

Let me just hit the main points. First, the new section still focuses on the acts of the Lord Advocate. There can be happenings, events and circumstances in the course of a typical trial that cause a breach of someone's human rights. However, they can be nothing to do with the acts of the Lord Advocate. They may be in spite of the acts of the Lord Advocate. The committee that I sit on could offer some examples of that. Not every incompatible act that happens in a criminal trial is an act of the Lord Advocate. It might be an act of the police, the Prison Service or the court itself. As far as I know, the Bill provides no route whereby breaches of human rights in criminal proceedings by persons other than the Lord Advocate can be brought to the attention of the criminal courts. That is a serious lapse.

I must also ask why it was necessary to give the Supreme Court extremely wide powers, as the proposed new section does in Clause 17. They are listed in new Section 98A(9). All that is necessary is for that court to define the convention law applicable, define the right, say whether there has been a violation and send the case back to the High Court of Justiciary to allow it to do what it has been doing since 1701 and apply the law to the facts and circumstances of the case in hand. In other words, that method of proceeding would enable the historical independence of the Scottish criminal justice system to be preserved.

There is also a question, which I shall not go into in any detail, about the procedure that is to follow this change. At the moment it is a rather complicated procedure. It is very messy, with lots of paper. It looks as though the new section will result in just a change of paper; otherwise it will be equally messy and equally likely to cause the delay that the noble and learned Lord mentioned.

I also touch on certification. No criminal case can go to the Supreme Court on a human rights issue in England, Wales and Northern Ireland unless the "local" apex court grants a certificate to say that a point of law of general public importance has been raised. Curiously enough, although the High Court of Justiciary has been the apex court for Scotland for centuries, the Scotland Act, in seeking to devolve power to Scotland, not only created a right of appeal for the first time in nearly 300 years but did not give the High Court of Justiciary the same right as is enjoyed in England, Wales and Northern Ireland. Why the court in Scotland should not be trusted to rule on this matter, I do not profess to understand.

In conclusion, the correct approach to this whole matter is to identify the true role of the Supreme Court in light of the Human Rights Act. The expert

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group, with whose conclusions-but not the consequences in the Bill-I agree, recommended that the legislation should,

It goes on to say that the new,

Therefore, my final point is that I agree with this approach, which Clause 17 fails to adopt. The words "as a whole" are key to the matter. Respect for the historical role of the high court in Scotland is an abiding principle that should be observed unless there is some powerful reason to depart from it. I hope that in the course of these debates we can persuade the noble and learned Lord the Advocate-General to persuade his colleagues that this approach should be adopted. I certainly hope to return to this matter in Committee.

6.26 pm

Lord Forsyth of Drumlean: My Lords, it is a pleasure to follow the noble and learned Lord. I very much agree with what he said about the intemperate nature of the attacks that were made on the judges by the First Minister of Scotland. All I can say is that when I was Secretary of State, I made the odd intemperate attack-on the noble and learned Lord, actually-but had I done what the First Minister did, I am sure I would have been sacked the next day. I hope that lessons have been learnt from that.

I hope I shall not damage the position of the noble and learned Lord, Lord Davidson, by saying that his speech was absolutely excellent and that I agreed with many of his points. I shall come to that. However, because of the ridiculous position in which we find ourselves, I shall concentrate, for reasons of time, on Part 3 of the Bill, which is concerned with taxation. My noble and learned friend has said that this will bring accountability to the Scottish Parliament.

I am sorry that the noble Lord, Lord Robertson of Port Ellen, is not here. I have great affection for the debates that we had about devolution. I was opposed to it; he was in favour. He told me that devolution would kill nationalism stone dead. I have to say that the Bill looks curiously out of time. The world has moved on. We all know what the genesis of the Calman commission was. Wendy Alexander quite sensibly suggested that we should cut the Gordian knot and have a referendum on independence once and for all-that we should take the nationalists at their word. Unfortunately, she was not supported by the Prime Minister, so the three unionist parties got together and set up Calman in the hope that it would halt the nationalist bandwagon. That has not quite worked out. We now have a nationalist Administration without, it seems, any check or balance on it. The architecture of the electoral system under the Scotland Act, which was to prevent any party gaining dominance, has failed. We now have a nationalist Administration determined to use all the resources of the Scottish Office to break up the United Kingdom and pretending that it is in favour of an immediate referendum.

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When my noble and learned friend says that the income tax powers will bring accountability, I very much doubt it. I give noble Lords a tale of woe as an example: the poll tax. We introduced the poll tax; it did not work out terribly well for us. The argument was that it would bring accountability to local government. The problem was that the proportion of the revenue that was raised, as with the rating system, was small. Therefore, to get a relatively small increase in resources there had to be a huge increase in the level of poll tax. That was the fundamental flaw. The idea of accountability is the same as the case that the Minister makes for income tax. I noticed that in his speech he said that a penny on income tax would raise £450 million.

Let us be clear about this: we are not talking here about the 3p variable rate on the basic rate of income tax. The Bill abolishes that, even though it was agreed by the Scottish people in a referendum, as I indicated earlier. We are talking about introducing, for the first time, a Scottish income tax that will apply at the basic, intermediate and top levels. The Minister said that £450 million was 1.7 per cent of the Scottish Budget. On my calculations, if we take £450 million as the product of that, a 5p increase in the Scottish income tax rate would give you an 8.5 per cent increase in the Budget, so to get 8.5 per cent more money you would have to increase the basic rate of income tax by a quarter.

The stoppages in most people's pay packets would go up by a quarter in order to increase the Budget by less than 10 per cent. That is disastrous in an environment that has changed, where there is a huge deficit and where the Scottish Parliament was given a year off by the Chancellor and it did not make the necessary deficit reductions. To bring this measure in now seems extraordinary because the income tax proposals suffer from the same gearing problems that applied to the poll tax, the rating system and now to the council tax.

Here, the Government and those who support these proposals have a problem. On the council tax, I think our policy is to freeze it. On the one hand we argue that the Scottish Parliament must have the right to put up taxes in order to have accountability, but in local government this does not apply. We have a new policy that where the council tax is to be increased by more than the rate of inflation, there has to be a referendum of the local people to approve it. I ask my noble and learned friend why that does not apply to the local income tax. Why is there not going to be a referendum first of all on the principle of having this? My noble and learned friend says that there is a consensus in Scotland and that everyone agrees with this. I wager that if you stop three people in the streets of Edinburgh and tell them that a Bill is going through Parliament that could put their income tax up by a quarter in order to increase expenditure by less than 10 per cent-or, in this case, maintain expenditure-

Lord Wallace of Tankerness: First, I point out to my noble friend that it was in the manifestos of three parties at the last UK general election and endorsed. It is not intended that these powers will be made available next year in the midst of a recession. My noble friend must remember that the power to put tax

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up is also the power to bring tax down. Therefore, the question he is putting to the three people in Edinburgh is wrong on so many points.

Lord Forsyth of Drumlean: My noble and learned friend has been here too long if he thinks that the electorate reads the manifestos of the political parties and bases its votes on that. As for the point that the power could be used to bring tax down, the Government are asking the Scottish Parliament to find deficit reduction expenditure of about £3 billion. On my calculations based on his figures, that would amount to a 7p increase in the rate of tax just on deficit reduction. While we are on the subject of Calman, my noble and learned friend says that it is not being implemented now, so that is all right because it will be not in his term of office but in 2016; someone else will have to explain the consequences of this policy.

My noble and learned friend says that the deficit will have been dealt with by then. He cannot have it both ways. He has told us that there is a great consensus for Calman. Calman says that we should move to a needs-based system of funding for the Scottish Budget. Furthermore, from the work of Professor Bell and others we know that that would result now in a reduction of £4.5 billion in the Scottish Budget, which is a lot to find in income tax. That is the Government's policy for the longer term, so we are going to have to have a higher rate of income tax in order to stay exactly where we are. I do not think that this has been thought through.

There are very few things that I agree on with the First Minister, Alex Salmond, but when he says that you cannot run an economy on a narrow tax base like income tax and that you need to have wider tax powers, he is correct. I am against having wider tax powers for the reasons that I will give shortly. I say to my noble and learned friend-and I will table some amendments in Committee-that he should consider whether it might not be right to have a referendum before these proposals on income tax can be implemented and, certainly in line with our policy on local government, to have a referendum if the Scottish Parliament chooses to set a rate of income tax that is higher than it is for the rest of the United Kingdom.

There is another aspect of taxation in this Bill that absolutely terrifies me; it gives the Scottish Parliament the power to invent new taxes altogether with no reference to anyone-not to the voters or to anything else. My noble and learned friend is shaking his head. Am I wrong about that? If they decide to introduce a local income tax, which is their declared policy, as I thought on these Benches-I am not sure what the coalition Government's position is on local income tax, but the Conservative Party has always been opposed to local income tax because we would have all the problems that we have just been hearing-we could be faced not only with having the highest rate of income tax in the United Kingdom but with having a local income tax on top of that. I see that my noble and learned friend is reading the Bill. I hope he realises that the Bill actually provides for the creation of new taxes. It specifies particular taxes in respect of land and landfill.

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On top of all that, we have powers of borrowing, which are described as positive-and here I did disagree with the noble and learned Lord, Lord Davidson. I think that the Scottish Government must be the only Government legislating on the planet that thinks that now, with a huge financial crisis and huge economic problems, is the moment to have higher taxes and higher borrowing. That is what this Bill provides for. When my noble and learned friend says that the powers might be used to cut taxes and cut borrowing, what planet is he living on? I do not know a single serious politician looking at the Scottish Budget, at the problems and at all these goodies that the nationalists have provided-such as free prescriptions, free healthcare and free transport, all of which are desirable but none of which are affordable-who could believe that the result of these powers would not be that Scotland would become the most highly taxed part of the United Kingdom. As the noble and learned Lord said, at the moment Scotland is suffering the worst rate of growth and the biggest threat to employment in the public sector because of the size of the public sector. It just seems plain daft to do this.

Having dealt with taxation, I turn to the issue of referenda. I see that the Bill has sections on elections, on presiding officers, on deputies, on the Supreme Court, on Members' interests and even on Antarctica. I am delighted to see that Antarctica is not going to be in the province of the Scottish Parliament, having spent my Christmas there. Every corner of the world is covered except vires on referenda, which is the central issue in politics today in Scotland.

Why have the Government not taken the opportunity to clarify the point made by the noble and learned Lord, Lord Davidson? It is perfectly clear to me, from reading the previous Scotland Bill, and as the noble and learned Lord pointed out, that the Scottish Parliament does not have the power to run a binding referendum on the issue of independence for Scotland. The Scottish Parliament now has a majority of Members who are committed to doing so. We know that there is going to be a referendum. How can it be in anyone's interests not to ensure that that referendum is held on a proper basis with a proper campaign and with proper notice? Why on earth are the Government dealing with every other issue, including the name of the Government, but not dealing with the central issue, in my view, and providing the machinery for a referendum on independence? Of course, I am a bit of an extremist on some of these subjects, so I would prefer the Bill to say that the referendum is to be in October next year, because I think that it is deeply damaging to have this uncertainty.

Lord Cormack: A fixed-term referendum.

Lord Forsyth of Drumlean: A fixed-term referendum, as my noble friend says. Of course, I have always been a person who has sought out consensus, and I see no objection to putting the machinery in place. Then the First Minister can decide whether or not to use it. In my opinion, he will be absolutely terrified to use that machinery because he knows that he will lose. Then we can get on to discussing the real business in Scotland, which is how we are going to deal with the reduction

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in the public sector, the creation of jobs and the protection of services. To be fair to my noble and learned friend, the May election was a surprise, so the Government may not have thought of this and there is still time for him to come forward with amendments that reflect the new political reality.

