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The Scotland Act 1998 was a substantial achievement. The Scottish Parliament got extensive powers. The Canadian provinces have substantially less power in relation to criminal justice than the Scottish Parliament, and that is just one area where the Scottish Parliament has competence. It was, I believe, a considerable achievement but, as the noble and learned Lord said, one of the commission's conclusions was that devolution had been a success. It had worked for the people of Scotland, it gave people greater access to those who made the decisions and it increased accountability. I believe that the changes in this Bill will strengthen the devolution settlement, make Parliament more accountable for its decisions and strengthen the union.

9.06 pm

The Earl of Mar and Kellie: My Lords, I have no difficulty in welcoming this mild and tame devolution Bill. It is worth recognising its introduction at this time as a Liberal Democrat achievement in government. The Bill makes some progress towards greater self-government but is unlikely to be the last word on the subject. I expect that it will be amended by addition, rather than by deletion.



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I am interested in what this Parliament recognises as the desirable endgame. The strength of desire in Scotland for self-government is considerable-maybe up to 75 per cent. Many of that 75 per cent are still cool to the traditional 19th century nation state concept but they definitely want greater political autonomy-just within a British state, and why should they not do so?

This United Kingdom, from 1603, could be restructured to suit the democratic will. After all, it was in 1707 and 1999. That further restructuring can be done by legislation alone and without the endless international legal agreement processes which formal separation leads to and requires. What I am referring to may be called home rule and it includes a Scottish Treasury. This is probably what the Scottish negotiators wanted in 1706, although they certainly did not get it.

It is probably instructive to look at Denmark's Home Rule Act 1948, and I thank those in the Library for their help. This granted sufficient autonomy to Greenland and the Faroe Islands to make their own decisions, even about foreign policy. Greater Denmark is therefore primarily a defence union. Greenland, after all, decided to leave the European Union with compensation for damage done to its fishery, and the Faroe Islands decided not to join the European Union. I know that this Parliament does not like examples of good practice from abroad but I believe that this example of home rule is relevant and, what is more, it has been happening for the past 60 years quite near by. Conversely, it has to be said that this Parliament has recently acted in favour of promoting democracy in Iraq, Afghanistan and, one hopes, Libya. Full democracy is desired in Scotland. Could it be that this Parliament is resisting such a development?

It is quite helpful to have a constitutional referendum in 2015 in the background to the Bill. I believe that it would clearly be sensible to legislate for this by amending the Bill, rather than just relying on the electoral mandate won in the summer. The outcome of such a referendum will be determined, in part, by the response of this Parliament to the request for additional powers. A favourable response is likely to lead to something akin to home rule-that is, a British solution. A negative response will enhance the vote for formal separation. Jealousies and personal insecurities among parliamentarians need to be suppressed during the passage of the Bill.

In conclusion, the Bill is a mild response to the growing need for self-government in Scotland. It is too mild and further legislation will be required quite soon. Noble Lords should be quite relaxed about this. Robert Burns derided the Scottish negotiators of 1706, but the Parcel of Rogues did quite a good job. While the parliament was lost, the Scottish state was not smashed. I can understand how Queen Anne and the Earl of Godolphin wanted control of just one parliament. This was a problem of regal personal rule. Now of course Governments are derived from democratic election. The process of re-establishing the Scottish state has been running for the last 150 years. It should be met by accommodation rather than intransigence.

9.10 pm

Lord McAvoy: My Lords, I will be particularly brief. I am not as erudite as many of those who have spoken so far, but I have some knowledge of and

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involvement in the historical and political events that have been outlined. I find it irresistible to take part not to settle a few scores but perhaps remember a few things.

There has been a lot of mention, particularly by the noble Earl, Lord Mar and Kellie, of the 1706 negotiators and of the reasons for the negotiations for the Act of Union. The one that he has not mentioned is that many people feel-though not all historians agree, and here we start to wander down highways and byways-that the real reason was the existence of someone called James Francis Edward Stuart, the Jacobite King James VIII and III. That was why the English Parliament wanted control of Scotland- the Scottish Parliament had the right to pick a separate monarch. The fear among the English and a lot of the Scots was that the Jacobite King James would be brought back from St-Germain-en-Laye. So there is a wee bit of history there as well that I do not agree with.

Going on to more serious matters, I want to comment briefly on why we are here at this time of night, on the stage that we are at and on the speakers list. I would like to echo what the noble Lord, Lord Forsyth of Drumleen, said about the positioning of the noble Baroness, Lady Liddell of Coatdyke, in the batting order-an absolute disgrace upon the former Secretary of State for Scotland to be put in that position. I do not know who makes up that list, but that was a bad, bad, bad mistake and I hope that there is some acknowledgement of that. I really think that it was pretty poor. Naturally, as a Labour and Co-op Peer and a member of the Front Bench I support the Bill.

Listening to a lot of the comments about the make-up of the Bill, it is coming across to me that yet again it is a rushed one. We have a rushed process. We started this Second Reading debate at 5.45 pm and are going to finish around 1 am. I do not think that is right. I also think it is bad politics for the Government because in Scotland it will, wrongly, be seen as Scotland being shoved to the back and put into the early hours of the morning because who cares about Scotland? It was not because of this side of the usual channels. It was the Government. Let us be clear: it is the Government who put business on, not us. It is typical of the situation we are in at the moment where they are mishandling every Bill. What is coming across quite clearly to me is a level of incompetence. I do not know whether they are getting tired, whether they have been around too long or whether they are just trying to do too much, but the Government's timetable is in a mess, and they are trying to compensate for that by rushing things through here, and it is showing up. I think this Bill will be scrutinised very thoroughly now that we have seen what I think is a level of incompetence in bringing the Bill forward. I think that is pretty poor.

The noble and learned Lord, Lord Wallace of Tankerness, mentioned the Scottish convention that started the process of getting a united front for a Scottish Assembly and a Scottish Parliament. I am not point-scoring or settling any scores or anything like that but, once again, it brings to mind how when the Liberals get to the top table, they always seem to look after themselves very well. Out of those arrangements

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the Liberals got two seats for Orkney and Shetland, for instance, and, quite frankly, the Labour Administration at the time could not wait to get into bed with them, metaphorically, and form a coalition, so they always do well. Conservative colleagues in this House would do well to observe the Liberals very carefully and make sure that their back pockets are not picked before they go.

What we are getting is something rushed and incompetent. At the risk of ruining his reputation, the contribution by the noble Lord, Lord Forsyth of Drumlean, was a tour de force by exposing and putting to question the tax issues and all the other matters. They might not be right, but they certainly sounded very credible to me. They are going to be meaty issues for the Committee process. I promise not to call him Comrade Forsyth-that might perhaps be going too far-but he was certainly the best speaker tonight as far as I am concerned.

It is about time somebody paid tribute to the nation of England. It is a bigger nation by far and financially supports Scotland, Northern Ireland and Wales. It is about time there was more recognition of that. I do not recognise this mass force in Scotland that wants separation. I just do not see it, but real separation will come if this Government allow the SNP to foster division, resentment and bitterness against England, English people will get fed up with it and will say, "If you want to go, off you go then". That is a bigger danger than perhaps folk think. We have this infamous phrase that devolution is the settled will of the Scottish people. As soon as we got devolution, the people who wanted to go further kept coming back looking for more. They describe it as a process. With due respect to them, I do not think that they are being dishonest, but it is dishonest to say that it is an ongoing process because what they are really saying is, "We are going somewhere, we don't know where it is, we can't tell you anything about it, but we are going on anyway". That is wrong. There should be clear statements about where we are in Scotland and in any devolved area, and it should be done by consensus.

I hesitate to have a go-to cross swords rather, as I had better use the proper language-at the noble Lord, Lord Steel of Aikwood, especially when he is not in his place, but he made a very profound statement that I 100 per cent agree with, which is that no constitutional change should take place unless there is consensus. That was not the case with the Parliamentary Voting System and Constituencies Bill which went through this place and altered the constitution. Lasting damage will be done by that. The referendum must obviously be discussed very thoroughly in Committee. We cannot have Scotland and Scottish business subjected to years of uncertainty. Whatever the ultimate decision, I look forward to the Committee stage where we can try harder to get some answers out of the Government.

9.19 pm

The Duke of Montrose: My Lords, I pick up the danger referred to by the noble Lord, Lord McAvoy, of the way that the pushing back of our debate to so late in the day will play out outside this building. It has been very interesting to see how each noble Lord has

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given his perspective on the history of the devolution Act and on the relationship between Scotland and England. Short of the struggles that have occurred over Ireland, the relationship between Scotland and England has been one of the most well known and contentious areas of our national life. Throughout our history, each side has won some and lost some. Certainly, in the first 500 years before the Act of Union, my family was quite heavily involved in every scrap that came up and at least six members died either in battle or by execution at the hands of rival factions-and that is without going into family squabbles, mentioned by the noble Lord, Lord Selkirk. To be a leader in Scotland was not always found to be a very cushy ride.

It is a well recognised fact that there can be nothing bloodier than a civil war. We do not need to look beyond the current situation in Libya to see this being fulfilled as we speak. As with Fletcher of Saltoun, mentioned by the noble Lord, Lord Steel of Aikwood, this might have weighed on the mind of my ancestor, the 4th Marquis of Montrose, when, as President of the Council in the Scottish Parliament, he sent the commissioners to negotiate the Act of Union. As the noble Lord, Lord McAvoy, said, the Scots at that point were regarded in England as potential troublemakers. However, considering the state of the Scottish economy at that time, it has always seemed to me remarkable what sort of a settlement they were able to achieve. The Scottish historian Tom Devine points out in his recent book:

"Far from being a junior partner of England, Scotland played its distinct and ... often larger part in building British influence and prosperity. In finance, engineering, commerce, medicine, education, the military, etc, it was at the heart of British global expansion, in good causes of human development, and in bad ones like the West Indies slave plantations".

Even today, the areas of co-operation and distinctness that the Scots laid down have proved a useful foundation for the modern approach to devolution.

This issue of devolution, and even home rule, has been raised in the forum of politics periodically during the past 100 years. On occasions in years following the Irish Home Rule Act when the topic came up in relation to Scotland, my grandfather's name was frequently associated with it. In 1932, a letter which he had sent to the Times, in which he expressed the view that nobody denied the great benefits which Scotland had obtained from the Act of Union, was quoted in the other place in the debate on the Address at col. 243 on 24 November. As far back as 1926, slightly presupposing the line taken by the noble Lord, Lord Steel of Aikwood, he wrote in the Glasgow Herald:

"I cannot believe that for all time coming Scottish affairs will continue to be settled by Englishmen sitting in London".

His campaign was for devolution to a Scottish Parliament, but not for separation or independence. I am sure that he would have regarded it as a great step forward that we are now marking the first 10 years of the Scottish Parliament.

Major issues in the Bill have been dealt with by many other noble Lords. Perhaps I may raise a small but fundamental one: we are now the third legislative Chamber to have been given the opportunity to scrutinise it. It was obviously a major task of the Calman commission to look at mechanisms for strengthening

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relations between the Parliaments, and it is interesting to see the Government's response as contained in their Command Paper. However, there is one question about its progress which I should like to put to the Minister-it was raised also by the noble Lord, Lord Sewel. What is the place of the Sewel convention in all this? How are these conventions established and who gets to interpret what they contain?