I have one other point about my reading of the Bill that may interest your Lordships. The Bill is ludicrous because of its income tax powers. It creates non-doms within the United Kingdom. I thought, "Am I a Scottish taxpayer or not?". There are conditions A, B and C, which are a hugely complicated set of proposals. The Bill states that if you have a property in Scotland and a property in London, which I have, you have to count up the number of days for which you stay in each property to decide whether you are a Scottish taxpayer. Then I read another bit that states that if you are a Member of the House of Commons, a Member of the Scottish Parliament or an MEP, whatever the number of days you are automatically up for the Scottish income tax. There is no mention of the House of Lords, so the good news is that Members of the House of Lords will be able to become non-doms if they spend more time in London than in Scotland. Who writes this stuff? Are we all to be counting our days? Wait for it. The Bill also states that the Scottish rate of income tax will not apply to you in respect of dividend or savings income, so the good news is that Scotland will be a great place to retire, because if you have only dividend and savings income you will not pay the tax. If you want to set up, grow or expand a business, go to England. What sort of message is that to send to people who are concerned about our economy in Scotland?

I understand the politics of the Bill, but why are we giving the Scottish Parliament the power to have a different speed limit from that in England, or a different level for drink-driving? What is life going to be like in the Borders? You cross a bridge and suddenly you are illegal. Are you allowed two drinks or one drink? I am no great Euro fanatic, but if anything, I would say that we should have a common European view on speed limits and drink-drive limits if for no other reason than that everyone would know what they are. The idea that we should change it in Scotland and have something different in England only adds to bureaucracy and confusion and is being done for political reasons. I do not know anyone in Scotland who says, "We really ought to be able to decide our own speed limits, and it is an absolute scandal that we have to be stuck with what is being decided by Westminster as to the number of drinks that we can have in the pub before we go off in a car".

In conclusion, I am not really very happy with the legislation. I am not happy that we have had no time to discuss it. I look forward to an extended and interesting Committee.

6.43 pm

Lord McConnell of Glenscorrodale: My Lords, I suppose that the starting phrase should be, "Follow that!". In any debate on the constitutional position of Scotland, my starting point is what is best for the people of Scotland and what is best for Scotland-not

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what is best for the coalition Government, the Labour Party or even the union, but what is best for Scotland and the people of Scotland-whether it is best to be inside or outside the United Kingdom or, indeed, the European Union.

For me, devolution for Scotland, and for Wales and Northern Ireland within the modern partnership of nations that is the United Kingdom, is indeed the best arrangement for Scotland and for the people of Scotland. That is why in my very first vote I cast a yes vote in the 1979 referendum that the noble and learned Lord, Lord McCluskey, mentioned earlier. That is why I campaigned through the 1980s and 1990s and was involved in the convention that the Minister mentioned in his introductory remarks, and why I stood for the Parliament and had the pleasure of serving with my noble and learned friend-I call him my friend even though he sits on that side of the House-as First Minister and Deputy First Minister in that Parliament.

Do I believe that the Scottish Parliament has done everything right in the 12 years since 1999? No, of course not; no Parliament does everything right. Do I believe that the Scottish Government or all First Ministers have done everything right? No, of course not. All Governments and First and Deputy First Ministers will make mistakes from time to time. But is Scotland a stronger and a better place? I would argue that, yes, it is. Did we survive and indeed build on the electronics manufacturing meltdown in the late 1990s to ensure that our economy's growth rate matched that of the UK by 2007? Yes we did. Did we reverse the brain drain that the Minister mentioned in his introductory remarks and increase Scotland's population after years of decline? Yes we did, through policies pursued in the Scottish Government and the Scottish Parliament. Did we lead the rest of the UK in the smoking ban? Yes we did. Did we reform Scotland's land laws and criminal justice service? Yes we did.

Devolution has made Scotland a stronger and better place, but after 12 years it is right to review the settlement agreed by referendum and by this Parliament back in the late 1990s. Was Calman the right way to do that? I think, on balance, yes. I am not a great fan of committees of the great and the good or of trying to seek consensus for the sake of consensus, but on the issue of the constitutional position of Scotland within the United Kingdom I think that the attempt to find consensus and the way in which that was done was broadly the right approach. Do I believe that the proposals have merit? Yes. Initially, I was not convinced by the report of the Calman commission, but over time I have become persuaded that most of the proposals have merit. Are they perfect? Of course not, but I do not believe that perfection should ever be the enemy of progress, as has been said by others more eminent than me.

Do I believe that the Bill deserves scrutiny? Yes, I do, but I also believe that it will ultimately deserve support. It contains proposals that are both radical and reasonable. I will come to the radical ones in a second. Although some of the initial proposals may irk the noble Lord, Lord Forsyth, I believe that, subject to the scrutiny that we need to give them, they

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will ultimately be supported by this House and Parliament. I am sure that they will lead to sensible decision-making in Scotland and therefore deserve a fair wind.

On finance and taxation powers, the original tax power was conceived at a different time and in a different economic climate. Like the electoral system, it was part of a settlement designed to secure the progress of devolution. The power to increase income tax by plus or minus 3p in the pound has never been used. That is partly because the parties who would have used it lacked the courage to do so. The nationalists lost an election in 1999 because they proposed to use it by increasing income tax and never made that proposal again. I would argue that one reason why the Scottish Conservatives have been in the doldrums since then has been that they have never been brave enough to propose to reduce income tax in the Scottish Parliament. That power has now become redundant because the political parties in Scotland have never felt that it was an appropriate use of the powers of the Parliament.

Lord Forsyth of Drumlean: One of the reasons it has not been used is because, when I was Secretary of State, the budget was about £14 billion. It is now about £30 billion. That was a period when there were vast amounts of money coming in. We are now in a period when the opposite is happening.

Lord McConnell of Glenscorrodale: I was just coming to the issue of the increase in the budget. In the mean time, the budget has increased from about £10 billion when I was the first Finance Minister to about £30 billion. A broad consensus has developed in Scotland over that time that there is not enough responsibility for spending in the Scottish Parliament and the Scottish Government and that there is a need to change taxation powers-the way that the Scottish Parliament receives finance and that the Scottish Government raises finance-to ensure greater accountability of decision-making.

I was not initially convinced by the proposal in the Calman commission but I have become convinced that it could indeed be workable and improve the governance of Scotland. As the noble Lord, Lord Forsyth, has just said, it is wrong to argue that the Scottish Parliament, perhaps alone among legislative parliaments in the world, is not fit to set taxes. As long as a parliament is held accountable for its decisions, it should be free to set some taxes. That opportunity in the Scottish Parliament would lead to more responsible decision-making than has perhaps been exhibited at some times over the last 12 years.

This power is also fundamentally different from the imposition of the poll tax back in the late 1980s. The difference is that income tax is income related whereas the biggest problem with the poll tax was not its gearing-although that was an issue-but the fact that it was correctly perceived to be unrelated to income and provoked a reaction and civil unrest across the country.

We should test the proposal here. The noble Lord, Lord Forsyth, made some important points about the need to test the detail. In my view, the principle is right. The Scottish Finance Minister having to set a

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budget every year and make a decision to raise taxes would enhance accountability and responsibility in the devolved settlement. However, since the Calman proposals have come forward-

Lord Reid of Cardowan: I agree with almost everything that the noble Lord, Lord Forsyth, said-which must be a first. On this point, I am inclined to agree with my noble friend the former First Minister. The reason that the 3p was originally introduced, in about 1980, into our plans for devolution was precisely in order to meet the requirement that a parliament-or an assembly, as it was then called-should not be able to spend endlessly without any obligation to raise its own tax, in answer to the electorate. The reality is that in all of the prior period since the formation of the Scottish Parliament, and precisely because there has been an increasing budget, there was no obligation in practice for it to do that. We may be in a different position now and the question is simply whether we should have a parliament that is allowed to spend tens of billions of pounds but has no obligation whatever to raise any of it or to answer to the electorate for raising that tax.

Lord McConnell of Glenscorrodale: I thank the noble Lord, Lord Reid, for that point. It reinforces the argument I am making.

The context in which the Bill is now in front of Parliament has changed since the Scottish election result in May. I would argue that a referendum on Scottish independence is now almost certainly going to happen-I suspect in around late 2014. The next three or four years will be very uncertain for those who want to invest in Scotland as well as for the people of Scotland more generally. At the moment, one side has the absolute power to shape the terms on which that referendum will take place. Unfortunately, it is also true that only one side is even in the park playing in this match.

The Scottish football team had another disaster at the weekend. We have learned in Scotland regularly to take an approach after these games of, "We were robbed". We are in grave danger here of having a referendum campaign in which, afterwards, potentially a majority of the Scottish population suddenly realise that something has happened and feel, "We were robbed". It will not be good enough for the mainstream political parties in the UK and other organisations to adopt that "We were robbed" approach afterwards. To use a wider analogy than Scottish football, we cannot give the pacemaker so much of a lead that we end up having too much to do on the last lap in the referendum campaign that will take place between now and, I suspect, 2014.

I believe absolutely that the best future for Scotland is as part of a partnership of nations that is the United Kingdom-not some 1950s Britishness that is part of our honourable and respected past but a modern, 21st century arrangement that is modern, multicultural, multinational and has a different vision for the United Kingdom and for Scotland itself. Some decisions are right to be made at the United Kingdom level and some are right to be made in Scotland. There is a fundamental choice between that vision and that of

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independence for Scotland. That is a once-in-a-lifetime choice and, perhaps even at this stage in the century, a once-in-a-century choice. It should not be taken lightly.

Scots deserve a full debate on this, in which both cases are positively put and clearly explained and the result is a clear resolution of the debate once and for all in our lifetimes. Those who support the alternative vision to that of the nationalists are in grave danger of sleep-walking into an irreversible decision. It is incumbent on political leaders, the business community and the civic Scotland that supported devolution 15 years ago to rise to this challenge by coming together to put forward a positive vision-not a fear of the alternative-of where Scotland can be in the 21st century. If we do that, we can make a decisive decision about that future that leads to a more prosperous and successful Scotland with devolution inside the United Kingdom and not the dramatic implication that would come from a decision to go independent.

6.56 pm

Lord Maclennan of Rogart: My Lords, as the first Member of your Lordships' House contributing to this debate who has not held a ministerial office peculiar to Scotland, perhaps I may be forgiven for beginning by raising a question on the impact of the Bill in the wider constitutional context of the United Kingdom. If the Bill is to be a success it has to face up to the needs of balancing equitable distribution of our resources with devolved autonomy. The Calman commission did not attempt to do that. I defer to the five members of the commission present in the House today but it dealt with Scotland. In the very changed political circumstances that we face today, we cannot simply confine our discussions to those issues.

The financial austerity that we currently face in this country puts pressures on our constitutional arrangements which could lead to a fissiparous consequence-one certainly never considered likely when Calman sat and even less likely when the Scotland Act 1998 was considered. It follows that we must consider not only whether Scotland is being fairly treated with respect to other constituent parts of the United Kingdom such as Wales or Northern Ireland but also focus on what the consequence of the specific measures in the Bill-I do not intend to go into them in detail today because we shall have a plenitude of opportunities in Committee and on Report-will be upon the sense of well-being of our citizens. That is something rather different from the sense that they are masters of their own destiny. Both are requirements.

The consideration of the matters in the Bill is also enlightened by reference to another commission which has not so far been referred to in the debate. I refer to the Holtham commission on Wales. There are differences of approach in the report of that commission which should be considered in the context of what we are doing for Scotland. One of the reports from the House of Lords Select Committee on the Barnett formula stated:

"On every funding decision the Treasury is judge in its own cause".

I have to ask whether anything in the Bill really alters that. We need to recognise that in this carving up of the resources of the country the Treasury voice is

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strong. In the intergovernmental arrangements I hope that the Scottish voice will be strengthened and also that the voices of other parts of the country will be heard in these deliberations as well as the voices of other devolved governments.

There are some matters to which the Bill, as I have read it, does not refer although I am not yet a master of it. For example, the Treasury controls the year-end flexibility of expenditure. Is that a satisfactory arrangement? The limitations of revenue-raising which will flow from the Bill will be substantially reduced upon the present situation. That is welcome. However, I am bound to say that in the current circumstances I have a strong inclination to agree with my noble friend Lord Forsyth about the likely way that this power will have to be used. It is hard to believe that in the austere circumstances in which we live-it is optimistic to believe that in five years' time we will have completely resolved our current economic problems and that circumstances will have changed-we can foresee cuts in public spending.

It is somewhat surprising that the opportunity has not been seized to go for a system which distributes the central government grants more fairly. The Holtham committee in Wales and our own House of Lords Select Committee on the Barnett formula both indicated that that could be done without enormous difficulty. Without addressing that-and of course it has been deliberately excluded from the discussions-we are not looking at the economic situation of our United Kingdom in the round and we will create growing discontent with which I think it will be hard to battle. I am not suggesting that the Bill should have in it a formula in place of the Barnett formula, but I am suggesting that serious consideration should be given to the many views that have been expressed in academic circles, such as those of Iain McLean and a number of other very careful voices, as to how this should be tackled. Postponement will not cure the growing sense of injustice.

The extension of fiscal autonomy, which the Calman report recommends, does not go even half as far as we see in a number of other federal countries. Australia, which is one of the more centralised federal systems, has up to 55 per cent of its spending raised by devolved governments, so we are not actually doing something which is profoundly revolutionary when viewed in a global context. Other federal countries have even higher proportions of locally raised expenditure. But if we are going to do that we have to accept the consequences of the lower tax base of certain parts of our country and we must come up with equitable solutions to these problems if we are not going to a see a deepening of disquiet and discontent in the poorer parts of our United Kingdom.

There are many other matters that are worthy of deep consideration, but I will confine myself to what I think is intended to be the central issue of the Bill. I refer to the economic balance and the change in the direction of responsibility. My noble friend Lord Forsyth had a number of very good points to make about the sense of responsibility and the limits that the Bill has imposed on the process. I hope that in the time which will now elapse before we get down to considering

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these things in detail we will look at these measures in the context of the circumstances in which we are considering them, which are very different from those circumstances on which the Calman commission reported.

7.06 pm

Lord Lang of Monkton: My Lords, I should perhaps begin by declaring an interest, or rather a lack of interest, in that I was invited, and declined, to serve as a member of the Calman commission. I have no regrets about that.

The first thing to be said about this Bill is that it is an admission of failure. It will solve nothing and it will endanger everything. Its arrival underlines vividly the shortcomings and the dangers that were always intrinsic in the other Scotland Bill of over a dozen years ago. Then we were presented with what the late Donald Dewar claimed to represent "the settled will" of the Scottish people. It was to herald a new age for Scotland. And now we have before us another Scotland Bill. Another Secretary of State hails it as the settled will of the Scottish people, and another new dawn beckons.

My Lords, I was present when we debated that Bill in this House, and my heart bled for Scotland, as I warned then that it was a Bill that I believed would break the back of Britain. I derive no satisfaction from seeing that prediction heading towards fruition. It is sometimes more painful to be proved right than to be proved wrong, but I believe that the new Bill represents one more fracture in that inexorable process. The "settled will" is looking distinctly unsettled.

Now, of course, the settled will has become an ongoing process, and an accelerating one. Does the Labour Party still believe that devolution will "kill separatism stone dead"? Surely not. Has it brought Scotland peace, plenty and contentment, even from the cornucopia of Mr Brown's borrowings and Lord Barnett's formula? Before the Act the Scottish National Party had almost no Westminster MPs and only a sprinkling of Scottish local councillors. Now, through the Scottish Parliament, it has overall control in Scotland.

One looks in vain for provisions in the Bill that might actually improve Scottish government, popguns and penguins notwithstanding. But the Bill will not work, firstly, because its powers will fall into the hands of the Scottish National Party, whose core objective is the opposite of this Government's. To pander to the nationalists has the same effect as paying Danegeld. Even as we debate this Bill, they seek to double their demands. The Bill offers them the chance to raise income tax, but they now want corporation tax as well, and capital gains tax, and excise duties, and fuel duty, and quarrying, and mining, and air travel, and, for good measure, the Crown Estate's Scottish revenues. We can be sure of one thing: they do not want to control all of these taxes in order to reduce them. My noble friend Lord Forsyth made that point in his very telling speech on the tax issues.

But yet another burden looms. Over the past decade, United Kingdom public spending, which determines the level of the Scottish block grant, has grown faster than Scottish income, which of course determines the revenue from income tax. UK public spending, of which Scotland has received its share and more, has

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grown by 94 per cent in 10 years, but Scottish income by only 48 per cent. Therefore, when the new Scottish income tax replaces part of the block grant, it seems that it will have to be raised above the United Kingdom rate for Scottish public spending just to stand still.

I accept, of course, that the Bill attempts to address the accountability issue-the worst shortcoming of the 1998 Act. Just as in the eurozone monetary union cannot work without fiscal union, so with devolution responsibility for spending is untenable without responsibility for taxation. However, here, too, the Bill will not work because, although it proposes to increase to 35 per cent the proportion of expenditure raised by the Scottish Parliament, the remaining 65 per cent will still come from the Treasury's block grant, so the Scottish Parliament will still be able to blame Westminster for starving it of funds and freedom. It raises another problem, touched on by my noble friend, which is that of gearing. Anyone familiar with local government knows that, where the bulk of its budget comes from central government and that amount does not increase, the whole burden of any spending increase must fall on the local tax base-so with Scottish income tax. With the 35:65 split between Scottish tax and block grant, if the Parliament wanted to increase spending by, say, 5 per cent, Scottish income tax would need to increase for that reason alone by 15 per cent.

The Bill will not work above all because Scotland's weakened economic base cannot support the spendthrift policies of its Government. When the Barnett bonus of some £4.5 billion starts to disappear in the shake-out of the new tax arrangements, the burden will get heavier and it will fall on a small tax base. We have fewer than 2.4 million individual taxpayers in Scotland-less than half the population. A large proportion of them are either employed by or dependent upon the public sector, where substantial cut-backs are inevitable in response to the deficit and debt crisis. Therefore, an even bigger burden will fall on the beleaguered private sector, yet that is where the only hope for future economic growth is to be found; that is where the spirit of enterprise lies. Enterprise is not a gift of government; it resides in people, not parliaments, and the more Parliament taxes it, the less it can succeed. That spirit has had little chance to prosper over the past 12 years while Scotland has languished under the cloud of what one might now call "Saltire socialism". In 2009, Scotland, with 170,000 more public sector jobs in just 10 years, was deemed in one survey to be the most state-dependent country in the world after Cuba and Iraq. Presumably they could not get hold of the figures for North Korea.

If income tax is levied in Scotland at a higher rate than in the rest of the UK, as it would have to be, targeting our brightest and most successful entrepreneurs, I foresee, as surely everybody can, a flight of capital, a flight of jobs and a flight of people, and it would be the brightest and the best who would go first. Already the uncertainty alone about Scotland's future is a major cause of concern to the business community.

So I say again: this Bill will solve nothing and endanger everything. It builds on failure. It offers help and encouragement to those who would destroy the United Kingdom. It will create fiscal confusion and

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grievance. In seeking to rectify the worst shortcoming of the Scotland Act-its lack of accountability-it will go far enough to alienate Scottish taxpayers but not far enough to enforce accountability, and it will bring with it an accumulation of painful and unforeseen financial consequences. The Germans have a word for it: Schlimmbesserung-an improvement that makes things worse.

I sympathise with my right honourable and noble friends in their dilemma. They inherited an Act that set Scotland on an ineluctable downward path towards separation. They cannot reverse it, but how can they try to slow it down and hope that it may come to rest short of complete break-up? If they do too little, the lack of accountability continues; too much, and the downward slide continues.

To conclude, I suggest that what is urgently needed is an injection of realism into this debate. What Scotland needs now is a dose of "tough love". The Government -by which I mean the UK Government-should withdraw this Bill and place it on hold in the light of the change of government in Scotland and the determination of the governing party there to use it to advance its separatist ends. They-the UK Government -should hold the independence referendum with which the First Minister of Scotland is toying, and they should hold it soon to remove uncertainty. Before that, they should spell out in complete and unqualified detail precisely what independence would really mean for the people of Scotland.

I do not believe that deep down most of my fellow Scots want to break away, but they quite enjoy having a nationalist Government to fight their corner within the United Kingdom. However, the danger is that step by step we pass the tipping point and, before we realise it, the union is lost. So let us have it all out now: no more pandering, no more fudging. I say to my noble and learned friend: lay it on the line now and let us clear the air.

7.16 pm

Lord Sewel: My Lords, here we are again. It seems like only yesterday that we were discussing the Scotland Bill. Over the intervening years, the cast of characters has changed in this Chamber, and I think we can say that it has been enriched, particularly by the noble and learned Lord the Minister, the noble Lord, Lord Forsyth, and my noble friend Lord McConnell. The one sad bit is that I think we all miss the contributions, which we learnt to love and appreciate, made by the late Lord Mackay of Ardbrecknish. His is a voice that will not be heard this time around, unfortunately.

I wish the Minister the best of good fortune in guiding the Bill through your Lordships' House. I make it clear that I broadly support the Bill, although I hope that we do not spend quite as much time in Committee this time as we did in 1998. I thought that I understood the 1999 Act pretty well inside out but it had passed me by that we had devolved Antarctica. Whether it meant that we could send the noble Lord, Lord Forsyth, on internal exile to Antarctica, I do not know, but at least it is some relief that we have re-reserved it.

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There is one thing that I do not understand in the Government's approach to this legislation. This is undoubtedly a constitutional Bill, as the Minister made clear from the very beginning, so the question arises as to why the Government have sought legislative consent Motions from the Scottish Parliament. The position does not seem to be totally clear because the Secretary of State for Scotland was quoted the other week as saying that the Government would push on with these proposals, even if the Scottish Parliament came out against them. Why have a legislative consent Motion if you are going to do that? Are the Government going to use the "not normally" qualification in the Sewel convention? It would have been a lot better if the Government had said that this is a constitutional Bill and, because of that, it is a reserved matter, although of course the opportunity is there for the Scottish Parliament to express its views and to be involved in the consultation. However, I think that the approach taken by the Government so far is a bit messy.

As many noble Lords have discussed, the Bill has to be set in the wider political context of the debate about the relationship between Scotland and the rest of the United Kingdom, and indeed about the future of the union itself. I do not take the somewhat depressing view put forward by the noble Lord, Lord Lang. There is almost an element of political unreality in discussing this matter in your Lordships' House, where all the parties represented support the union-with one personal exception. The party that presently forms the Government of Scotland is committed, hook, line and sinker to the destruction of the union and we have to recognise that in the way that we approach and understand the terms in this Bill.

In 1998-I am sorry to keep on harping on about this-I said on one occasion that I was a devolutionist because I was a unionist. That is still my position. I think that the union is of fundamental importance to us all. The union celebrates diversity rather than imposing a stifling uniformity. Having lived in England, Scotland and Wales, I find that it is that sort of union and diversity, that mixture, that creates something rather special about the United Kingdom. It ought to be nurtured, celebrated and preserved.

Why are we dealing with a Scotland Bill a dozen years or so after the original one? Clearly it is sensible to take stock, to see how things have worked out, and to make some common-sense adjustments. I think that that is absolutely right now that the settlement has had time to work and some shortcomings-the very few shortcomings in the original Act-have been identified. Part of the pressure for additional powers has come from those who have argued that devolution is a process rather than an event. Within the United Kingdom as a whole, I hope that it is a process, but whether they want real regional government in England is up to the English to take forward at some stage. In Scotland those who have argued for the process rather than event case have done a disservice to devolution. Where is the process likely to lead? Is it not almost perverse to set in train a line of thinking that makes a major concession to your principal opponents, who want to destroy the union in the first place?