During the past 10 years, I have been a keen watcher of the use of this convention and the very essential channel that it has provided between the two legislatures. There are proposals in the Command Paper to have it strengthened. My question is quite well illustrated by the Explanatory Notes. Line 6 of paragraph 8 states:

"The Sewel Convention provides that Westminster will not normally legislate with regard to devolved matters in Scotland without the consent of the Scottish Parliament".

I have always taken it to refer to matters that are devolved. However, the paragraph begins with the words:

"At introduction, this Bill contains provisions that trigger the Sewel Convention".

Maybe some of it does, but by way of illustrating its argument, it advances Clauses 11 and 24, which relate respectively to the Firearms Act 1968 and the Road Traffic Act 1988. In the Scotland Act 1998 and up until now both of these were reserved matters under Schedule 5.

In my recollection, the use of the Sewel convention was to obtain the consent of the Scottish Parliament when modifications were needed to devolved legislation. A recent exercise which comes to mind was the Marine and Coastal Access Act 2009 where Scottish inshore waters were already devolved and the application of the Food and Environment Protection Act 1985 under Scottish jurisdiction was already devolved but the Bill had to encompass all these and therefore the Sewel convention was very appropriate.

This Bill has been subject to consideration by the Scottish Parliament and in its final form it appears it will be subject to its consideration again. It is not my purpose to question whether it was a good idea to see what the Scottish Parliament thought of it. However, to consider the holding of that consultation to be part of the Sewel convention seems to me to constitute rather a new precedent that should not be entered into just by default. If what we are considering is a necessary political adjustment and perhaps the handing over of entirely new powers, perhaps it should be subject to a rather different form of negotiation. Perhaps it is something new that we require, even a Wallace convention. The handing over of entirely new matters that were not previously devolved is a more serious matter than simply making adjustments.

I see that the establishment, and we touched on this earlier, of who will be regarded as a Scottish taxpayer is now said to be already laid down in relation to the previous tax-raising powers of the Scottish Parliament. At least it is reassuring to know that HMRC are looking at it again in the light of the situation in which we find ourselves. Will the Minister bring these findings to the House before we complete Committee stage? They will be very relevant to how we regard the approach on this matter.



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The question of how the Treasury will be able to tell the actual size of what is termed "the equivalent sum"-to be removed from the block grant to match the removal of 10p off all levels of income tax from individuals designated as Scots-throws up an enormous list of allowance and adjustments. My noble friend Lord Selkirk of Douglas in a debate on the Barnett formula used the comparison of Lord Palmerston's explanation of Europe's understanding of the Schleswig-Holstein issue. We are now winding the whole financial settlement up several more levels and I can only wish the Minister well in his attempts.

9.27 pm

Lord Elder: My Lords, I start by declaring a minor interest as a member of the Calman commission which led to this Bill. It will come as no surprise when I say that, as a result of that, I enthusiastically support this Bill. That does not mean to say I will not participate in Committee, nor that I shall not seek amendments, but it does mean that I fundamentally and enthusiastically support what this Bill is trying to do. A huge number of points have already been made and, judging from the length of the speakers list, a huge number of points are going to be made this evening so I will limit myself to three brief points: about the economic commission; about the financial recommendations in which I was heavily involved; and, finally, about a referendum.

The Calman commission made a very comprehensive study of the legislative powers which had been devolved in the 1998 Act and it reviewed very carefully whether there should be further changes. Further changes have been proposed but it is a measure of the strength of the original legislation that very few were suggested. The settlement, in most important matters, has stood the test of time.

The Calman commission was a good process and I regret that the SNP chose to stand aloof from it and to make passing remarks from the sidelines. The SNP should have made the effort to participate. We wanted the parties who were involved in it to look after the best interests of the good governance of Scotland for the people of Scotland. The SNP, I fear, wanted to reserve its position for independence irrespective of the consequences of that for the people of Scotland. I regret that.

The point about the financial settlement proposal is that the Scottish Government will have to set a rate for tax and will then either benefit from the additional taxes if the economy prospers or face a reduced income if the economy does less well. The budget will, to an extent, be tied into the success of the economy, and that is an important change. Some of the ease with which London is blamed when things go wrong will be passed back to Scotland properly. Had we known back in 1997, 1998 or 1999, when devising the original scheme, that the tax-varying power was not going to be used, then we would either not have put it in or, I believe, sought just the kind of arrangement that the Bill proposes. But it was intended to be used, and that is why it was a separate question in the referendum.

Some of the additional taxes proposed to be devolved on the financial side in Calman were, to be honest, put in at the last minute to get the total tax take up to a

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higher percentage. They were never central to the scheme. I hope that the Minister will not mind me pointing out that, as he was responsible for putting them in at the last minute by and large to get the total tax take up to a certain percentage, it is not without irony that the Government have taken some of them out since. They were never central to the scheme, because the central part of the financial settlement was always what was happening on income tax. That is a very important step, which is still absolutely at the heart of the Bill.

I would like to say a few words about a referendum. For whatever reason, back in the 1970s and in 1997, we held a referendum on the main question of setting up the Parliament, and in 1997 on a separate question on giving it financial powers. Had we known that those powers would never be used, I am not sure that we would have felt the need to have a referendum. However, having created that precedent, I think it is impossible not to have a referendum on proposals which contain new powers on tax which will have to be used in setting a tax rate. Therefore, there should be a referendum, and the only question to be resolved is whether it should a question on the SNP proposals as well. I think that it should be. I note that the noble and learned Lord the Advocate-General referred to Pujol a few days ago. I would not like Scotland to get caught in the trap of a supposedly nationalist Government always asking for more from the centre but never being prepared to ask the fundamental question themselves. I regret that, for whatever reason, the other place did not seek to introduce such a question. It might, however, be appropriate for this House, at least in the first instance, to give it the chance to reconsider the matter in due course.

Too often these days, discussion about devolution as against independence is caught in the past. No one is suggesting a return to the pre-Scottish Parliament days. One of the changes of the last five years, which I at least am grateful for, is that we have heard precious little of late from the First Minister about the arc of prosperity that he was so keen to join-Iceland and Ireland being his role models only five years ago. In a referendum, what the present Scottish Government want would have to be defined. To take just one matter of some importance, in the current financial climate, the central banking function would not surely be taken on by a new independent Scottish central bank, so it would have to be decided whether it was going to be the Bank of England or the European Central Bank in Frankfurt. I have to say that, if nothing else, that would smoke out what I fear many nationalists actually are, which is not so much pro-Scottish as anti-English-and that I deplore.

There are many things still to discuss in the Bill, although as I say I fundamentally support it, and I look forward to the further stages.

9.33 pm

Baroness Linklater of Butterstone: My Lords, there are so many infinitely abler, wiser and more experienced speakers in this important debate. As I am 21st on this list and we are just about halfway there, noble Lords will be pleased to hear that I have considerably filleted my speech.



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There is no doubt that, as devolution has developed in Scotland, the appetite for more powers for the Scottish Parliament has grown rather than declined. Every poll suggests that and every survey of public opinion confirms it. What the Scots seek is not so much more power for its own sake as better, more effective government that addresses and tackles the serious problems confronting the nation, including the need to turn around its economy, improve its schools and do something to improve its appalling health record, to mention just three. When Sir Kenneth Calman's commission examined what steps should be taken to enhance the role of the Parliament, it bore this issue very much in mind.

There has been a huge debate in Scotland over whether Calman goes far enough, and whether this new Scotland Bill properly reflects that appetite for change. There was, however, general agreement that giving Scotland greater tax-raising powers was an essential next step. A devolution settlement which simply continued the reliance on a block grant from Westminster was ultimately no settlement at all. It not only embedded a dependency culture, it offered no stimulation to the spirit of enterprise which is the vital spark of a vibrant economy, and for which Scots have been so famous in the past.

Unless Scotland is allowed greater opportunities to stand on its own feet, and to take responsibilities for raising, as well as spending, its own taxes, it will never truly rediscover its innate potential. This Bill, unlike its groundbreaking predecessor-in which I was proud to be involved-is work in progress to that end. That it is cautious seems good to me, and a good thing particularly in the midst of a global crisis, when it would surely have been foolhardy to attempt any major leap into the unknown. There has been much talk in the north of fiscal autonomy, but far too little real work on what that actually means, what its implications would be, or, above all, on whether Scotland is actually ready for it. There are far too many questions still to be addressed to be able confidently to say that we are ready for wholesale fiscal reform.

This Bill will give the Scottish Parliament responsibility for raising and spending about a third of its taxes. This will undoubtedly increase over time; but it will increase only if the measures contained in the Bill are seen to work. Scots, I believe, are essentially pragmatic and canny, and want sensible, workable progress, not leaps into the unknown. There is no mandate for independence, but there is a mandate for moves towards greater fiscal responsibility, which this Bill represents. It gives the Scottish Government the potential to benefit from its own economic achievements, to expand the tax base, and potentially to increase the revenue base-despite the problems and pitfalls that have already been so graphically and thoroughly described this evening.

I have one, overarching, concern, to which Calman also alludes: the nature of a practical, working relationship between England and Scotland in the new, devolved world. It is not a specific issue for this Bill, but it concerns the way we work together. I have watched with concern a sort of disengagement, which I think reflects a lack of active, practical connection between our two Governments. People in Westminster and beyond have almost no idea what is going on in

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Holyrood, what the big issues are or how things are tackled-and vice versa. It is not antipathy, but I think it is apathy. I declare an interest as my husband is deeply involved in press matters in Scotland as the editor of the Scottish edition of the Times, and issues which may be the stuff of headlines in the Scottish press simply do not get a mention in England. It is as though for those down here the Scots and their issues have floated off their mental maps, leaving those in the north to get on with our separate business. It may be not entirely irrelevant that there are very few English men or women participating in this very important debate. Indeed Calman recommends,

and he is right. It is not an active problem yet, but it is a matter of regret and should be kept under review.

As was mentioned earlier, it was the Welsh politician, Ron Davies, who first said that devolution was,

and "process' is the right word, because the scope to explore the opportunities as well as the pitfalls of devolution is still relatively new and still being developed. It was Scotland's first First Minister, Donald Dewar, who personified that sensible, pragmatic approach. His early death was a tragedy for Scotland but his legacy is the successful process of devolution that has taken Scotland forward over the past decade to where we are now. It will and must maintain its active participation in a United Kingdom while developing its own distinctive policies. That approach is reflected in the Bill. Donald Dewar would, I am sure, have approved of it-and so do I.

9.40 pm

Lord Hughes of Woodside: My Lords, I wonder if I might as a brief introduction point out that, as some Members of your Lordships' House may recall, in the 1970s when we were debating the setting up of a Scottish Assembly, and indeed later, I was not exactly an enthusiast for devolution. In fact, I still have the scars on my back to prove it-I think they have mostly healed by now.

Having said that, I commend what the Calman commission has done. After more than a decade of the Scottish Parliament, it was right and proper that there should be an assessment made. Where there is a genuine need for a change or for a transfer of power in the interest of good government, we should of course go ahead. However, I should point out that some still argue that it is necessary and desirable to increase the powers of the Scottish Parliament in order to stem the demands of the nationalists. Sir John Major said that in the speech to which the noble Lord, Lord Wigley, referred. I profoundly disagree with that. If you believe that ceding more powers will stem that side of nationalism, you must believe that if you feed a carnivore more and more meat it will one day turn vegetarian. The truth is that the nationalists cannot be bought off in any way.