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A major disappointment about political debate in Scotland since devolution has been that very few voices have argued the alternative case, that devolution gives Scotland the best of both worlds: the ability to devise Scottish solutions to Scottish problems set against Scottish priorities, while at the same time ensuring that Scotland enjoys the social and economic security of being part of a larger state, together with the greater political influence that that brings. Nowhere is that more the case than in Scotland's relationship with the European Union, where, because qualified majority voting is the normal system of EU decision-making, it is infinitely preferable to be part of a large member state with a lot of votes than of a small member state with few votes.

There are a couple of areas in the Bill where the Government ought to have seized the opportunity to clarify things. This is particularly the case with vires, which has been mentioned already. In Schedule 5, nuclear energy, for example, is reserved, apart from two exceptions.

Lord Garel-Jones: The noble Lord mentioned qualified majority voting as being the norm, but I am sure that he would agree that an application by an independent Scotland for membership of the European Union, which it would have to make, would need unanimity.

Lord Sewel: Treaties do-a treaty change would require unanimity. In terms of the normal day-to-day policy-making of the EU, it is now virtually all qualified majority voting.

Can I get back to nuclear energy? Nuclear energy is essentially reserved, but the Scottish Parliament-the Scottish Government-is opposed to it, wanting to use, I suspect, their planning powers to prevent it. The issue is whether the use of the planning powers would pass the purpose test on vires which is in the Act. If there is doubt about that, surely this is the opportunity to make it absolutely clear where responsibility for nuclear energy lies. That is a big issue that we are going to have face up to in this country in the very near future.

The second area-the obvious one-is to do with the calling of a referendum on independence. As the Minister knows, that specific issue was a matter for debate both in the other place and here during the passage of the 1998 Bill. Perhaps I may read two quotations. One follows a question that was asked by the then Mr Michael Ancram of Donald Dewar particularly on this point. The Secretary of State replied:

"It is clear that constitutional change-the political bones of the parliamentary system and any alteration to that system-is a reserved matter. That would obviously include any change or any preparations for change. ... If one assumes that that is a way of changing the constitution, no, it is not in the power of the Scottish Parliament to change the constitutional arrangements ... A referendum that purported to pave the way for something that was ultra vires is itself ultra vires".-[Official Report, Commons, 12/05/98; col. 257.]

Those were the words of Donald Dewar. In this House, the Minister in charge of the Bill was also questioned on this issue. There was a specific amendment put down. In arguing that any act about the continuation

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of the union would be beyond the competence of the Scottish Parliament and therefore not lawful, the Minister said:

"Perhaps I may go through the three steps that lead to that conclusion. First, the parliament cannot legislate if the provision relates to a reserved matter. That is Clause 28(2)(c). Secondly, the Union of the Kingdoms of Scotland and England is a reserved matter by virtue of paragraph 1(b) of Part I of Schedule 5. Finally, legislation for a referendum on independence would be legislation about whether the Union should be maintained and would therefore relate to the reserved matter of the Union, and so be beyond the competence of the parliament. That is brought in by the purpose test [on vires]".-[Official Report, 21/07/98; col. 854-55.]

Do the Government still hold to that position or not? If they do not, they must in all fairness, honesty and transparency amend the Bill so that it deals with and faces up to the issue.

On the increase of non-financial powers, which are of mind-blowing importance, I welcome them. There is no fundamental change in them, which is perhaps because the original Act was quite good. The noble Lord, Lord Forsyth, has previously spotted the question of the poor guy who lives in England, drinks in England, but drives through Scotland to get there. At the beginning and the end of the journey, he is perfectly lawful, but for the five miles or so that he drives through Scotland, he is committing a crime. I am sure that this is not beyond the powers of the Government to sort out.

The real substance of this Bill is the financial powers. That is the real guts of the whole thing. I welcome the intent of those clauses. I believe that the one major mistake we made in 1998 was failing to ensure that the Parliament was financially accountable to the people of Scotland. That omission has meant that the crucial political decision of striking a balance between expenditure and taxation has been missing, and that has led to at least a rhetoric of irresponsibility. By giving this power, that is closed off, and I thoroughly support it.

However, I do not believe in fiscal autonomy, not least because devolution provides a structure through which the resources of the whole of the United Kingdom can be redistributed so that more wealthy and prosperous nations and regions of the UK can assist the less wealthy. That, at heart, is the social democratic argument for devolution.

As for the powers of the Scottish Parliament to create new taxes but only with the approval of the Parliament of the United Kingdom-a point which the noble Lord, Lord Forsyth, may have skipped over when reading the Bill-the issue is how that is going to be done. Will it be done by primary legislation? Will that approval be given by primary legislation, by resolution or by order? That has to be specified in the legislation.

Lord Forsyth of Drumlean: I hesitate to interrupt-I have said too much already tonight-but, just on that point, if we cannot bring ourselves to deal with the vires, does the noble Lord seriously think that we are going to bring ourselves to contradict them if they introduce a new tax?

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Lord Sewel: I think that it would depend on what the tax was. If it was a tax on left-handed people, I would happily vote against it. When it comes to taxation, nothing is ever simple-as the noble Lord, Lord Forsyth, knows. It is important to catch the right people and avoid creating the potential for someone finishing up being a territorial taxpayer in two jurisdictions. I am not quite sure that the Bill has that bit right. I remember long and interesting discussions on lorry drivers sleeping in their cabs at night north or south of Gretna and the great importance that that would have on whether they were a taxpayer. How anybody knew whether they were going to sleep north or south of Gretna, I never dared try to find out.

Lord Lyell: I have all that debate-it is in vol. 593 -here with me. After I have been able to speak in this debate-perhaps in the morning-the noble Lord might be able to read that in Hansard. However, he is absolutely right. I shall never forget all the efforts that he made-it is all here. Alas, I was before him getting vol. 593.

Lord Sewel: I thank the noble Lord very much for that intervention.

Perhaps I may focus on one last thing. The really big difference is now that Scottish public expenditure will be financed by a combination of tax raised in Scotland and grant given to Scotland by the United Kingdom Parliament. Everything about Scottish income tax is defined and specified in the Bill, but the Bill is silent on grant, and that is still going to be the largest source of income for the Scottish Parliament. I think that that is a lopsided arrangement that really is unsustainable. We have got to the stage now where the grant element ought to be defined in legislation as well as the tax element.

I have spoken much too long. I think that this is a good Bill. It builds on the original Bill without fundamentally disturbing it, and I welcome it wholeheartedly. However, I think that we are going to spend quite a bit of time in Committee.

7.34 pm

Lord Steel of Aikwood: My Lords, the late Donald Dewar once observed that devolution is not an event but a process. I very much agree with that, and I believe that we should look at this Bill as the second.

Lord Sewel: This phrase that it is a process rather than an event is attributed to Donald Dewar. I spent some time trying to trace the source of that comment, but I could not find any occasion when Donald Dewar said it. It was said ad nauseam by the then Secretary of State for Wales, for very good reasons, if you looked at what Welsh devolution was.

Lord Steel of Aikwood: That has lengthened my speech already, before I finished my first half-sentence. Anyway, it was attributed to him, but the point is that it is true, and I regard this Bill as the second stage of the process of devolution, the 1998 Act being the first stage. It may not be the last stage; there may be a third or even, possibly, a fourth stage to come. I do not

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think we should be frightened of that. The truth is that we are wrestling all the time with the basic problem that we cannot have a proper federal constitution in this country because one component part is larger than the other three put together. That has been the difficulty with which Governments have had to wrestle, so we end up with what I have always called lopsided federalism.

When he opened, the Minister used a quotation from my Donald Dewar lecture in 2003 when I said that no self-respecting Parliament could exist permanently on the basis of a grant from another Parliament. I believe that is true, and although the speech of the noble Lord, Lord Forsyth, was very entertaining, he did not address that problem. This Bill at least attempts to do so. After I said that, people in my own party came to me and said, "You've made this pronouncement. We agree with it. Will you now chair a commission to work out what we do about it?". I was very reluctant to do that because I tried to follow the precedent of Speakers of the House of the Commons and not engage in party-political activity. However, I regarded it as a constitutional issue, and so I said I would chair the commission, provided that there were people other than the usual party enthusiasts appointed to it. I was greatly assisted by my noble friend Lord Vallance, who had then just retired as chairman of British Telecom and is a former director of the Royal Bank of Scotland, and my right honourable friend Chris Huhne, with all his economic expertise.

We came up with what became known as the Steel commission report, which was subsequently the substance of our evidence to the Calman commission. The one difference between the two-this has been commented on by many in the Liberal Democrat ranks-is that our commission recommended a far wider sweep of tax-raising powers than is in this Bill or was recommended by the Calman commission. The noble Lord, Lord Forsyth, put his finger on it when he talked about the possibility of having a wider net of tax-raising powers rather than focusing simply on income tax. The fact is that the Calman commission was the product of a consensus agreement between the three parties taking part in it, and the Bill is the result of a consensus agreement. I have always believed that when it comes to constitutional reform, you cannot expect any one party to dictate how exactly it should proceed. If constitutional reform is going to succeed properly, it has to be on the basis of a broad range of consensus. I therefore find myself in support of the principles of the Bill in its tax-raising powers, although clearly in Committee we can have much more discussion along the lines that we have heard already.

I was very interested in the speech by the noble and learned Lord, Lord Davidson, and the noble and learned Lord, Lord McCluskey, about the fallout from the remarks by not just the First Minister but also by the Minister of Justice in Scotland about the Supreme Court decision on a human rights case. It seemed to me that they were quite paranoid about the court being in London and would be quite happy for cases to go to Strasbourg, which is a most bizarre position for them to adopt. I was incensed by the language used and the insult to prominent members of the Scottish judiciary who serve on the Supreme Court. I thought

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it was quite intolerable, and that is why I resigned as an adviser to the First Minister on the ministerial code of conduct. As I said to him in a letter at the time, I did so because if now that they had a majority that was how they were going to behave, there would be more and more complaints against Ministers, and I did not want to spend my time refereeing them. I do not regret that decision. However, the issue that they raised in the debate today was echoed by another Donald Dewar lecturer-namely, Elish Angiolini, the immediate past Lord Advocate-whose lecture I went and listened to. She devoted the latter part of her speech to this issue and clearly was not satisfied that we have yet solved the question of how we treat our engagement with the Humans Rights Act with the new Supreme Court. We should return in Committee to the points made by the noble and learned Lord, Lord Davidson, and the noble Lord, Lord McCluskey, and treat them very seriously. I welcome what they said.

One minor point which I am pleased to see in the Bill, in Clause 4, is about the Presiding Officers in the Scottish Parliament. It is a direct result of the evidence which I gave to the Calman commission. We had the embarrassing situation in 2002 where, despite juggling hospital appointments with the Easter Recess, I had to take two weeks off from the Scottish Parliament for treatment for prostate cancer. My two deputies had a simply terrible time trying to cope with not just chairing the Parliament, because that is only part of the function, but chairing the committees, the Parliamentary Bureau and the corporate body. They had also to entertain the legions of visitors that we had, because the Foreign Office took it into its head to tell every visiting dignitary coming to this country, "You must go to Scotland and see this thing which has come to pass". We had constantly to give lunches and dinners to visiting people. My two colleagues told me that they were run absolutely ragged during that fortnight. It was intolerable that the Parliament had no power to appoint a third deputy even for a temporary period. I am delighted that that minor flaw has been put right in the Bill before us.

I share the surprise of others who have spoken that the Bill is silent on the question of holding a referendum. Again to be fair to the Government, I point out that the election of the SNP Government in May came subsequently to the Calman commission's deliberations and the drafting of the Bill. We should be quite open about that. The Bill has come to us; we shall have to deal with it in Committee; and we should look at that question. There is a real danger that Scotland will find itself sleepwalking into independence unless we tackle the matter. As others have said-the noble Lord, Lord Sewel, was right-this is quite plainly and clearly a reserved matter for the Westminster Government. It is not a question of the SNP Government saying, "Well, we're elected, therefore we can have a non-binding referendum which we devise-and we organise, by the way, not the Electoral Commission". That would be intolerable. We should make it quite clear in this Bill that, granted that the SNP has its majority and a mandate to hold a referendum, ensuring that it is done in a proper way is a matter for this Parliament. The Bill has to come to us late, but we have the responsibility to send it back to the Commons for further deliberation.

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My right honourable friend the Secretary of State has asked some very pertinent questions of the SNP about what it means by independence, and I hope that we will in due course get answers to them. My heart sinks at the thought that we will have three years of debate and uncertainty about independence or not, with a permanent collective whinge from the Scottish Government that everything that goes well in Scotland is due to their magnificent government and everything that goes wrong is due entirely to Westminster. It is not a situation that we should allow to fester for three years.

The basic question which the SNP has to address is whether people in this country really want a situation where Scots people living and working in London are living and working in a foreign country, and English people living and working in Scotland are living and working in a foreign country. That is what independence means and we should not hesitate to say so.

I also believe that there is a common misunderstanding about the history of how the union came about. It is frequently said, "Oh, well, it was all bribery and corruption that the Scottish Parliament was abolished and people were against the union". They were not against the union. In 1704, three years before the treaty was signed, Fletcher of Saltoun said that he was in favour of the union,

The fact was that there was a perfectly good defence and foreign policy case for the union, just as there was an economic case following the collapse of the Darien scheme and the ridiculous notion that we in Scotland should compete with England in colonial adventures following that disaster.

When there were discussions between the two Parliaments in 1706, although the word "federal" may not have been used-it perhaps did not exist in those days-the discussion was of federal type constitution. When it became clear that the English representatives would not accept that, and that it had to be an incorporating union or nothing, that was the point at which there were riots in the streets of Glasgow and Edinburgh. The truth is that the abolition of the Scottish Parliament was never accepted by the Scottish people. We saw that-although there were other factors as well-in 1715, 1745, through the 19th century, through the early part of the 20th century, the campaigns in the Labour Party, the Liberal Home Rule Bills and the covenant campaign of 1950 which attracted millions of signatures. The abolition of the Scottish Parliament was never accepted. The 1998 Act put right something that was done wrong in 1707. But that is a quite different argument from talking about going back to pre-1707 years and having a completely independent state north of the border.

This Bill is simply a fine-tuning of the 1998 provisions. So long as we treat it like that, it should deserve our support and go through to success.

7.47 pm

Lord Morgan: My Lords, I rise with a good deal of apprehension as the first non-Scot to speak and one of three non-Scots altogether on the speakers list, but, as several noble Lords have said, the Bill raises some very

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important general issues. I also venture to take comfort from the fact that I once wrote a book on Keir Hardie, who I am absolutely certain would have been in favour of this Bill-so, I may say, would Ramsay MacDonald, but he is perhaps not so cherished a figure on these Benches.

We have had many constitutional Bills from the Government that have been piecemeal, open to objection and coloured in many cases by partisanship. This Bill is different and much better for it. It is better for two reasons: first, it seems organically connected with previous constitutional legislation, particularly the fact of Scottish devolution; and, secondly, unlike the previous measures, it follows careful, evidence-based examination resulting from the Labour Government's setting-up of the Calman commission and the consensual atmosphere in which its report was considered. The Bill, as we know, was carried unopposed through the House of Commons.

The Calman commission established an unanswerable and Unquestionable case for accountability: that an elected assembly should have not only political accountability but fiscal accountability. Many centuries ago, not quite as far back as the Act of Union, the American revolutionaries called for no taxation without representation. The corollary-it applies to Scotland as well as to Wales, which I shall mention later-is that there should be no representation without taxation. The reverse is also true: a proper democratic assembly should have its own resources and be accountable for them, not just for the money that it spends but for the money it raises. It should not be dependent, as the Minister said quite rightly, on handouts from others in the form of the block grant. Without that, the Scottish Government, or any government, are lacking in legitimacy and credibility.

I welcome the main thrust of the Bill-the Scottish Parliament will have the power to generate about a third of its revenues and the block grant will be adjusted accordingly. As noble Lords have pointed out, this will be done almost entirely through a Scottish income tax, within limits. The other taxes mentioned are really minor ones; income tax is the nub of the case. It will of course produce problems. Some have been mentioned-I think excessively so-about the yield that income tax would produce and the calculations. Cannot a democratic government be allowed to form their own judgment on these matters rather than people sitting in Westminster telling them how they are bound to get things wrong? As a Welsh-speaking Welshman I find that attitude really deplorable.

However, there is another point: income tax will be defined here in Westminster-the same tax rates and tax bands will apply. The Scottish Parliament will therefore have to accept the definitions and concept of income tax as sent down by a controlling Westminster Parliament, which leaves the possibility of conflict. This contrasts very much with the Holtham commission for Wales which, as the noble Lord, Lord Maclennan, rightly mentioned, went further and suggested that the Welsh Assembly should be empowered not just in having a Welsh income tax but in setting its own rates and deciding its own idea of progressivity. This is something that perhaps might be considered a

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shortcoming here. The Holtham commission also suggested other taxes, including corporation tax, but Calman decided, probably correctly, that that was too complicated.

In general, I support the principle of the Bill. It is a good, democratic principle. It enhances the practice and the spirit of devolution and gives the Scottish Government powers and tools to do the job. It has greater borrowing powers than previously proposed. I also support the greater legislative powers being given to the Scottish Parliament but I notice on the question of air guns that it is little guns that it will have power on and not big guns. The big guns perhaps symbolically will remain in the control of Westminster. It makes devolution more credible and more coherent and does so by also ensuring that the union will be preserved. I was very glad that the Labour Party supported the Bill in the Commons and, subject to serious amendment, I understand from my Front Bench that we are going to support it here. It is a good thing. Among other things it takes the Labour Party back to its early democratic principles-the principles of Keir Hardie and George Lansbury and the ILP and the founding fathers of the party. In my opinion that is where the Labour Party, as a socialist party, ought to be.

There are two other questions-one about Wales and one about England. What indeed about Wales? I am aware that my noble friend Lord Wigley is going to speak later so he will perhaps or perhaps not echo what I say. The lesser treatment consistently handed out to Wales stands out very vividly from the devolution process. It was highlighted by the referendum only a few months ago when only then did Wales get an approximation of full legislation authority. There should certainly be a Calman commission for Wales and, if I understood the Minister correctly in his announcement last July, I gather that is broadly what we are going to have. I was very pleased to hear the Government announce that they would produce an inquiry. This inquiry will find that much of the work has been done for it by the Holtham commission. It was an excellent commission. It shredded the Barnett formula as unfit for purpose. It spelt out a clear way in which Welsh funding could be indentified in the overall funding process. It spelt out a way in which Welsh needs could be defined. It asked, as I mentioned, for Wales to have control of its own tax bands, rates and exemptions and to determine its own policy in taxation. All these might or might not be accepted, but as they say, a lot of the heavy lifting has been done by Holtham and should ease the commission the Government have in mind. Otherwise, Welsh devolution has always been a hesitant process. Wales has lagged behind. It lagged behind Scotland 80 years in getting a Secretary of State. It lagged behind in devolution. It is now advancing. The Welsh Government can do their work only with proper fiscal tools including the power to introduce new taxation and the borrowing power to finance capital expenditure. I hope we are going to have a Holtham-style agenda for Wales. I would be grateful if the Minister could tell us what progress is being made in setting up the inquiry he announced.

Finally, what about England? England, as the noble Lord, Lord Steel, said, is the largest partner. Calman sought a solution within the United Kingdom. It

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wanted to preserve our increasingly confederal union state and very much so do I. Problems are likely to arise between Scotland and England-about tax rates, about the extent to which the Scottish Assembly can borrow as it wishes and, perhaps, about something which was alluded to earlier: the definition of Scotland's share of the block grant and how that will be arrived at. All these are presently determined by decision-making in London. Whether one likes it or not there is a Government of a very different stripe in Edinburgh that may well take a different view. England will be even more displeased by the Barnett formula. It is manifestly unfair to Wales. It gives the English regions too little, particularly at a time of extreme economic difficulty, and it gives Scotland too much. Whenever the issue of the Barnett formula is raised by anyone in Edinburgh, to quote the title of a famous song, there is "The Sound of Silence" and the sound of silence echoes through the realm. Holtham has dismantled the ideas behind the Barnett formula and it seems to me wrong-I hope that we can look at this in terms of an amendment-that the finances of a self-governing Scotland should be examined while the really inequitable Barnett formula is left undisturbed.

As we have heard from other noble Lords, the authorship of this cryptic phrase has been disputed-devolution is indeed a process. It is an ongoing process; it does not obviously have an end any more than any other political process has one. There is no period when, like Fukuyama, you say that history has stopped. It has not stopped over devolution. There are many sources of possible conflict that will arise as the process of Scottish devolution unfolds. Some have already emerged; for example, over university fees and the very wrong attitude taken in Scotland there. I hope we will help along the process of devolution by allowing a clear analysis and definition of what tax powers are to be devolved and what are not. There should be a much clearer division of resources than perhaps this Bill presently allows for. Otherwise, while the Bill is full of admirable intentions, it may lead, I fear, to perhaps a more disunited kingdom.

7.59 pm

Lord Selkirk of Douglas: My Lords, it gives me great pleasure to follow the noble Lord, Lord Morgan, who is a very distinguished historian. He is right to remind us of the powerful call, "No representation without taxation", and as a historian he will remember that the American colonists particularly had the request of "no taxation without representation". Both requests are very powerful.

It is customary for Peers to mention past interests before speaking, and in my case I have two. While several of us have served in three parliamentary Chambers, only four members of the coalition in this Chamber have been elected to the Scottish Parliament. Three of them, including the Minister taking this Bill, the noble and learned Lord, Lord Wallace of Tankerness, are Liberal Democrats, but for some reason, which I am sure must have involved a great deal of good fortune, I happen to be the only Conservative in this Chamber to have served for eight years in the Scottish Parliament. The other past interest is that I served on the Calman commission, with other members of this House, including

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the Minister and the noble Earl, Lord Lindsay, from the Conservative Benches. Along with Labour Members and many others, after more than a year of hard work, we produced a report which was unanimous, and the legislation we are considering is based on those conclusions.

In the 1998 devolution referendum, some 74 per cent of voters in Scotland were in favour of establishing a Scottish Parliament, and the Conservative Party, rightly in my view, decided that it would be wrong to act as disgruntled bystanders on the sidelines and instead that it should participate fully in the democratic process, with a view to making the new institution work successfully in the best interests of Scotland and the union. The noble Lord, Lord Sewel, rightly in my view, said that it was right after a number of years to review the devolution Act and to suggest adjustments. The noble Lord, Lord Steel, said that he regarded this as a second stage. If I may say so, in 10 years' time there may well be another review and another stage, and that would not be unnatural, given the fact that we are discussing the terms of a voluntary partnership.

When the Calman commission reviewed the devolution legislation and received evidence, the responses were overwhelmingly to the effect that the Scottish Parliament had been a success and indeed a majority of those giving evidence believed that it should have more powers. This brings me to the principles that underlie this entire subject, these being accountability and equity. The Secretary of State for Scotland said:

"The Bill is not about transferring power for power's sake; it is about creating accountability".-[Official Report, Commons, 21/6/11; col. 282.]