I wish that we had time to debate fully the merits of, and differences between, fiscal responsibility and fiscal autonomy. I was always in favour of fiscal responsibility and I recall that some of my colleagues in the other place were in some great odium for suggesting that there should be what is now received wisdom-tax-raising

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powers for the Scottish Parliament. In those days I kept good company: the late Robin Cook, the late Norman Buchan, Tam Dalyell and even George Cunningham, then the Labour MP for Islington. The battle was generally won, if not by us, and it became the perceived wisdom for what became the Scottish variable rate. It is not only a scandal that the power was never used but an even greater scandal that I do not think any single party in the Scottish Parliament ever said in an election manifesto that it would use the powers.

Now we are told that there will be a different system and that there has to be direct responsibility. I am somewhat confused as to what the process is in this. I know that, under the Bill, the Scottish Parliament has the power to raise taxation-it does not say that it must raise it but that it has the power to do so-and, as I understand it, there is to be a deduction of the direct grant. How does one fit the other and which comes first? Is it the reduction in the government grant, so that the Government in Scotland will have to raise an equivalent amount of money? Or, if there is a reduction, can they raise less money? Do they have to raise the full amount? How will the reduction in the government grant be arrived at? Will it be by negotiation or discussion with the Scottish Parliament, or will it be mandatory and decided by the UK Government?

I may be overly pessimistic but I fear that the tax-raising powers proposed in the Bill will never be used by an SNP Government, because the SNP thrives on conflict and grievance, real or imaginary. I can see the possibility of the grant being cut and the Scottish National Party in government saying, "Well we can't provide this service because we just had a grant cut. If we are going to increase taxes, it is because the central Government in Westminster have cut the money that we are getting". The possibilities of the ways in which Salmond can exploit the differences are legion.

What of the future? Are we simply to pass this Bill and allow events to unfold north of the border? Even if we give this Bill every fair wind and turn it into an Act, notwithstanding the rather vague dates on commencement in the Bill, we are a long way from seeing these provisions in action.

The SNP has a manifesto commitment to having a referendum on separation. If my memory serves me right, SNP policy at one stage was that, if the nationalists gained an overall majority in the Scottish Parliament, that would give them a mandate to negotiate secession. Of course, they have changed their minds. Now they believe in a referendum. One would have expected that, flush with the results of the latest Scottish Parliament elections, the nationalists would have considered this a propitious time to call a referendum. So why have they not done so? Of course, they know, and I know-we all know-that the majority of voters who voted SNP at the last Scottish parliamentary election were not in favour of separation.

Nevertheless, we would have expected a positive response from the Scottish Government as to when and how the referendum might take place. Alex Salmond is no shrinking violet, so why is he so coy in pressing home his advantage? As I said earlier, the SNP thrives on grievance and conflict, and he will wish to engineer

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a whole lot of dissatisfaction, grievance and perceived slights to maximise his chances. This is why I do not believe that in any circumstances he should be allowed to pick a date of his choosing. There has to be, and must be, widespread debate, discussion, and consultation on this matter, so that the true voice of the people of Scotland can be heard, and after mature consideration we could have a referendum. One would hope that the result could be accepted, whatever the outcome, but I am afraid that past results of referendums prove that the losers never give up.

9.47 pm

Lord Watson of Invergowrie: My Lords, I welcome the Bill but I fear that in many ways it is too timid. The coalition Government had a commitment in its agreement to,

but they have fallen some way short of that. We have heard about the aggregates tax, which has been left on the shelf and, pending developments, may yet be brought forward. There seems to be no such proposal on air passenger duty. Half of the yield from tax and savings and investments was recommended by Calman-we have heard nothing of that-and there is to be a restriction on the borrowing powers to £500 million with £200 million in any one year. That is still an increase in one sense, but both the legislative consent committee of the Scottish Parliament and the Scottish Affairs Committee advocated going farther. The Scottish Affairs Committee suggested a figure of £1 billion, with £500 million in a year. I hope that the coalition will be amenable to amendments to that effect at the Committee stage. The powers on borrowing should be brought forward. They are scheduled to come into effect in 2015 and I hope that that can be brought forward to at least 2013.

The additional tax raising powers mean that the Parliament will become more dependent on the tax revenue it raises itself. That is surely a positive move, both for the standing of the Scottish Parliament and in terms of its legislative programme and the work that it carries out. I do not share the fears of the noble Lords, Lord Forsyth and Lord Lang, as to the effects of the Bill's proposals. The noble Lord, Lord Lang, questioned the settled will of the Scottish people both in terms of the original Scotland Bill and indeed of this one. It is quite clear that the 1977 referendum bore out the assertion that John Smith had made some three years earlier. I would accept that there is no settled will as such among the people of Scotland on this issue largely because it has not had anything like the publicity or coverage, discussion or debate that the original Bill had. However, I believe that there is an expectation that the much quoted "process, not an event" should be borne out.

Around 170 orders under the Sewel convention have been passed through the Parliament over the 11 years of its existence. That is one of the signs of development. There has been a constant change and improvement in the way that the Parliament operates and indeed in its relationship with the UK Parliament. Evolution or devolution is a natural process, though, and should be expected by Scots. The Bill meets their expectations to some extent. I disagree with my good

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and noble friend Lord Foulkes of Cumnock on one of the points that he made. He fears a process whereby step by step we get closer to what I think he described as the edge of independence. I have more faith in the Scottish people's understanding of the issues involved in such a major change and what it would mean for their lives.

I also believe that up to now the people of Scotland, when asked to vote on the issue, have shown a clear differentiation regarding what it means to vote for the SNP. The reason for voting for it in Scottish Parliament elections and in UK elections-they voted for it in droves in May this year-was not that the main goal was independence; it was about the perceived competence of the SNP Government over the previous four years. People are capable of making those distinctions. If and when the referendum campaign comes-I support my noble friend Lord Foulkes in saying that it should come sooner rather than later, and I will back him when he comes forward with his amendment in that regard-and the debates and discussions are held, the Scottish media will be well able to air the issues.

If I am confident of anything, it is that the political parties that want to maintain the union will be able to make their case convincingly, although they need to make it more convincingly than they have been doing up to now. If there is no movement with regard to devolution 12 years down the road, while I do not believe that we will have a revolution if there is no evolution-there will not be an insurrection-there could be a revolution in constitutional terms if for some reason it is seen that only the SNP is interested in trying to advance the interests of the people of Scotland, develop its democracy and to some extent meet their needs in terms of greater accountability over the people elected to legislate.

People have mentioned UK-wide parties, but that is probably not quite correct; it is GB-wide parties that we are members of. Those of us in those parties have to accept that political opposition to the SNP's bid for independence is often based on scaremongering. We seem to be very much on the defensive; we are on the back foot, and generally that is not a position from which anyone has achieved a victory. I have to say on behalf of the Labour Party that we found that out to our cost just four months ago. We largely fought the Scottish election campaign on the back foot, and we are now paying a high price for what I would say was our inability to articulate in advance a positive rather than a negative case for winning support.

To some extent, that is the elephant in the Chamber this evening. Since the Bill was introduced some months ago, not only the goalposts have shifted; we have moved on to a different pitch with a completely different surface. Let us not make any bones about it: the SNP recorded a stunning success in May, one that was supposedly impossible under the electoral system that obtained for the Scottish Parliament. It is wrong to blame the electoral system for what happened. I was personally in favour of that system at the time and remain in favour of a more proportional system. I shudder to think how much more decisive the SNP victory could have been if it had been under first past the post; there would have been no representation by other parties. It is interesting to see the Advocate-General

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nodding his head there; I think that he would support that point. For all its faults-it is not a perfect system; there is no such thing-by and large the Scottish Parliament's electoral system has served the Parliament well because it has drawn a line between what happens at Westminster and what happens in the devolved Administrations, and the same is true of Wales and Northern Ireland.

The SNP presented a positive programme for Scotland and was rewarded for that; this is how we in the three GB-wide parties should react. We have not reacted in Scotland since the election in May. There has been a pretty mute response to be honest, partly because the parties are still shell shocked. The Lib Dems have chosen a new leader-I am not sure whether there was an election-the Tories are in the rather entertaining process of doing so, but the Labour Party has so far left the SNP facing an open goal because we have not even been able to put forward a candidate. I hope that will be put to rights soon. All the while, the SNP is getting on with business and is presenting a face to the people of Scotland which no other political party in the country is able to do.

I was interested to see the TNS-BRNB poll on independence published this week. A chart was drawn going back to August 2007, which I believe was when the SNP first published its White Paper on Scotland's future and mentioned eventually holding a referendum. The question asked-I agree with my noble friend Lord Foulkes that in any poll the questions are fundamental-was: do you agree that the Scottish Government should now negotiate with the UK Government on independence? In August 2007, 35 per cent agreed, while 50 per cent did not. At the time of the May 2011 elections, these figures were 37 and 45 respectively. Now, 39 per cent believe negotiations should be undertaken and 38 per cent do not.

I do not think anyone should be in any way surprised at these figures, given that since the May election virtually nothing has happened in Scotland in political terms that has not been driven by the SNP. This is the wider context of the Bill that we are discussing today and that we will be discussing in the early part of next year. The political landscape and the political context of Scotland have changed dramatically since this Bill first appeared. The Bill is more important than ever because it is a tool which demonstrates to the Scottish people that there are progressive moves-I understand that the noble Lord, Lord Forsyth, will not see it in these terms-within the UK Government on behalf of Scotland, and that the SNP are not making all the running. That is a very important message to get across.

The Bill's proposals will make a difference to the way the Parliament is perceived because of the accountability that it will bring in terms of tax-raising powers. However, as I said earlier, I agree with my noble friend Lord Foulkes that we need to get moving on the referendum. I urge the Advocate-General to think very strongly about including this in the Bill when it goes to Committee. The delay can serve only the nationalists. If they felt strongly enough about their position, they would have called the referendum more or less immediately after the election in Scotland.

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Clearly, they do not feel that strongly, so why should we wait and allow them to call it at a time that is most beneficial to them, as they would do naturally as a party? Let us get this debate up front and let us give the Scottish people the chance to make their decision on a straightforward and unambivalent question.

It is quite clear from the debate that took place in another place on this Bill that the SNP is still more concerned with arguing about the inclusion of corporation tax and what it calls full financial responsibility, neither of which, I am sure, would do anything other than reduce the block grant for Scotland. On that point, I would urge some caution with regard to tampering with the means by which the block grant is calculated. My noble friend Lord Morgan urged ending the Barnett formula for reasons that he outlined very clearly-it does benefit Scotland-and your Lordships decided in Committee two years ago that it should be replaced. I understand that, but one has to be careful what one wishes for if one values the union, because ending Barnett, or even changing it dramatically, would be an absolute gift to the SNP.

Finally, I will say a word about the concerns of the noble Lord, Lord Forsyth, regarding the definition of a Scottish taxpayer. I share those concerns. The Law Society of Scotland stated in evidence to the legislative consent committee of the Scottish Parliament that,

Clause 32 of the Bill was inserted after Report stage in another place, but it has not provided a simple definition. Indeed, proposed new Section 80F, which remains, talks of spending,

As the noble Lord, Lord Forsyth, says, your Lordships are not excluded from the elected parliamentarians in respect of that. Just think for a second: it is not at all unusual for your Lordships' House to sit for 150 days a year. If some of your Lordships were to travel from Scotland on a Sunday-remember, it is where you end the day that counts-that could add to that figure. There are also weekends, the time you may spend out of Scotland during recesses and so on. It would not be difficult to get from 150 days into a position where you were spending more than half of that year in London or another part of the UK rather than Scotland. That needs to be clarified and, I hope, laid out clearly in the Bill.

In closing, I believe that the Bill contains many positive proposals. It enables us to advance to the people of Scotland the case that we can have the best of both worlds-being part of the United Kingdom, while having a devolved Parliament that is responsive to the needs of the people of Scotland and will now have substantial tax-raising powers. I look forward to discussing these and other issues in Committee.

10.01 pm

The Earl of Shrewsbury: My Lords, in welcoming this important Bill, I must declare my interests. I am the honorary president of the Gun Trade Association and of the British Shooting Sports Council. I am a

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member of both the British Association for Shooting and Conservation and the Countryside Alliance. On my past record in defending and promoting the shooting sports over the past 20-odd years, it will come as no surprise to your Lordships that I wish to address several issues raised by Clause 11, in which it is proposed to devolve the power to regulate air guns to the Scottish Parliament.

Since 1920, legislative control of all firearms, including low-powered air guns, has rested with the Westminster Parliament and legislation has been applied to England, Wales and Scotland. A different regime of controls applies in Northern Ireland. Low-powered air guns are those that generate not more than 12 foot-pounds of energy at the muzzle in the case of air rifles, or six foot-pounds in the case of air pistols. While such air weapons are subject to an extensive system of controls, they are not subject to licensing. It is now proposed in Clause 11 to devolve controls of low-powered air weapons to the Scottish Parliament. Controls of other classes of firearm, including high-powered air guns, will remain with the Westminster Parliament. There is little intimation of what controls are planned by the Scottish Government but it seems likely that additional restrictions will be imposed in Scotland, creating a different regime in one part of Great Britain.

The Gun Trade Association has estimated that around 4 million people in Great Britain own and use some 7 million air guns. In Scotland, around 700,000 people own approximately 1 million air guns. Between 150 million and 200 million air gun pellets are fired in Scotland each year. Air gun owners invest heavily in their guns and in accessories such as telescopic sights. The air gun industry has a turnover of around £750,000 per year in Scotland. There is, in addition, a considerable trade in both air guns and accessories with other parts of Great Britain.

Air guns are extensively used by responsible owners for legitimate reasons. Ten-metre air rifle and air pistol events for men and women will feature in the forthcoming Olympic Games, as they do in the Commonwealth Games, European games and other major international and national competitions. The starting point for all competitors in these events is the local shooting club, and the well-being of those clubs is the key to success at national and international level. Competitive air weapon shooting demands very high levels of fitness and, perhaps most of all, discipline. Air gun shooting is seen as very much a character-building sport by organisations such as the Scout movement.

Air weapons are extensively used to control pests such as rats, rabbits and some birds. In many rural communities those linked to agriculture see air weapons as essential tools in their work. Among the wider shooting community, air weapons are seen as a vital training tool, allowing mentors to instil high levels of skill, discipline and safety into newcomers to shooting sports, particularly youngsters. Most of today's sporting shooters made their start with an air weapon of some description.

Perhaps the most extensive use of air guns lies in informal shooting, with parents or elders teaching their youngsters to shoot in the privacy of their own garden. Shooting sports are a major source of income in Scotland. In 2006, a report to be found on the

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VisitScotland website shows that direct income from providing shooting for visitors is estimated at £80 million per annum, with two-thirds of that coming from outside the country. Many of those visiting Scotland to shoot will take along an air weapon so that they may supplement their sport on the deer by indulging in pest control and informal target shooting.

Like almost every instrument known to man, air weapons are misused. However, the evidence is that the misuse of air guns is very low and is susceptible to control by vigorous policing. At the most serious end of the spectrum, air weapons are very rarely involved in homicide. In England and Wales during the period 1983 to 2002, there was an average of 0.6 homicides per year in which an air gun was involved. In Scotland, from 1998 to 2005-06, the comparable number was 0.2 cases per annum. Comparative statistics work better with larger numbers. The number of offences for all classes in England and Wales in which air guns were involved during 2000-01 was 10,227 cases. The figure peaked at 13,822 in 2001-02. There was a slight and insignificant reduction in the following year, but a dramatic fall from 2004-05, which has been sustained to date.

In seeking an explanation for a halving of the number of offences in England and Wales, researchers have pointed to the Anti-social Behaviour Act 2003, which took effect in January 2004 and which created a simple and easily enforced provision in the case of someone having an air weapon in a public place, whether loaded or not, without a reasonable excuse. Other new controls included restricting selling by way of trade to registered firearms dealers and new age limits for acquisition and use. Linked with an extensive programme of education by shooting organisations, these have provided the police with the tools they need to control the problem without imposing major restrictions on legitimate users.

In Scotland the picture is a little different. In the 1990s, the number of air gun offence cases per year was around the 1,000 mark, but from 2000-01 to 2009-10 that number has been driven down to an average of about 500 cases per annum. Comparison with the figures for England and Wales shows that police in England and Wales have driven that number of cases down to a level comparable with that in Scotland. The indications are that continued police efforts in this field are capable of driving down this problem of air weapon abuse much further without the need for a new or different regime of control in one part of Great Britain.

All the evidence shows that the police have an ample range of powers to deal with the misuse of air guns and that the UK Government have been ready to consider the evidence and implement additional controls where appropriate. The result over the past two decades has been a halving of the number of reported offences, first in Scotland and then in England and Wales. Misuse of air guns has been consistently lower in Scotland than it has been in England and Wales, and no evidence is available to show that further restrictions would be beneficial to Scotland.

The absence of any detail about what the Scottish Parliament proposes in respect of air guns makes it impossible to understand what consequences will flow

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from this clause. There has been an indication, via press releases in 2008, that a proposal to license air guns in the same manner as rifles has been under consideration. It is understood that officials have liaised with the Irish Government about the licensing system there. The intention is to license only those people who use air guns for occupational and sporting uses. That implies a system akin to that for the current firearm certificate, which involves a great deal of police time and effort in inquiring about the nature of the use of the gun, the background of the individual, storage arrangements et cetera. Police in England and Wales have estimated the cost at £102 per certificate. The cost of the certificate may therefore exceed the value of the air gun in some cases. Less well disposed owners may simply decline to submit to this bureaucracy and there will be no mechanism for tracing them. No one in Scotland knows precisely how many air guns are currently in circulation and, more importantly, who has them.

The administrative burden of introducing an air gun licence will be enormous. There will be potential demand for 700,000 certificates, although the history of the gun control regime suggests that actual take-up will be far less-perhaps half a million, almost certainly decreasing with the passage of time. If the "good reason" requirement is imposed, many certificates will be refused, and the administrative burden of a refusal is much greater than that of a straightforward grant. There will be appeals to the courts with high costs involved.

There are currently about 50,000 shot gun certificates and 26,000 firearms certificates in Scotland. The overlap-those who hold both certificates-is not officially published but has been estimated at 17 per cent of shot gun certificates, being 8,500, making a total of 67,000 certificate holders. The added burden of air gun licensing on the police might initially increase the current burden on firearms licensing departments. With government cuts, they are losing staff right, left and centre, seven or eightfold.

Many Scots will be able to cross the border into England to purchase air guns and their accessories, and the nature of the border is such that no one will be any the wiser. Visitors from England may in ignorance continue to bring their guns with them, or they will require a visitor permit. Visitors involved in sporting shooting are most likely to leave their air guns at home, with loss of revenue to providers of the sport. Those competing in major national shooting events, such as the annual Scottish shooting meeting, will be seriously inconvenienced and will incur additional costs. Many are likely to restrict their efforts to events in England and opt out of the Scottish events. The problem will extend to events such as the Commonwealth Games, in which air gun events are mandatory. There will be considerable difficulties continuing with the major role of the air gun, which is training young shots in informal target shooting. The trade in air guns would be very hard hit by any such change and it seems highly likely that many suppliers, especially specialist suppliers, will simply go out of business.

Trade sources have calculated that, of the 5.1 million Scots, 700,000 own air guns, which is 137,000 air gun owners per million population. In Northern Ireland,

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1.5 million people own 20,000 air guns, which is 13,000 air gun owners per million population. Thus, over a period of years, the imposition of an Irish system would eliminate 90 per cent of the law-abiding air gun users who apply for a licence, leaving about 70,000 as a long-term burden on the police-still a greater burden than that of administering the current firearm and shot gun certificate system, but a shadow of the present legitimate air gun owning population.

In conclusion, I look forward to tabling amendments in Committee.

10.12 pm

Baroness Kennedy of The Shaws: My Lords, it will surprise none of your Lordships to hear that I am not going to speak about air guns.

I was very proud to be among those who championed devolution for many years as chair of Charter 88, and I was in this House to see the passage of the first Scotland Bill, which fundamentally altered the constitutional architecture of the United Kingdom. I endorse what was said by the noble Baroness, Lady Ramsay; it was a time of excitement and exhilaration for so many of us who had wanted it for so long. It was not about holding the Scottish nationalists at bay. For us, it was about strengthening democracy and letting people make decisions closer to home on matters that affect them directly. I think that the reforms have been a success and that the new Parliament has made a real difference to the lives of everyone in Scotland.

There has been a bit of an argument about who said that devolution was a process, not an event. Donald Dewar recognised that we would continue to see a transfer of power from the House of Commons to the Scottish Parliament as the new Parliament bedded down and gained the confidence of the people. I know that because he told me so. Like Donald Dewar, I am a strong believer in genuine devolution. I do not support independence, because I think that the unity of our island gives us greater sway in the world. I think that huge benefits come from our union, from our partnership of nations but, as in the best of contemporary marriages, I think that strength comes from recognition of the distinct identities of the partners-that they are complementary yet separate entities within a conjoined state.

Few modern women would want to go back to the marriage of old, where their status was second-class and survival depended on the good will of their man, without recognition of their huge contribution to the family and where their autonomy and ability to make choices on matters directly affecting them were profoundly constrained by their spouse. A modern marriage involves constant evolution. Donald Dewar always recognised that Scotland would have to have its own fiscal powers, and the first drafts of the devolved powers included fiscal powers. It is claimed that it was our then Chancellor who quashed those plans.

As my noble and learned friend Lord Davidson and the noble and learned Lord, Lord McCluskey, said, there are matters to resolve around the Supreme Court. I hope at some point in Committee to add my voice to those concerns and my belief that the Supreme Court plays an important role for our whole United Kingdom.



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There is much that I support in the Bill. It accepts that greater financial powers should be devolved to the Scottish Parliament. I welcome that shift-in principle. I am rather tired of the talk of whinging Scotland. As has my noble friend Lady Ramsay, I have listened over the years to speakers in this House complain about the Barnett formula and the way in which Scotland has apparently benefited disproportionately from the Westminster grant. Nothing is ever said in those debates about the reciprocity involved: the benefits to the United Kingdom as a whole of the North Sea oil revenues over many years or the intellectual property brought to the United Kingdom by Scottish inventions from Watt to Macadam. We can name those great inventors, and they still exist in Scotland. We even gave you capitalism, for which you should still be paying us commission.