I have to make my own position very clear on this principle of accountability. I am strongly in favour of it. If the Scottish Parliament is given additional tax-raising and borrowing powers, it is a fallacy to believe that these would necessarily be used irresponsibly, for a very simple reason. All Governments wish to be re-elected, and no Scottish Administration will be returned to power if they force up taxation to an intolerable extent or cut essential services far more than is acceptable to the electorate. Finding the most appropriate level between levying taxation and funding public services will always be a matter of balance and judgment. The devolved Parliament should be allowed to reach such conclusions and put them before the electorate.

The Scotland Bill does not make any specific changes to the method by which grant is allocated by Westminster to the devolved Governments, but I would like to refer to the calls by the noble Lord, Lord Barnett, for his long-standing population-based formula to be replaced by one based on need. The noble Lord, Lord Morgan, referred to the importance of this subject. The position of the coalition Government, as I understand it, is that the top priority is to tackle the deficit and to stabilise the public finances. There is of course no consensus on the needs indicators that would have to be chosen if the formula was ever to be replaced. My own position is that until the legislation we are considering is enacted and is operational, the Government should stay their hand over changing the formula. The Bill we are debating will give the Scottish Parliament the new

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powers and flexibility it would need if Barnett was to be changed with far-reaching subsequent effects on the block grant.

The executive summary of the Calman commission report made this statement:

"Until such time as a proper assessment of relative spending need across the UK is carried out, the Barnett formula should continue to be used as the basis for calculating the proportionately reduced block grant".

I mentioned that a needs assessment would be contentious. I can only say that if the results of that assessment reduced the Scottish block grant significantly this would give rise to a third principle. There should be the possibility of substitution if there is to be reduction. In other words, if several billions of pounds were to be chopped off the block grant overnight, the Scottish Parliament would need to have the necessary flexibility to be able to find the most appropriate balance between funding services and levying taxation. This Bill will help to meet that point and makes the Parliament more accountable for the level of a substantial portion of its tax and spending. Indeed, I would contend that if there were to be a reduction in the Scottish block grant without the possibility of substitution, which this Bill will allow, there would be an adverse reaction and friction in Scotland, which could inflict lasting damage on the union.

The question that those who oppose a measure of financial autonomy for the Scottish Parliament have to answer is, "Why are the Scottish people unfit to be allowed a measure of financial responsibility?" I believe that their duly elected representatives should be allowed more discretion to frame their own fiscal policy. They should be allowed to raise more of their own funding as well as to engage in expenditure. While the centuries-old ties that bind the Scots to their more numerous southern neighbours may have been loosened somewhat in recent years, it must be emphasised that the Scots people have shown no appetite for breaking them completely, but they have consistently expressed a desire for their Parliament to have more power.

One of the great benefits of the union is that it replaced centuries of warfare across the border with a sustained era of peaceful development, notwithstanding the odd Jacobite rebellion. In the case of my own family, I am descended from both the Douglases and the Percys, who used to kill each other in very considerable numbers. It always struck me that this was not the best way to settle disputes and, fortunately, the Act of Union 1707 consigned such hostilities to the dim and distant past. In fact, with my father being a Douglas and my mother a Percy, it could be argued that I am a product of the union.

I intend when the time comes to commend to Scottish voters the case for the continuity of the United Kingdom. I take absolutely the point of the noble Lord, Lord Steel, that there must be a straight question on whether or not the people of Scotland want independence, and not a slanted question. I would wish to campaign in the strongest and most positive terms when the planned referendum is held. I do not believe that passionate support for the union is

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in any way incompatible with backing for giving the Scottish Parliament increased powers, especially over financial matters.

In conclusion, I would like to commend to the House the splendid words of Scotland's national poet, Robert Burns, when he wrote his famous poem, The Dumfries Volunteers. His words were as follows:

"Be Britain still to Britain true,

Amang ourselves united;

For never but by British hands

Maun British wrangs be righted".

Just to reassure the House, Robert Burns was by no means a dangerous revolutionary but was indeed one who understood the importance of fiscal responsibility. Just in case anyone may wonder, he was in fact by profession a tax collector and exciseman, who believed in the rule of law.

This legislation delivers an important coalition commitment. It will increase the responsibility and accountability of Scottish legislators and allow the devolved Parliament to come of age.

8.09 pm

Baroness Ramsay of Cartvale: My Lords, this Bill is the second major constitutional change for Scottish devolution that this House has considered. It is natural that those of us who were closely involved with the first Scotland Bill, the Scotland Act 1998, have many memories of that Bill revived by this one, as the noble Lord, Lord Sewel, indicated. It is perhaps difficult for those who were in neither House of the UK Parliament at that time to appreciate the enormous sense of excitement, and of making history, which so many of us felt. Having heard the noble Lord, Lord Lang, I do not say that all of us felt it, but certainly the vast majority of us felt it.

As one of the three government Front-Benchers who took that Bill through this House, along with the noble Lord, Lord Sewel, and the noble and learned Lord, Lord Hardie, then Lord Advocate, I remember what a marathon that Bill was: 10 days of Committee, and many sessions late into the night, and two days for Second Reading. I have vivid memories of how nervous I was as a comparative newcomer to have to open the second day of a major Second Reading debate. Those of us involved all felt it was a great privilege because, for most Scots of my student generation, a Scottish Parliament was something we had wanted all our adult lives, and although we all believed the words of the late John Smith-I think they were the words of the late John Smith-that it was,

we had had to fight hard to win the national referendum held immediately after the 1997 general election.

None of us has witnessed, either before or since, the joyful scenes when the Bill finally passed in this House, and Scottish Labour MPs flooded into this end of the building in a wave of euphoria. We were aware of course even then, in the midst of the euphoria, that this was no permanent or perfect template and that it would require revisiting once the Parliament was up and running. So it was absolutely right for the Scottish Labour group in Holyrood, with the agreement of the

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Scottish Liberal Democrats and the Scottish Conservatives -but not, of course, the SNP-to set up the Calman commission in 2008 to review the provisions of the Scotland Act 1998 in the light of experience, and, as was said,

It is natural that, after some 10 years, experience would reveal the requirement for some such change, even though the contents of the White Paper preceding the 1998 Bill had been prepared from unprecedented wide consultations and debate throughout Scottish civic society, over some eight years, by the Scottish Constitutional Convention. I should declare an interest here as one of the final two co-chairs of that body, along with the noble Lord, Lord Steel of Aikwood.

Although there might not be the same degree of excitement and sense of history about this Bill, I have to say that, in so far as it contains much of what the Calman commission recommended, it is to be welcomed. The Calman commission acted in the best Scottish traditions of wide consultation throughout civic society as practised by the Scottish Constitutional Convention.

Specific points in the Bill can be considered at the appropriate later stages of the Bill. I want-very briefly in view of the long list of speakers and the time-to lay down a marker about two subjects that are not included in this Bill, although much discussed in connection with it; indeed, both were the subjects of amendments and debate in the other place.

The first point is corporation tax. In considering a different rate of corporation tax for Scotland, one cannot but be worried about the consequences for the UK as a whole. I agree entirely with the views summed up succinctly by the Chair of the Scottish Affairs Select Committee in another place, when he said that,

The Calman commission did consider and reject a different rate of corporation tax for Scotland, and in my opinion was completely correct in doing so.

The second point is the Barnett formula. I have heard many times in this House the views of my noble friend Lord Barnett, for whom I have the greatest affection and respect but with whom on this particular topic I do not entirely agree. In any case, whatever one thinks about the future of the Barnett formula, I think it correct that it should not be considered in this Bill. As the Minister in another place said:

"The current formula is an administrative procedure and does not appear in legislation".-[Official Report, Commons, 21/6/11; col. 229.]

He then pointed out very clearly that it was a mechanism for allocating funding across all four countries of the UK, which would make it quite inappropriate to legislate in this Bill for Scotland in isolation.

Finally, we should be careful about this Bill. We should not of course do too little in it, but I think we should be very wary of trying to do too much. It

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should not, as they say, be used as a Christmas tree. In so far as this Bill satisfies the recommendations of the Calman commission, I welcome it and wish it well. I look forward to more detailed discussion on some particular aspects in the future stages of the Bill.

8.16 pm

Lord Wigley: My Lords, I hope it will not be considered impertinent of me to contribute briefly to this debate. I do not come from Scotland, and I do not speak on behalf of the SNP, although my party, Plaid Cymru, and the SNP are Celtic cousins, and both aspire to the maximum level of self-government for their two countries and a new relationship between the nations of these islands. What happens in Scotland, however, does matter to Wales. It has a direct bearing on other parts of these islands, but particularly on Wales, because our constitutional aspirations have developed side by side with Scotland over the past 50 years. There is some irony in the fact that the debate to empower the Scottish Parliament further is taking place now, just as we in Wales thought we were catching up, after the referendum in March that gave us primary law-making powers.

While Wales and Scotland are two different countries with their own different needs and aspirations, there is undoubtedly a mindset in Wales that says, "If it is good enough in Scotland, it is good enough for Wales too". I think that the Government appreciate that dynamic to some extent. Large parts of this Bill have grown from the Calman commission and the Government announced in July the intention to have a Calman-type committee in Wales. However, I suggest very strongly that the work of the Holtham committee, which several speakers have mentioned tonight, should be the basis of the report and that Gerry Holtham himself should be involved in the work to save duplicating what has already been done.

My point is that issues arising in this Bill, such as the borrowing and tax-varying powers of the Scottish Parliament, will inevitably also arise in a Welsh context. There are other matters which MPs sought to add to the Bill in the debates in another place earlier this year, such as the need to review the Barnett formula and the pressure for Scotland's Parliament to have the right to vary corporation tax, which mirror similar arguments now being heard in Wales and, I believe, in Northern Ireland. I believe there is a feeling today that the Treasury is prevaricating on the question of corporation tax. The issue of year-end flexibility has also been mentioned, which again has a bearing in Wales and, I believe, in Northern Ireland and needs to be resolved.

What this Bill reflects, to my mind, is an adhoc piecemeal approach that has been taken by successive Governments at Westminster to the issue of devolving power to Scotland, Wales and Northern Ireland and, indeed, the failure to address the consequences here in England-either in terms of greater regional government or where devolution has left England's legislative capacity in matters such as health, education or housing, which are devolved to Scotland, Wales and Northern Ireland. In the 19th century, there was much talk in this Chamber of the Irish question. Dare I suggest that there is now a need to address the English question? I noted that the noble Lord, Lord Sewel, touched on this earlier.

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Because of the lack of any overall vision, what we are seeing in this measure and in others is a salami-type concession that this power or that function may be devolved but with no framework to ensure balanced devolution or any idea of what is the ultimate destination. Indeed, many of my friends in Scotland, while accepting the provisions of the Bill as far as they go, feel that it has already largely been superseded by events-a number of noble Lords have touched on that this evening.

The May elections in Scotland represented a political earthquake and a wake-up call which Westminster will ignore at its peril. It also sent a message that this Bill goes nowhere near addressing the political agenda as it is rapidly developing in Scotland. I see that an opinion poll in Scotland reported yesterday that if a referendum were held now, 39 per cent of respondents would vote for independence and 38 per cent against it. Whether that is a stable ongoing position only time can tell, but this week we have also heard a call for a new, centre-right political party in Scotland because the London-centric Conservative Party is widely seen as not serving Scotland's needs. Might I suggest that against the background of May's election, Alex Salmond's triumphs and the recent opinion polls, some are seeing the UK in its present form as not serving Scotland's needs? Before the Bill even reached this Chamber it has largely been overtaken by events, as the noble and learned Lord, Lord Wallace, recognised in opening the debate.