The Barnett formula has not been mentioned in the Bill. That causes me concern, too. It does not have to be mentioned because it is an administrative arrangement, but I suspect that it will be altered once the Bill is passed. It seems clear to me that it is an intention of Government to have a staged withdrawal of that grant. We should be clear, and there should be discussion in Committee, on what the implications of that are and whether increases in taxation are actually going to meet the default.

The people of Scotland want to see the functions of their Parliament strengthened. They want their Parliament to have greater fiscal responsibility so that it can be held accountable. They would accept the Calman proposition that the Scottish Parliament should not be there simply to divide up the block grant but that it should have fiscal accountability. Currently, the budget bears no relation to economic performance in Scotland. The Bill replaces the Scottish variable rate of income tax with a new Scottish rate that will be decided by the Scottish Parliament annually and applied consistently to the basic, higher and additional rates of tax.

Although there are other areas where the Scottish Parliament can make changes, the noble Lord, Lord Forsyth, told the House that Alex Salmond said that you cannot make an economy run on a narrow tax base. On other occasions, the noble Lord described it as,

"You can't play golf with just one club".

You cannot limit financial responsibility to income tax and stamp duty if you want to manage the economy. If the Scottish Parliament is to have responsibility, it must be responsible not just for varying tax but for its own economy. The noble Lord, Lord Forsyth, said that and I agree with him. Scotland has to be given the levers to grow its own economy, then it really can be self-reliant on taxation, otherwise Scots are going to suffer. That means that there have to be increased borrowing powers. We have already seen those in the Bill, but they are not adequate to the task. Nor, as my noble and learned friend Lord Davidson said, are they coming into force soon enough. The limited £500 million borrowing powers are allowed only if tax receipts fall short of those anticipated. That puts Scotland under pressure to make significant cuts should a shortfall arise.

What are the implications of that? Scotland should be allowed to say that it might choose a different route out of recession than the one selected by the current

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Westminster Administration. Many in the House are against the idea of Scotland being able to set its own corporation tax. That corporation tax and other fiscal matters have to be thrown into the mix if Scotland is to be able to choose a different set of priorities. I say this as someone who would like to see the harmonisation of taxation across Europe, but we are certainly not going to see that delivered by this Government. How can Westminster think of allowing Northern Ireland to set its own corporation tax but withhold such powers from the Scots? You cannot do that. Think of the feelings of inequity that that is going to create in Scotland. Think what that is going to mean in terms of adding to the numbers of those who will vote for the Scottish nationalist party.

The problem with this Bill is that it might create unintended consequences. It gives just enough tax powers to make the Scots parliamentarians more accountable, but not enough to enable a truly different set of economic choices.

Unlike the Scottish nationalist party, I do not believe that the people of Scotland as a whole want independence. What they want is a different visioning of their destiny from the one that is being offered by the coalition Government. They do not want the slash-and-burn approach to public services and the introduction of extortionate fees for a university education. They do not want sado-monetarism. They are revolted by the triumphalist language surrounding the cuts, where toughness is good and compassion is deemed pathetic. They find the current economic policies of Westminster morally repellent. They are revolted by the characterisation of the public sector as some kind of parasite, draining the wealth of the nation.

Scotland is a nation that has been built on respect for learning and public service. There is still huge admiration in Scotland for teachers, doctors and nurses, for academics and ministers of the churches. The Scots do not want the brand of global turbo-capitalism to which Westminster is so wedded, which sets itself up in hostile opposition to professional public service. They want something different. They want a modern mixed economy of private enterprise, creativity and public service, a mix of commercial success, social responsibility and civic engagement. They have turned to the Scottish nationalist party out of disdain for the three main political parties, disdain for the modern Conservative Party, disdain for the changes and shifts that the Liberal party has made, and disappointment that Labour failed to create a distinct social democratic model. They have watched the honourable, law abiding Adam Smith tradition of wealth generation being trashed, and have seen it give way to a system in which the big corporations and the bankers and the Murdochs of this world can suborn any elected Government with threats of taking their ball elsewhere; where the masters of the universe can get laws changed that in any way interfere with their super-profitability, and blackmail Governments into doing it all their way.

Well, it is not the Scottish way. This is not the model of capitalism that the Scottish people want. The deficit-cutting strategy of the coalition Government is not going to create growth in Scotland, and the Scots know it. It is going to bring higher unemployment and misery.



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Around me on my own Benches-they are all absent because they are all down in the bar, I am sure-are the many who fear that giving greater powers to the Scottish Parliament will provide a gift to Alex Salmond, who will use increased borrowing powers to protect Scots public sector workers, maintain things such as free prescriptions, and increase his chances of winning a referendum on independence. Well, I think you are all underestimating the canniness of the Scottish electorate.

The Scottish nationalist party is not in government in Scotland because of the folly of devolution. It is not in government in Scotland because of some kind of peculiar election system. It is there because of the failure of the main political parties. And I am afraid it is there because of the folly of new Labour in failing to have a sufficiently social democratic agenda. If Labour wants to recover in Scotland-and I say this to my own party-it has to stop defending its romance with neoliberal economics. It has to stop canoodling with Thatcherism and revive its belief in equity and social justice. It has to embrace new models of enterprise fit for the 21st century, and provide Scotland's Parliament and people with the powers that they really need.

One day, I hope, we-Labour-will want to exercise those powers. The noble Lord, Lord Wigley, got it right when he said that the United Kingdom in its present form is not serving Scotland's needs, and we should take lessons from that. There is plenty of evidence that the people of Scotland want a stronger form of devolution. We now have a unique opportunity to reshape how that devolution works. Therefore, I welcome the Bill. I welcome the opportunity that it provides to us to strengthen and change it, and I hope that in its passage through this House it will become more empowering and more reflective of the concerns of the Scottish people.

10.25 pm

The Earl of Lindsay: My Lords, I thank my noble and learned friend the Minister for introducing the Bill to the House. I declare an interest as a member of the Calman commission and, in doing so, I express my broad support for what the Bill intends to achieve and the opportunity that it provides for implementing the recommendations put forward by the Calman commission.

I have listened with care to the concerns and fears that a number of noble Lords have expressed about the fact that the landscape and circumstances have moved on since the Calman commission reported in 2009, as well as concerns that there may be unintended consequences from some of the Bill's provisions. The value of the process that the Bill will be subject to in this House is that we can both test those fears and test the robustness of the provisions that were rooted in the Calman recommendations in the light of modern circumstances.

Equally, I should like to caution noble Lords against seeing the proposals in the Bill purely from the political end of the telescope. Those of us who served on the Calman commission were struck by the extent to which there is a real appetite within civic Scotland for an increase in choice and responsibility and the extent to which there is a desire within the Scottish Parliament to serve the people of Scotland better. There is a real

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appetite for a Scottish Parliament that is more financially and fiscally accountable to the people of Scotland. Therefore, there is not just a political manifesto lying at the root of the provisions of the Bill; there is a real strength of view in non-political Scotland that these provisions will be good for Scotland, and the quality, quantity and diversity of the evidence that we took from civic Scotland underpinned that assertion.

The noble Lord, Lord Elder, made a brief reference to the process of the Calman commission, which helps to underline the point that I have just made. We sat for well over a year. We met almost weekly at times. We received a substantial amount of evidence in a variety of formats designed to engage with the widest possible range of views across Scotland. We sought views on everything that was raised with us and we also sought counterviews. We did that not once but twice in that the commission had a two-part process. We also sought independent expert advice as necessary, and we spent some considerable time understanding the experience of other countries with devolved Governments.

The sum of those efforts was that our report was shaped not by our own preconceived views or by the political mafia but by the sheer weight of evidence, submissions and advice that we received across the length and breadth of Scotland, and largely from civic Scotland. To further put the Calman commission report into a proper context, the report and recommendations were unanimously endorsed by all its members. The commission had a majority of non-political members from different parts of Scotland, as described by the Minister in his opening speech, and we shared a wide range of backgrounds. However, the endorsement of our recommendations was unanimous, and I take this opportunity to pay tribute to the deft and wise chairmanship of Sir Ken Calman.

Since the Calman commission formulated those recommendations, the proposals in this Bill have been further subject to scrutiny, amendment and improvement within the Scottish Parliament and in the other place, as well as by committees, as described by my noble friend, in your Lordships' House. I hope and believe that the proposals that we are looking at are going to deliver the benefits that we were tasked with securing when we set forth on the Calman commission remit. Ten years after the Scotland Act 1998, a review of how it worked and a revision of certain boundaries has been a sensible exercise. Queries raised by various Members about specific proposals in this Bill with respect to some of the changes in devolved or reserved matters can be studied in greater detail in Committee. It illustrates that there are boundaries between devolved and reserved powers which require continuing surveillance and discussion.

The improvement in the financial accountability of the Scottish Parliament is also going to be a beneficial step. The extent to which beyond the Scottish income tax it is able to raise new taxes, which my noble friend Lord Forsyth mentioned, is, I understand, subject to the approval of the United Kingdom Parliament, but perhaps my noble and learned friend might confirm that. The commission recognised the complexity of the recommendations for a Scottish income tax. We recognised the need to understand and anticipate the

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logistics, administration and operation of such a proposal before it came into effect. We recognised the need to avoid unintended consequences from the proposed Scottish income tax. We were categorical in our view that no such proposal should take effect until considerable time had been spent preparing and understanding the ground, and that that prior work should be followed by transitional arrangements when the Scottish income tax was introduced so that further teething problems could be properly dealt with.

The Scotland Bill takes forward the commission's recommendations that require primary legislation. These are set out in parts 3, 5 and 6 of the commission's report. I would like to draw the House's attention to part 4, entitled "Strengthening cooperation", as the commission saw the recommendations set out there as being of special relevance to the recommendations requiring primary legislation. Tonight's debate on the various proposals for legislative change, and some of the comments and concerns that noble Lords have expressed, further emphasise the importance of this part of the report in dealing with the relationships between Governments and Parliaments.

In paragraph 4.2, at the start of part 4 of the report, we state:

"Between the UK and Scottish Parliaments and Governments, issues regularly emerge that require discussion, co-ordination or joint action. On some occasions this may involve disagreements about policies or priorities. On others there may be broad political consensus but a need to ensure that joint interests are co-ordinated, information is properly shared, the impact of the choices at one level on the responsibilities of the other are recognised, or that different circumstances or institutional background are taken into account."

In paragraph 4.6 we make the point, and I paraphrase, that wherever there is a boundary between reserved and devolved powers and responsibilities, there is going to be a need for mechanisms to manage the issues that will arise around that boundary. Some of the topics of concern cited tonight range from speed limits to air rifles and energy policy. Wherever there is a division in responsibilities, powers and interests, there is a need for mechanisms that can ensure and manage discussion around that division.

We were firmly of the view that a vital element of the success of any devolutionary settlement is the strength of those relations, both formal and informal, between Governments, Parliaments, other democratic representatives and institutions of the state. This prompted us to look closely at how the arrangements for dialogue, collaboration and dispute resolution worked in practice and had worked since 1998 and whether they could be improved. In doing so, we also received extensive evidence on the widely seen need for Governments, officials and Parliaments to work together and, indeed, on the widely held expectation that, on behalf of the wider public good, such joint working and collaboration would be the norm, not the exception.

In respect of Government Ministers and officials, we considered and took evidence on a number of the mechanisms, such as the Sewel convention, the memorandum of understanding, the various departmental concordats and the joint ministerial committees. We also looked at inter-parliamentary relations. There, we found relatively few mechanisms to promote communication, dialogue, information exchange and

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even access between Members of the Westminster and Holyrood Parliaments. The evidence that we heard suggested that there is significant room for improvement and a need for more structured relations between parliamentarians and parliamentary committees in London and Scotland.

The general picture on cross-border co-operation was not without one or two brighter spots. We acknowledged that the two Governments can and have worked well together on some issues-for instance, on civil contingencies and in response to bio-security scares. We also recognised that there is a good example of the two Governments and two Parliaments working together regularly and effectively with what is known as the Sewel convention, which, as has been explained by various noble Lords, enables the UK Parliament to legislate for Scotland on devolved matters with the agreement of the Scottish Parliament. I regret that, overall, these examples were relatively few in number, and we were struck by how underdeveloped inter-governmental and inter-parliamentary arrangements are.

This was especially striking when looking at other countries where there are not dissimilar arrangements between sovereign and devolved levels of government. In other countries, these relationships tend to be much better organised, and they are seen as being a key ingredient of a resilient, flexible and successfully functioning devolved constitution.

We therefore came forward in part 4 with a series of recommendations to strengthen the degree, effectiveness and transparency of co-operation at all levels. In fact, of the 63 recommendations made in total by the Calman commission, over one-third of them-23 to be exact-dealt with strengthening co-operation, dialogue and collaboration. Noble Lords will be glad to hear that I shall not go through all 23 recommendations, but I shall give a flavour of one or two of them because they are relevant to the proposals in the Bill and to some of the fears and concerns expressed by noble Lords in relation to it.

In regard to collaboration between Governments, Ministers and officials, our recommendations included reinvigorating and further developing the joint ministerial committee structure and network, making it subject to greater parliamentary scrutiny and transparency. Importantly, we want to see its remit developed so that its primary purpose is to champion and ensure close working and co-operation on joint interests, rather than merely being a dispute resolution of the last resort.

In regard to Parliaments, we made a number of recommendations. These included strengthening the Sewel convention and ending the United Kingdom Parliament's self-denying ordinance of not debating devolved matters as they affect Scotland. If we ended that self-denying ordinance, we would achieve some symmetry with the Holyrood Parliament, where there is no self-denying ordinance to prevent it discussing reserved matters. We recommended introducing a regular "state of Scotland" debate in another place, an initiative that we may want to consider in this House as well. We also recommended strengthening the existing mechanisms of both Parliaments for working together and communicating with each other, either in respect of the Sewel convention or on other matters.



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We proposed that a standing joint liaison committee of the UK Parliament and Scottish Parliament be established to oversee the strengthening of inter-parliamentary relations and consider the establishment of subject-specific and ad hoc joint committees of the two Parliaments. Likewise, we proposed that committees of the United Kingdom and Scottish Parliaments should be able to choose to work together when appropriate and that any barriers should be removed in terms of reciprocal access, sharing information and evidence and holding joint evidence sessions. In recognition of the importance of the joint interaction between both Parliaments and Governments, we felt that both United Kingdom and Scottish Government Ministers should commit to respond positively to requests to appear before committees of the other's Parliament.

We brought forward a large number of considered recommendations in this section, covering other matters such as the conduct of inter-governmental ministerial meetings and Europe. Importantly, we felt that there should be ongoing UK parliamentary oversight and stewardship of the constitution by way of regular scrutiny of the shape and operation of the devolution settlement.

I raise this part of the Calman commission's report and its 23 recommendations in this evening's debate for good reason. The ability of different Governments and Parliaments to work together in a constructive and structured manner is a fundamental dynamic in the management of a series of divided and overlapping responsibilities and powers. The ability to manage and collaborate around the boundaries between reserved, devolved and overlapping interests has a bearing on all the proposals in the Bill.

I welcome the Bill. We need to test in Committee and on Report both its proposals and the concerns that have been expressed today. I would welcome an update from my noble and learned friend the Minister on the progress that is being made with the recommendations in part 4 of the commission's report, because it has underlying relevance to the Bill and to the whole constitutional relationship between Holyrood and London Governments and Parliaments. I would welcome information also on any other relevant plans or initiatives.

10.43 pm

Lord Soley: I strongly believe in the United Kingdom as an entity. It is one of the most effective political and economic unions that the world has ever seen. It virtually put an end over a relatively short period to the internecine warfare around the area. Importantly, it also launched Britain as the world's first industrialised, unified economic and political system, which produced great freedom under the rule of law. We should be proud of that and stand up and fight for it.

One of my regrets about today's debate is that the Government have chosen to put it all into one day. My noble friend Lord McAvoy pointed out that it would make people in Scotland feel that they have been pushed to the end of the day. Although they would be right to feel that, it is also the United Kingdom which has been pushed to the end of the day, because there would be many more speakers here from elsewhere in the United Kingdom-from England, Wales and

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Northern Ireland-if this had been a two-day, rather than a one-day, debate. That is a serious failing on the part of the Government.

I am also a strong believer in devolution. I think we got it broadly right and that the broad thrust of this Bill is right but I am worried about the development of the nationalistic agenda in Scotland. I have never really liked the push towards nationalism. One of the things that perhaps Alex Salmond needs to recognise is that if you wrap yourself in the flag of one part of the United Kingdom and suddenly start arguing that you can separate in some clean break into just two separate systems, you are forgetting that there are other parts of the system-Wales, Northern Ireland and England. I might add that the people of Shetland do not talk about Scottish oil. They talk about Shetland oil. I have just come back from a delightful holiday in Orkney. I counted in the first four days there no fewer than 14 Norwegian flags. If I was somebody representing Orkney or Shetland I would be insisting on a referendum in Scotland including a referendum on the future of Orkney and Shetland in Scotland. It is one of the reasons I make this point. The Minister will know the importance of the Orkney one.

One of the important points that has been made-I hope the Government will accept it-is that the referendum needs to be held, as I think the noble Lord, Lord Steel, said, under the Electoral Commission for the United Kingdom. It is completely wrong to leave it to the existing government of Scotland to develop the rules and regulations for an election that affects not just Scotland but the whole of the United Kingdom. We should also remind ourselves that in the settlement on Northern Ireland any referendum in Northern Ireland on its future also requires a referendum in the island of Ireland. There is a very strong case for saying that any referendum on any part of the United Kingdom breaking away ought also to be a referendum within the United Kingdom in much the same way we have agreed for Ireland. That has all sorts of dangers. I am not necessarily recommending it, but follow the logic. If you say one part can just break away the changes will be very significant and very dramatic and we should not go down that road. I actually think the Scottish people will be far too sensible to do that. At the end of the day there is not the will for that degree of independence.

I want to make another point about which I also feel very strongly. It is the idea that somehow or other on this island of just 60 million people, where for 1,000 years we have been mixing and interbreeding, you can suddenly come out and say that this person is English, that person is Scottish and that person is Welsh. I often get people saying to me, "You're English". I speak with an English accent. I was born in East London so you could say that makes me English. However, if you look at my background it is actually Welsh, Scottish and Northern Irish. What suddenly gives Alex Salmond or anyone else the right to tell me that I am English? If you ask me what I am I do not say English. I have never identified with England as an entity. I identify myself as British and for me that is important. It seems to me that I have a right to vote in a Scottish referendum if I regard myself as Scottish. I

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am in the process of looking for a house in Scotland. If I get one in time suddenly I will be Scottish and will be able to vote.

This sort of nonsense makes sense in a larger continental entity. If you are in a continent the size of Europe with 400 or 500 million people you can do this but in an island the size of Britain with four nations it does not make sense. I have strong objections to people telling me what my national identity ought to be. Much of my life has been spent in close connection with Scotland. In many ways, as my noble friends will know, the Scottish education system saved me. I left what by any definition was a failing school in East London aged 15 in the early 1950s. I was turned down even by Ruskin College, believe it or not, but I was accepted by Newbattle Abbey College near Edinburgh. I was accepted by Strathclyde University as an adult student even though I did not have the proper qualifications. I was even, I might add, accepted as a bus conductor on what used to be known as Alexander's Buses in Scotland where doing the Ruchazie, Castlemilk and Easterhouse runs on a Friday or a Saturday night required a great deal of nerve and the recognition that paying your fare on those nights was a voluntary activity, particularly when someone turned round to you and said, "What is a Sassenach doing taking my money off me?". This nationalism that has suddenly convinced Alex Salmond that he has some great national identity that he can give to the rest of us is profoundly wrong and profoundly dangerous. When national identities break up, they do not always break up neatly; they often splinter, and splintering is dangerous, which is why I mention this issue of where the referendum is really held-not because I recommend it but because I know that that can be the end of the road if you go down that line.

I would like to talk a bit about the tax issue that the noble Lord, Lord Forsyth, mentioned, but at this late hour it would be better if I did not. He is hitting on a very important point about the impact on the union at the end of the day and the similarities between the various parts of the union. One issue that we have yet to face up to-the noble Lord, Lord Sewel, touched on it-is that in a way the United Kingdom was the first invention of a type of federal system, but it was not and could not be a full federal system because, as he said, England is too big compared to the other parts. But we should consider the relationship between the Parliaments and institutions of the various parts of the United Kingdom. That touches on what the noble Earl, Lord Lindsay, said about the report, which again I would have liked to talk about more. We need to do much more work on that. It has often occurred to me that although I would not recommend that this second Chamber became simply a chamber for the regions of Britain, there is a way that we could use it on occasion for debates about the regions. That is particularly true if you develop devolution within England. The problem is that very often it is said that the Scots feel that they are governed by London and that everything is decided down here. You can have a similar conversation in Cornwall and in parts of the north of England. They feel that London dominates. If you look at the population of the United Kingdom, 25 million people are in that south-east corner bordered by Cambridge, Milton Keynes, Oxford and Southampton.

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Of course that area is going to dominate the rest-but that makes other people in further-out regions, not only Scotland, Wales and Northern Ireland but other parts of England, feel marginalised. I do not think that the answer to that is to have an English Parliament, but the devolution option is a real and sensible one. Then you would need to find ways in which to discuss the matters that affect all of us, which could be one of the roles-perhaps a limited role-of a second Chamber. It is something that we have never really looked at or thought about in any depth.

I want to end on this point. The United Kingdom is immensely important. If we risk breaking it up, it does not follow, as the SNP needs to understand, that it is going to be a nice, neat, clean split. It could be much more splintered and unpleasant than that, and it would certainly lead in my view to many problems that none of us need have. But to win that argument we need to think about the structures again. The noble Earl, Lord Lindsay, is right to spend some time on that. We need to think about the tax issue, because of the differences that that can create. Other noble Lords have mentioned things such as the educational grants and so on; all these things accentuate difference and play into divisions.