On 25 June, the First Minister of Scotland, Alex Salmond, called for a more ambitious borrowing framework, fit for the long-term needs of Scotland and particularly for the Scottish Government's borrowing capability of up to 2 per cent of their annual resources, with capital borrowing being capped at 20 per cent of annual government resources. Furthermore, this demand has the unanimous backing of Scotland's Parliament, as shown in the Committee that reported on the Bill in March. There are further calls for strengthening Scotland's voice in Europe, with statutory rights for Scottish Ministers to be part of the UK delegations attending European Union meetings such as the Fisheries Council. There are feelings in Wales, and, I suspect, in Northern Ireland, particularly on matters that are unique to those two countries.

There has also been a call by the Scottish Government for this Bill to be enhanced to include the transfer of broadcasting to Scotland, including public service broadcasting institutions and future licence fee arrangements. These are all demands that could be widely echoed in Wales, particularly against the background of the disgraceful way in which DCMS treated the Welsh fourth channel, S4C, earlier this year. My point is that the time will come-perhaps it has already come -when sticking Elastoplast over the growing divergence of aspirations in these islands will just not work.

In an address to the Ditchley Foundation on 9 July, the former Prime Minister, Sir John Major, made a radical proposal which I believe the Government would do well to study. He called for the devolution of almost everything to Scotland except defence, foreign affairs, broad economic policy and the monarchy. That approach is surely more commendable than a piecemeal, grudging, reluctant approach.

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Lord Maxton: That, of course, is not what the Scottish National Party wants. It wants an independent, separate state established as Scotland. It is not really interested, although it may demand it, in more powers for a Scottish Parliament.

Lord Wigley: I appreciate that that is the position of the SNP. I do not think it has been in any way coy about it. I do not believe it has ever shied away from making it quite clear that independence is its objective. One may or may not agree with that, but that is its position.

Lord Maxton: The fact is, however, that it never tells us exactly what it means by the term "independence".

Lord Wigley: Let me make it clear that if I used the term "independence", I would not use it in the way that UKIP uses it-wanting to pull out of Europe and believing that you cannot be independent without being a state with a wall around it. I believe there has to be co-operation between independent countries and within frameworks such as the European Union. Indeed, there has to be co-operation within these islands, but that relationship may be a new relationship.

The reason I was pointing out the speech made by Sir John Major was that it should be relevant to the parties opposite. It should be relevant that their former Prime Minister made a far-reaching proposal that may well be relevant in the context of what the noble Lord, Lord Lang, spoke about earlier in this debate, and this should be considered.

Lord Forsyth of Drumlean: The noble Lord has put a lot of emphasis on the membership of the European Union, but does he recognise that an independent Scotland would have to apply for membership in the European Union? It would have to take its place in the queue, it would require unanimity, and it would almost certainly be blocked by countries such as Spain and others. What he is proposing is not attainable in a realistic timetable.

Lord Wigley: I am very familiar with the arguments about Spain fearing what will happen in Catalonia and the Basque country. If those two national groups within Spain do move towards independence, Spain itself will face that question, but that is a matter for Spain. It is a matter for the European Union whether it would prefer to see a Scotland outside the European Union in those terms.

I certainly would not want to see Wales outside the European Union, but I believe that there has to be a change in the relationships within these islands that respects our ambitions to take every decision that we can for ourselves, whether in Scotland or in Wales, while working together and having an effective voice at other levels where decisions are taken that cannot be taken within our two countries.

This approach is surely a force that the Government need to address, and the consequent agenda is currently being neglected. First, there is a need to ensure balanced, symmetric devolution throughout these islands, especially

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to Wales and Northern Ireland. Secondly, and crucially, there is a need to address the unspoken cry of, "What happens to England?" and indeed, how Westminster institutions-including this Chamber-can be re-engineered to help address an agenda whose force is not yet being heard but whose consequences cannot be avoided.

8.27 pm

Lord Foulkes of Cumnock: My Lords, given the plethora of criticisms of this Bill, and of suggested amendments-I have one or two more to suggest-I must say it is very fortuitous, and the Minister must be very glad, that it is going to be at least three months before we get to the Committee stage. May I make a helpful suggestion to the coalition Government, which is not something I often do? They might consider some government amendments to take account of some of the very good suggestions-some of them detailed, some not controversial, and not necessarily political-that have been made during the course of this Second Reading. They should look at Hansard very carefully and consider that, as it would help our debate and discussions at Committee stage.

Last Saturday, I was with about 50,000 other Scots at Hampden, and about 1,000 Czechs, and I cheered with them when Kenny Miller and Darren Fletcher scored. I even joined in the singing of "Flower of Scotland"-fortunately, not many people heard me-with all its words about sending proud Edward's army home to think again, but that did not mean that all of us there wanted to see Scottish secession. Patriotism, or pride in one's own country, does not mean that you want to see the break-up of the United Kingdom. When we come to consider these decisions, all of us in Scotland will be using our heads, not our hearts, to make that decision.

I see colleagues here-I was going to say from all parties, but there are not many Tories although there are Liberal Democrats and Labour Members-who campaigned for devolution again and again. We have got the campaign medals from 1979 and 1997. In the battle for devolution, it was not just the Tories who were posted missing. The SNP was missing also-not missing in action, just plain missing. At the time, fundamentalism ruled within the SNP. Rightly, in my view, it saw independence and devolution as two totally different concepts. I say that to the noble Lord, Lord Lang, because I do not accept his pessimism; we have to look at this carefully, turn things round and fight for the cause that we believe in.

Now, though, that fundamentalism has been put to one side and we have Salmond's opportunism taking over, trying to get independence by stealth and taking advantage of step-by-step devolution. That is why I hope that the noble Lords, Lord Steel and Lord Selkirk, who say that there are to be third and fourth stages, are wrong. They are playing into Salmond's hands. He wants, having had three or four steps, to think that there will then be just one more little step to independence, and that is where the danger lies. This is a nonsense; that would be the biggest step of all, crossing the Rubicon once and for all. It would be a major step that could not be gone back on. As others have said, it would mean the splitting up of the United Kingdom.

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The UK has been the most successful economic union over a long period anywhere in the world. Our flexible constitution means that what we now have with this variable geometry, this quasi-federalism, this phased federalism, has been possible. I say to my friend, the noble Lord, Lord Steel, that it is a nonsense to say that federalism, which I support-unfortunately, the Liberal Democrats seem to have abandoned it-is impossible because of the size of England. They just assert that without any argument or justification. There would be nothing wrong with having an English Parliament dealing with devolved affairs, as Scotland, Wales and Northern Ireland do, and having this federal Parliament dealing with the reserved areas. That would not impinge on Scotland, Wales or Northern Ireland. It would be perfectly logical and it is the one stable solution that we should be moving towards in the longer term; otherwise, the only two stable solutions are centralised government, which we have left behind, or independence for each of the units.

Secession would be a disaster, as I say, but we should avoid saying that Scots could not govern an independent Scotland. Of course they could; it is entirely possible. Many Scots have governed the United Kingdom one way or another as well as other parts of the world in colonial days-it was not the English but the Scots who did most of the colonisation-so we should not argue that. Scots could govern a separate Scotland effectively; that is not the question. The question is whether we are better off in or out of the United Kingdom.

As others have said, and this bears constant repetition, the uncertainty that is being perpetrated by the Scottish Government is harming Scotland. Linda Urquhart, the chairman of CBI Scotland, spelt it out the other day. Others have said to me that people do not want to invest in Scotland. The UK Government will think twice about putting, let us say, the green bank or some other development in Scotland because of the uncertainty regarding the future of Scotland within the United Kingdom.

As my noble and learned friend Lord Davidson of Glen Cova said, in what I thought was a brilliantly constructed speech full of crucially important points, and as others have confirmed, constitutional issues are a UK Parliament competence. It is our responsibility, and it is about time that we took that responsibility. This is why I am proposing to table an amendment for consideration in Committee-I know others have thought about this and perhaps we should discuss it-that the UK Government organise a referendum as quickly as possible to end the uncertainty. We should also choose the wording of the question, which is very important; look at the wording in the Herald opinion poll to find out why that had the result it did. The wording should be: "Do you want Scotland to remain part of the United Kingdom-yes or no?" We would campaign for the yes side.

The timing of the election should also be our decision. We should not concede that the Scottish Government should run the referendum; we should not leave it to Salmond's trickery. It would be a loaded question, and the timing would be his timing to make sure he got the best possible result. If a referendum is

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inevitable, as people seem to assume, it is for us here in the United Kingdom Parliament to take responsibility for it.

I have a few additional points to make. Notwithstanding my noble friend Lady Ramsay's plea that we do not use this Bill as a Christmas tree, I want to suggest that there are one or two things that we should consider adding to it. For example-I have started to consider an amendment for this as well-both the Scottish Constitutional Convention and the Arbuthnott report suggested that we should review the electoral system for the Scottish Parliament. It is crazy. I got elected to the Scottish Parliament without any campaigning at all. I campaigned not to get elected: I campaigned for constituency members to be elected. I did not spend a penny on the campaign, and I got elected. It is a crazy, crazy system. Regional list MSPs and constituency MSPs just do not go together.

As someone said earlier on, the electoral system was supposed to prevent any party getting an overall majority. Well, it clearly does not do that. It is weighted against Glasgow, Edinburgh and the central belt in favour of the rural areas where the SNP has its stronghold, and that is why the party has done so well. It is a distorted system and it needs to be reviewed. Now, of course, we will be accused of calling to review it because of the outcome of the last election. We should have done it before-I accept that-but why bother about what we are going to be accused of when we will be accused of these sorts of things anyway? We should take up this recommendation and review it.

I have also started drafting an amendment to prohibit the Scottish Government from charging huge fees for students coming to Scotland from England, Wales and Northern Ireland. It is a disgrace, an absolute disgrace, that Edinburgh University is to charge these students £9,000-that is £36,000 in fees for a four-year course-whereas students from Poland, Lithuania and other parts of the European Union will get in for nothing. Which students will be able to afford to come to Scottish universities from England? Maybe the old Etonians and old Harrovians will get in, but ordinary students will not be able to do so. That is not that only reason for an amendment. The current arrangement is discriminatory and unfair and, with no disrespect to Christmas trees, we should take the opportunity to legislate on this.

In conclusion, we federalists, devolutionists and unionists-but not separatists-should take the initiative once more, as many of us did when we set up the Scottish Parliament. Like the noble Lord, Lord Forsyth, I have a few more amendments up my sleeve. I am looking forward with great relish to the Committee stage of this Bill.

8.40 pm

Lord Sanderson of Bowden: My Lords, I never thought that in this House I should have to agree with almost every word that the noble Lord, Lord Foulkes, said. However, that was one of the most interesting speeches that I have ever heard him make; I agree with just about every word.

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I understand why we are being asked to pass this Bill into law as a result of the unionist party's Calman commission. It is a good idea that we should do it. We should, wherever possible, have taxation with representation. Accountability matters in these affairs. However, like my noble friend Lord Forsyth, I am worried about tax rates. Everyone who pays income tax in Scotland must be worried when we know that only 2.3 million people in Scotland pay income tax. However, I agree with the Secretary of State for Scotland, who says about this Bill: this far and no further. The reason for that is that there are many things that should be in place before going any further. Can the law be implemented fairly? Do we know for certain that HMRC can cope with the implementation? Most important of all, what is to be the future position of Scotland as a nation?

As someone who has been involved in business in Scotland all my life, I believe that we must have confidence in the future of Scotland, particularly if we are to invest. To have a possible independence referendum hanging over us for any length of time is very damaging to business. I am not at all surprised to see it resulting in decisions in Scotland being delayed. I see from official figures published in July that Scottish GDP increased by only 0.1 per cent in the first three months of this year, compared to 0.5 per cent across the UK in the same period. Scotland avoided another recession, defined as two successive quarters of falling GDP, only narrowly after the economy contracted by 0.5 per cent at the end of 2010. Over the past year, Britain's economy has grown by 2 per cent, compared to 1.3 per cent in Scotland. Surely these comparisons do nothing to give confidence to those of us in the business community in Scotland.