The United Kingdom is a very impressive asset for us. It is particularly suitable to an island of this size; we are not a continent but an island, and it is important to remember that. It is those structures that we ought to look at. I do say to the Government, "For heaven's sake, in future if you do constitutional Bills like this, don't think that it just relates to that part of the United Kingdom that we are talking about-it relates to all of us, and we all need to have a say on it".

10.54 pm

Lord Stephen: My Lords, I begin by agreeing with my noble friend Lord Soley that the timing of this debate, given its self-evident importance, is less than ideal. However, there have been many very valuable contributions. It is perhaps worth starting with the summary given by my noble and learned friend Lord Wallace about the history of all this. This particular Bill and review all began back in 2007, immediately after the Scottish election that took place in that year. There was a sense that, after 10 years or so of its operation, we needed a full and serious review of the working of the Scottish Parliament and its effectiveness and the possibility of more powers for the Parliament. We needed to put in place what became the Calman review to achieve that.

It is important to underscore that the scale of this review has been extremely serious, significant and substantial. In my view, great credit should go to the noble Lord, Lord McConnell of Glenscorrodale, for helping to trigger the review. He had just fought a very close election campaign, essentially on a manifesto of no change to the powers of the Scottish Parliament, yet he took on the proposal to trigger this review. So too did the leader of the Scottish Conservatives-now their outgoing, and perhaps final, leader-Annabel Goldie. Not everyone in her party agrees with this review, as we have seen in the Chamber this evening, but she was prepared to put her reputation at stake and work with the Labour Party and the Liberal Democrats to trigger the review.



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My position at that time, as leader of the Liberal Democrats in Scotland, was a far easier one, because, as noble Lords will be aware, the Liberal Democrats support home rule, a federal structure for the United Kingdom, greater powers for the Scottish Parliament and more decentralisation. My concern was that the whole thing would not go far enough and that it would not be substantial. To give one simple point of clarification, I should point out to the noble Lord, Lord Forsyth, that in establishing this review, we had to wait for the election of Wendy Alexander as the new Scottish Labour leader before finalising the commission, its membership and so on. The plans were already in place when she became party leader, and therefore her plans to support the referendum-to "bring it on", as noble Lords may recall, and as he referred to earlier-did not actually come until later in her leadership.

I would like to pay tribute particularly to Professor Sir Kenneth Calman, but also to the lay people-businesspeople and young people from across Scotland-as well as the senior party political figures who participated in the Calman review. I would also like to pay tribute to the noble and learned Lord, Lord Boyd, the noble Lords, Lord Elder and Lord Selkirk, and the noble Earl, Lord Lindsay, and particularly to the noble and learned Lord, Lord Wallace of Tankerness. I am delighted that he is now in charge of the Bill in this House. I think it should also be mentioned that there was one other political activist involved in all of this, Audrey Findlay. She deserves considerable credit, not least for her work alongside the noble and learned Lord, Lord Boyd, the noble Lords, Lord Elder and Lord Selkirk, the noble and learned Lord, Lord Wallace of Tankerness, and the noble Earl, Lord Lindsay. It was quite a task for her to be part of that heavyweight team.

It was hard and serious work, but we achieved unity. That involved compromise. It could have been simply tinkering at the edges-a polishing of what was achieved in 1998-and, at one point, I feared that it might be. Yet, in my view, the commission came up with a radical set of measures particularly in relation to taxation that went far beyond what we were told that the Treasury would live with when the review was first established. That is another point to emphasise: getting the UK Government to support the Calman commission, and getting the Treasury directly involved in the review, was difficult to achieve, but we got there in the end and they played a very important role in shaping the proposals that are now part of this Bill.

It is simply not tenable for any Parliament to receive a £30 billion cheque each year but have responsibility only for spending that money without having any role in raising a single penny. I tried to explain the system once to the Chinese Finance Minister during a visit to St Andrew's House in Edinburgh, probably just after a lunch with my noble friend Lord Steel as Presiding Officer down at the Parliament. After I had given the best explanation I could, he responded by saying "Ah, I understand now. It's very similar to the way we fund Tibet". At that point, I wondered whether the problem was my explanation or whether we perhaps had a fundamental problem with the system in Scotland. The Scottish Parliament was, and today still is, 100 per cent dependent on another Parliament for its funding.

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In my view, that is not sustainable and more powers to create a more buoyant tax base are required. Perhaps more powers than are in this Bill are required in time, but this remains a strong start.

For the Liberal Democrats all of this was, as I have mentioned, a natural progression building on our original commitment to home rule, our commitment to the Scottish Constitutional Convention, the progress through Parliament of the Bill which became the Scotland Act and then the excellent work of the Steel commission, chaired by my noble friend Lord Steel, in looking at how to create a stronger, more effective Scottish Parliament. This Bill is not only of great significance but has been progressed far more quickly than we might have imagined when the Calman commission was established. Having been thought of in the summer of 2007, the commission was established by the Scottish Parliament in December that year, with an interim report in 2008 and a huge volume of work done by the commission and its members in the period up to the final report in 2009, which was at the 10-year mark. It was then endorsed at a UK general election in 2010 and is moving forward into legislation in 2011. It has moved speedily-far more so than I originally anticipated-and has had a far greater impact on Scotland than the Scottish Government's "national conversation", which took place over the same period.

In my view, the UK remains too centralised. We have heard discussion tonight of some other nations. My noble friend Lord Maclennan mentioned Australia, in some parts of which 55 per cent of the tax base is raised at the state level. In some regions of Spain, 100 per cent of taxation is raised at the regional level. The USA, Canada and Germany-the list goes on-all raise substantial taxes at a federal or regional level and all have substantial devolved powers. Democracy can still work-indeed, can flourish-with systems of devolved administration and federal taxation. Wide, broadly-based tax-raising powers at local or regional level, in my view, give strength to democracy rather than undermine it. We need to see more of this in the United Kingdom. Some would argue that 33 per cent is not enough; my noble friend Lord Forsyth mentioned that. I have some sympathy with that view but this Bill is, I repeat, a substantial start and should be strongly supported.

Finally, at one point we thought the Calman proposals might settle things, perhaps for the following decade. However, in May this year that all changed so this Bill is neither the end nor the beginning of the end. A very big constitutional debate lies ahead. We are at an early stage in all of that but it is a profoundly important, historic stage in Scotland's future. There is a great responsibility on all of us who share the view that we should work powerfully together to prevent Scotland's separation and block independence. I believe it is impossible to overstate the importance of this. If we pull together as Liberal Democrat, Labour and Conservative representatives to activate everyone in Scotland who opposes independence-and there are many, I believe-the campaign can and should be won. These are defining times for our nation's future, and this Bill must act not just as a foundation but as a launch pad for a strong and effective cross-party campaign to keep Scotland as part of the United Kingdom.



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11.05 pm

Lord O'Neill of Clackmannan: My Lords, the case for devolution has been quite adequately presented by the last speaker, in so far as the case for devolution is twofold: first, to stop separatism; and, secondly, to try to bring to the United Kingdom a degree of decentralisation, which our metro-centric country requires. The first attempt that we made at devolution was accepted by the Scottish people and by the Welsh people-by a smaller majority but now, I think, embraced by them-and was subsequently embraced by the people of Northern Ireland as well, but after a time we have to pause and reflect. It is fair to say that, after the 2007 election, not only did we pause and reflect in Scotland but we tried to find a means of stopping the progress of the SNP. The Calman report, and indeed this Bill in its embryonic form as it was in the Commons, has singularly failed to do that. It has failed because, frankly, to use an old Scots expression, it is "cauld kale het up". There are bits of this and that, but at the end of the day the whole is probably less than the sum of its parts. Probably our task here will be to try and bring some degree of importance and significance to it.

One of the problems that decentralisation in the United Kingdom has had is that we failed to decentralise anything in England. It has been fashionable this evening to agree now and again with the noble Lord, Lord Forsyth, about his remarks on taxation, but I would like to pay tribute to the noble Lord because nobody did more to pave the way for devolution in Scotland than he did by reforming Scottish local government into single-tier-and, I think, daft-authorities. Between the two of them-I know it would be wrong to deny his colleague a little praise as well-by creating single-tier local government in Scotland, they removed the biggest obstacle that many of us confronted when we were supporting devolution in 1978 and 1979. That is that, having had what we considered to be a most rational form of local government reform just introduced, we were then confronted by these councillors being extremely reluctant to give up what they considered to be quite important powers at that time. Given the manner in which the over-centralised Forsyth regime and the Lang administration-he also must claim some credit and blame for this-sought to reform Scottish local government, between the two of them these arch-unionists paved the way for Scottish devolution. I only wish that we had had, in the shape of my noble friend Lord Prescott, the then Labour Minister, someone with a wee bit more savvy about what local government involves and the-in many respects understandable-reluctance of local authorities to give up power, or as someone said, for turkeys to vote for Christmas. We are talking about decentralisation of Scottish powers but in a UK context, in which there is still a very overcentralised system of government within England. That makes a difficulty for us.

In a Second Reading debate like this, one only picks out bits and pieces of the process, but it is clear that if we are going to have some form of plebiscite on Scottish separatism it has to have a legal basis that will give it some form of legitimacy. It is therefore important that at some stage in our consideration of the Bill we

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look at amendments that state clearly that it is a reserved power of this place and that you do not break up the United Kingdom with some ragbag referendum organised by the SNP in Scotland. I put the matter in these rather dismissive terms because I do not trust that party to get the wording right, I do not think it will conduct a referendum in such a way that it will meet all the requirements of decent electoral law and I am not convinced that it will not try to hold it on an unsuitable date-although it certainly will not coincide with any Scottish sporting triumph.

It is unfortunate that many of us today were denied the opportunity to see Scotland win 1-0 in a historic victory over Lithuania. If the managers of this place had any sense of what we were doing, they would not have had this debate on a major sporting occasion of this character. I phoned up last week and was told that I was the 30th person to make an application to speak. If that fact was known to the Whips Office on Thursday and Friday, even the Nobel laureates who normally people whips offices might have been able to understand that this might be a rather long debate. At 11.10 at night, this is stretching the good will of a lot of people-not that I am worried about being late in the debate, but debates in this place should finish at 10 pm and we should come back the next day or we should start earlier and have the debates at appropriate times. That is as may be, though-we can return to that at our leisure in Committee and look at these matters in greater detail.

The Calman commission was very good about the powers and, after a fashion, about the tax-raising powers, but it did not look at the composition of the Scottish Parliament and it was indifferent to the constitutional changes that have quite correctly followed as a consequence of devolution. Scotland was overrepresented in the Westminster Parliament post 1707 because we gave up a Parliament to join the United Kingdom. The fact is that we have not seen any change in the number of Members of the Scottish Parliament-129 of them-regardless of the fact that there are now probably going to be only around 50 Scottish seats in the other place as a result of the dreadful piece of legislation that has been imposed on us in the form of the AV and constituency reorganisation Bill. There is no reason why we should not have coterminous seats for both Parliaments, with an appropriate reduction in the list system to accommodate the consequences of that. That is something that we could look at.