This Parliament has the ultimate responsibility for the well-being of the whole United Kingdom, as has been so well put by the noble and learned Lord, Lord Davidson. The parties represented in this Chamber all believe in the future of the United Kingdom, yet the SNP Government have said that they will hold a referendum at the time of their choosing-no doubt with their own question or questions on the ballot paper. I ask my noble friends on the Front Bench whether we, as the sovereign body, should not be taking a more proactive role in this whole business before we go further down this devolution path. In other words, the test of this legislation for unionists such as me is whether the passing of the Bill helps or hinders the unionist cause.

The problems confronting the union are now huge and must be put right if it is to survive. What is to be done about the Barnett formula and the clear need for change? What is to be done about Scottish MPs voting in the other place on matters in which they have no say in their own constituencies? If any noble Lord wants to read an interesting book, they might like Off Message by Bob Marshall-Andrews. On page 167 he makes his views about that very clear. I am sure many of his colleagues feel the same when things that are debated in the other place-matters that are of no concern to Scotland-get pushed through by the votes of Scottish Members of Parliament.

Then there is the recent example-here I come to what the noble Lord, Lord Foulkes, said-which, as a

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Scot and a unionist, I find hard to bear. Why must we have students from England, Wales and Northern Ireland paying student fees at Scottish universities, and-pardon the pun-European students and locals getting off scot free? This can only divide rather than unite, and I believe that this sovereign Parliament should ensure, by altering the devolution legislation, that matters such as these are put right. After all, this Parliament has given power to the regions, and it is in Parliament's hands to alter those powers if we think that they are being flouted. Indeed, the chairman of the Scottish CBI said,

It must always remain so.

I believe that we are nearing the crossroads for the United Kingdom remaining united, and I hope and trust that the Benches opposite, with such high representation in the other place from Scotland, realise that the ice is getting very thin as a result of a lopsided arrangement, which is indeed the Scotland Act. Other countries have proper devolution on a federal model, but this is not the case at the moment in the United Kingdom. I say in the strongest terms possible that our Government must look urgently at this matter of the Scottish referendum. There is no doubt that Scottish business will suffer as long as that uncertainty remains.

As far as the Bill is concerned, can we have an assurance that no further powers in relation to corporation tax-here I agree with the noble Baroness, Lady Ramsay-will be taken until a referendum in Scotland has been held? The Northern Ireland situation is totally different. I know what they are thinking about there. There is no chance that the people of Northern Ireland seek to separate from the United Kingdom, unlike what the Scottish National Party intends to try to do in Scotland.

In preparation for this debate, I came across an article in the Times of 15 October 2008 with the heading:

"Scottish Dependence-The case for independence was never strong".

It was written at the time of the spectacular collapse of the two big Scottish banks. Some of it bears repeating now as this House considers the wider implications of this Bill. It says:

"The credit crunch has already claimed some significant victims. The credibility of Scottish independence is next".

It goes on to explain the case for independence based on North Sea oil reserves, saying that the case now for the small nations, such as Ireland, Norway and Iceland, looks very flimsy. It goes on to say that, given the Scottish banks' situation, an independent Scotland would now be,

The article continues:

"It is difficult to argue that the Union is a shackle when, in a strange echo of the generous Barnett formula, a great deal of taxpayers' money is heading from South to North".

That was written in 2008.

I finish with what is said at the end of this article, because it is very relevant:

"The First Minister"-

that is, Mr Salmond-

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The article concludes with the sentence:

"The Union that has served them for three centuries may be the only asset in Scotland that has not depreciated sharply",

over the last two weeks of the banking crisis. Those were very difficult days in 2008, but it is interesting that the leading article in the Times should make such comments about 2017-a date that is now much closer.

I hope all sides of the House will appreciate that we cannot allow the First Minister of Scotland to make all the running when the future of the union is at stake. We should use the opportunity of this Bill to start flexing our muscles and fighting back.

8.50 pm

Lord Boyd of Duncansby: My Lords, it was a privilege to serve along with other Members of this House as a member of the Calman commission, and it is pleasing to see its recommendations in legislation before this House, so it will come as no surprise to learn that I support the Bill. In fact, there were two reports from the Calman commission. The first, in December 2008, looked at the broad principles and, as no one else has referred to it, if noble Lords will bear with me I shall consider some of the issues from that report. We attempted to put together principles that would guide the work of the commission and to set out the issues and context for the final conclusions. We asked: what do we understand the union to be? First and foremost it is a political union, a constitutional monarchy that has over 300 years evolved, as the commission stated,

We share on these islands a profound commitment to democracy and the rule of law. We have a common citizenship that includes a commitment to human rights and their safeguarding for all our citizens. An integral part of the Scotland Act is the embedding of the European Convention on Human Rights within it.

I am genuinely pleased to see the noble and learned Lord, Lord McCluskey, in his place. He and I have had our differences of opinion, but I recognise his commitment and the contribution he has made not only to Scots law but to this House. I read the debates on the 1978 Bill, which formed a substantial contribution to the 1998 Act. No doubt we will debate the Supreme Court, but I recognise a degree of common approach from the group of the noble and learned Lord, Lord McCluskey, and that of Sir David Edward. I served as a member of the Advocate-General's expert group. For my part, I think that Clause 17 is about right, but we will no doubt debate that in Committee. I will certainly approach it with an open mind.

Scotland benefits from being part of a state whose overall influence may have waned as the Empire has diminished and is now challenged by new emerging states, but we remain a part of a United Kingdom with a permanent seat on the UN Security Council, a permanent seat on the G8/G20 and a commitment to membership of the European Union. Scotland's influence would be substantially diminished if that union were to go.

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We also recognise that the union is an economic one. Sometimes we forget that there were substantial economic reasons for Scotland to join the union in the first place: the establishment of a common currency and a customs union. As the commission stated, we have,

with a,

with common institutions that support the structure within which the market operates: the Bank of England, the FSA, HMRC, the Treasury, and so on. Although the commission did not highlight this, there are other parts of the regulatory framework, for example Ofgem in the electricity market.

The commission was united in stating that that single market and the framework and institutions necessary to sustain it should remain. The irony is that we now have a Scottish Government who wish to secede from the union, with all the advantages that it brings, only to embed Scotland even more deeply in another Union-one that would, over time, require Scotland to adopt a different currency from the rest of the UK and in which it would have less influence.

The United Kingdom is also a cultural union. We speak with substantially the same language. There are substantial ties of family and kinship. We belong to cultural, social, professional, scientific and business institutions that operate across the United Kingdom, albeit ones that often appear to have a Scottish face within Scotland. We share a common history. Together we forged an industrial revolution, built an empire and struggled to provide a better future, securing rights for workers and providing a free health service, education and social welfare. We fought two world wars together and have taken part in many more-some ill-advised and wrong, some heroic and right. In all of that, Scotland has made a contribution to the common history well in excess of its size relative to the rest of the United Kingdom.

In recent decades, we have seen new immigrants to Britain. These have contributed substantially to the cultural diversity of these islands and the multiple identities which Britain holds within it. For all the tensions that that sometimes brings, Britain remains a fundamentally tolerant society. The commission recognised that, as it did the cultural institutions, for example the place of the BBC as a public broadcaster-much criticised at times, sometimes flawed. While some change was necessary to ensure a distinct Scottish influence, fundamentally we did not wish to see the break-up of that institution.

There is also a social union. We share assumptions about the provision of social benefits. We sometimes disagree about how these should be delivered. Despite growing diversity in education and health, we remain across these islands committed to free education-at least up until secondary level-and free healthcare at the point of delivery.

I am sorry that these parts of the first report did not perhaps get the attention that they deserve. Together, these factors are substantial arguments in favour of a United Kingdom. The debate thus far has become

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somewhat sterile. On the one side, we now have the SNP talking of a mixture of independence-lite or devolution-max without any great attempt to define what it means by that and promises to lull us into a sense of false security that not much would happen were a divorce to take place. On the other side, the language has not always been wholly helpful. We have talked incessantly about separation or secession. It is right to warn people of the dangers of secession but we cannot frighten people into supporting a United Kingdom. Until we start talking the language of inspiration and aspiration, we will continue to lose the argument. I hope that, whatever else we do, we start to talk that kind of language and give people a sense of purpose as to why Scotland should remain part of the United Kingdom.

On the issues of financial accountability, I do not intend to dwell long on the details but certain principles were fundamental to our approach. We were given the remit of addressing the issue of improving financial accountability of the Scottish Parliament. We were greatly helped by the independent expert group led by Professor Anton Muscatelli, which began by setting out a series of principles that would guide its work. The commission itself then refined six of those principles into three broad areas.

First, on equity, does a funding system allow levels of funding and hence a distribution of public services generally accepted as fair? Secondly, on efficiency, in both economic and administrative senses, does it impede the efficiency of the system? Thirdly, on accountability, does the devolved body have the autonomy to make spending and taxation decisions for which the electorate can hold it accountable? All of these in my submission are important principles. But there is a balancing act. No solution is ideal, and they will always be traded off, one for the other. We will no doubt debate whether the commission in its recommendation came up with the right mix. I believe it is broadly right because it produces an element of accountability that is not now present, but we will no doubt debate that.

My noble and learned friend Lord Davidson raised the issue of the position of the Lord Advocate, and the suggestion that we should be looking at separating out the role of the Lord Advocate as head of the system of prosecutions from the other functions that he has, perhaps with the appointment of a Director of Public Prosecutions. This of course is not a new idea; it has been around for some time. The role of the Lord Advocate has evolved greatly over the centuries; it is an office that goes back at least until the 15th century. At one time the Lord Advocate effectively ruled Scotland; in the days of Dundas his powers were immense. Sadly, by the time I came into office they had somewhat diminished. But the role of the Lord Advocate did change with devolution, because the spotlight was very much more on the law officers.

I remember when my noble and learned friend Lord Hardie was Lord Advocate-he sat in this House-and I recall in particular a question on search warrants. There had been a number of instances in Scotland where search warrants had been granted by justices of the peace with important pieces missing, and the result was that they were ineffective, and questions

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were asked about that. The only place where he could be asked questions about them was in this House. That was a pretty ineffective way of holding the Lord Advocate to account, because he was removed from Scotland, and of course this is a House in which only a small minority of Members would have a particular interest in such matters. Suddenly, when we became law officers in the Scottish Parliament, there were 129 MSPs, all of whom had large mailbags full of substantial complaints about the prosecution system. It was, at times, pretty uncomfortable. The noble and learned Lord, Lord McCluskey, helped that process at times, if I may say so, with quite proper concern about, for example, the death of Surjit Singh Chhokar, which he will no doubt recollect. There were other instances, too, where it became extremely uncomfortable to have to answer questions about the prosecution system. When the noble Lord, Lord Steel, who is not in his place, was Presiding Officer, I remember being called to the Scottish Parliament to answer an emergency question on a prosecution matter.

Whatever happens in the future, I believe that that accountability is actually good, although it is uncomfortable. The fact is that I was able, as Lord Advocate, to take through the most far-reaching and profound changes in the prosecution system in Scotland, I have to say with the great help and assistance of the noble and learned Lord the Advocate-General, and more particularly perhaps with the First Minister of the time, my noble friend Lord McConnell. I would not have been able to do that were it not for the accountability that was brought by the Scottish Parliament to those proceedings.

I do not shy away from looking at these issues, but I have to say to my noble and learned friend that my own view is that this is more properly a matter for the Scottish Parliament initially to debate, and for us, the United Kingdom Parliament, to engage with it. That is where the impetus should come from for such a debate, not from the Chamber of this House.

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