I had disagreements on this with my dear friend who is sitting next to me when she was Secretary of State. I have to say to my noble friend Lady Liddell that she was wrong then and now we have an opportunity to correct it. Frankly, the Scottish Parliament does not meet many days a week nor as often as we do. As far as I understand what the Members of that Parliament actually have to do, they do not deal with social security, taxation or the anxieties of people who have kids abroad in the Army. There are so many things that the Scottish Parliament is not responsible for that you wonder how its Members can fill in the days in the week that they are there-with some considerable difficulty, it would appear at times, because they do not do the job. Having been a longstanding chair of a committee in this place, which was served remarkably

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well by incredibly competent staff and produced extremely effective reports, I have looked at some of the reports coming out of the Scottish Parliament and they are akin to an elephant giving birth to a mouse; they seem to have the same gestation period and much the same output.

This Scottish Parliament that people say has been a great success has not increased the efficiency of the health service to any great extent, nor are we convinced that the quality of Scottish education is what we like to think it once was and what it should be in the future. There has been no Parliament that has had the resources of the Scottish Parliament, because of the Barnett formula, without any of the pain of raising taxes. Even with the powers of tax raising envisaged by the Calman report, it is frankly not very impressive. As a democratic socialist, I believe that the purpose of the tax system is not only to raise money to facilitate expenditure but also to improve social justice. Perhaps when we get to that point in Committee, we will see whether or not it is possible to vary the level of taxation within each band. We could, for example, have 50p plus 3p on the top grade, 2p on the second and perhaps leave the standard rate as it is so as to have a little bit of redistribution through the tax system. That is one of the purposes that some of us regard the tax system to have. I think that Calman was grossly deficient here. I realise, however, that when trying to get a committee to produce a consensual report, this is a consequence.

The noble Lord, Lord Forsyth, and I were never political friends but we were neighbours of a polite kind-we never looked into each other's gardens, but he had the constituency next to mine. However, the people who drive through Clackmannan and the bits of Stirlingshire that he did not represent certainly seem to have much the same attitude towards the taxation of motorists that I have encountered. Frankly, I do not think anybody is going to get greatly excited about speed limits and fining people. People are very irritated by these things: if it is more complicated when you go south of Berwick or north of Carlisle, then life becomes more complicated. I do not think that will give us any greater sense of national feeling or diminish our resentment or support for Westminster. When they were casting around for other bits and pieces to throw into the pot, they thought of this. That is one of the criticisms I have of Calman. I understand the task that he and the members had: they had to produce something but, ironically, it was too late and at the end of the day I do not think it is going to make a great deal of difference.

If we want to make a difference and if we want to do things better, we have to address the challenge of decentralisation. We have to look at the issue of social injustice, which, in view of all the resources that the Scottish Parliament has had, it has done precious little about, either under Labour or under alleged social democratic nationalist parties. There are things that we could still try to do in this respect, but I do not think they will necessarily come from an all-party consensual group such as Calman. I realise that there are advantages in having such a group every so often. This, however, is not a major constitutional change but a tinkering at the edges-a tweaking here and

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there. We will probably spend a disproportionate amount of time looking at it. I know the lawyers have already made a bid for the Supreme Court, which will take up a couple of days and one or two important votes. There will be all the other bits-the guns mob will be in, and Charlton Heston mark 2 will come across to tell us what to do.

At the end of the day, we have to take on the challenge of nationalism and separatism with a far more clear and consistent programme, whether it is one of right-wing conservatism or what I regard as the kind of sensible social democratic views to which many of us on these Benches subscribe. There are choices available to the Scottish people, but one thing that is quite clear is that changing the boundaries of our country will not solve any economic or social problems. The record of nationalism and separatism is very patchy when it comes to smooth transitions. We have seen what happened in the Czech Republic and Slovakia but, sadly, that is one of the rare exceptions.

In the present economic climate, with the difficulties that we have, I am not sure that we could necessarily achieve a major constitutional transition of the character that is envisaged by the separatists in the United Kingdom, particularly the Scottish separatists. Therefore, we have to find more effective ways of taking them on than this Bill. The Bill will, perhaps, make the Scottish Parliament a little more efficient, but it will not address the other challenge that devolution has to face-the challenge of separatism. We need far more good government, effective policy-making and proper advocacy of social and economic objectives. Those may well be different across this House but they would provide the Scottish people with choices, which, at the moment, the nationalists do not offer. The incompetence, in large measure, of the other parties has allowed the nationalists to have free run in these past months and has given them a majority that many of us resent bitterly, while recognising that it seems to be the will of an awful lot of Scottish people and that we must persuade them to the contrary.

11.22 pm

The Earl of Caithness: My Lords, this Bill was introduced in the other place on 30 November last year, St Andrew's Day; 21 June is not quite such an auspicious day in Scotland but I guess that until today my noble and learned friend Lord Wallace will have remembered 21 June as the anniversary of the scuttling of the German fleet in Scapa Flow in 1919. From now on, I guess he will remember 21 June for the Scotland Bill.

Ironically, we might all be wasting our time in this debate if there is a referendum. Most of the provisions will not come into force until after the referendum might take place. Therefore, I support the cause that we ought to assert the constitutional duty of this Parliament to determine the timing and composition of the referendum.

This is a groundbreaking Bill, particularly on finance matters. As such, I welcome it. In the early and mid-18th century, the well used phrase in Ireland and the future USA was, "No taxation without representation". Three hundred years later, the call is for no representation

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without taxation. The UK has the most centralised tax system of any major economy, with just over 4 per cent of tax revenues being set and collected locally. That is basically council tax. Despite this, the current law gives the Scottish Executive and Parliament decision-making powers on 60 per cent of the spending that is identifiably Scottish. That is unjust and bad for democracy. The Scottish Executive has always been able to spend and ask for more money, without having to justify that to its electorate. That is an incentive to spend more, rather than spend effectively. The Scottish Executive has been rather good at that.

Things will be different for the future Scottish Government. Rather than the paltry 4 per cent of local revenue, they will be responsible for raising approximately 35 per cent of their revenue, with the remaining 65 per cent still coming from the UK block grant. That takes the ability to raise local taxes to a percentage level comparable to that of the USA, but still less than that of Canada. I should like to see that expected 35 per cent be even higher but I appreciate that there are many difficulties. Any transfer of taxation powers must not increase costs of administration to the point where the transfer is uneconomic and detrimental to business. I therefore ask my noble and learned friend Lord Wallace whether he can tell the House what further taxes are now being considered for transfer. What is the justification for the deduction of 10 percentage points of income tax? Why should it not be 15 per cent, which would give more accountability to the electorate in Scotland? Can there be a different basket of taxes that the Government can transfer to Scotland to give the accountability, but without causing some of the concerns that I will come to later?

Moreover, does my noble and learned friend agree that there is still a fundamental flaw to this Bill? The flaw is that it is based on the outdated existing financial settlement. Through the block grant, over the past 24 years Scotland has received approximately its share of North Sea oil revenues. Thus it has been financed as if it was independent but-this is the crucial point-it has not had to cope with the huge fluctuations in the price of oil. The Executive's spending programme has been cushioned from the marketplace and in times of low oil prices has been subsidised by the rest of the United Kingdom. Is it not time for the whole basis of the block grant to be changed to one of need and linked to the price of oil? That would encourage a future Scottish Government to be much more prudent than the ones that we have had to date and to spend more effectively. It would expose the country and the electorate to the realities of the real world and to the benefits that the union has brought to Scotland.

I listened carefully to the concerns raised by my noble friends Lord Forsyth, Lord Lang and Lord Sanderson. One of the concerns was population. How can one say that Scotland cannot raise 35 per cent of its revenue from its population? If one talked about that to people in Denmark, Finland or even outside the EU in New Zealand, they would be amazed, and the response would be a surprise to my noble friends.

Lord Forsyth of Drumlean: Will my noble friend give way?



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The Earl of Caithness: No. I did not interrupt my noble friend. The time is late and I want to get on. I have almost come to an end.

The present system of funding Scotland is broken. It is doing Scotland no good. The principle that a Government who spend money must be accountable for raising some or all of it is right. We must not flinch from that, but this Bill is surely one that should make it work.

11.27 pm

Lord Maxton: My Lords, when I saw what my position was on the list of speakers, and recognising the lateness of the hour, I was tempted to start by saying that everything I want to say has already been said and that I will therefore not make a speech at all. However, I decided against it.

I have been a supporter of devolution for a long time. Throughout the whole of my parliamentary career I have campaigned for it. In fact, if noble Lords look back through history, they will find that my uncle, Jimmy Maxton, was one of the signatories to the 1924 Private Member's Home Rule Bill for Scotland, introduced by one Geordie Buchanan; so even the family history, let alone my own, is good on it. I have always supported devolution because it is part of the process of moving to a more democratic state, where decisions are taken by people at the appropriate level for them to be taken. Therefore devolution for Scotland was right. When my noble friend Lord O'Neill started attacking the noble Lords, Lord Forsyth and Lord Lang, I thought he was going to attack them because they did push the whole question of devolution forward.

During the 1980s, there was an increasing democratic deficit in Scotland whereby legislation could be introduced down here without having a majority of Members in Scotland. In fact, over the years, there was a decreasing number of Members in Scotland. Of course, the introduction of the poll tax, for which both noble Lords can take some responsibility, was probably the thing above all that pushed people in Scotland to accept that there had to be a better way of running their affairs in Scotland. Devolution did not start in the 1970s. Arguably, it was started in 1885 with the introduction of the office of Secretary of State. Bit by bit, over the years, there has been a gradual increase in the number of things that Scotland has been allowed to do-separate Scottish legislation, the Grand Committee, and the Grand Committee meeting throughout Scotland, which the noble Lord, Lord Forsyth, introduced. All that has been part and parcel of the process of increasing democracy.

When my late good friend Donald Dewar said that it was a process, not the end, I am sure he meant that it was part of a democratic process that had to go on. In Scotland, we have not shifted democracy further down to the levels where people ought to be taking more decisions-in their own societies and communities. Nationalism has stopped that. Nationalism has been the enemy of the democratic process, not its friend. That is not because the SNP is an undemocratic party-I believe that it believes in democracy. The problem has been that every time anyone suggests that there should be some form of change to the democratic process-more devolution, more powers to Scotland-the

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SNP says that this is yet one more step towards independence. That is wrong; we must not allow that. That is why, in my view, the SNP and nationalism have been the enemy of democracy. That has also stopped us saying that some things might be better done taken away from the Scottish Parliament and given back to the British Parliament or to the European Parliament. There is a whole broad band of things that we might look at, but we do not look at them properly or logically in a democratic way; we look at them in terms of how they relate to nationalism and the SNP's agenda. That is wrong.

Therefore, we ought to be doing three things. First, we ought to be arguing the case for the union as strongly as we can. My noble friend Lord McConnell of Glenscorrodale-I am the only person who knows where Glenscorrodale is and has been there-who is not in his place at present, was quite right when he listed the organisations that had to make the case. He missed one out, which is the most obvious. We must persuade the Scottish media to be prepared to listen to our arguments and not just those of the Scottish National Party. I wrote at least three letters to the Herald during the election campaign; the Herald refused to take them because it said that they were too political.

Noble Lords: Oh!

Lord Maxton: Yes, quite. We have to get that case across. My first point is that we must make the case for the union, because there is a very good case to be made. Secondly, we must ask the SNP why it wants us to separate. What is the case for independence? If we look at history we see that various things divide people from people and make them say, "That is why we want to be separate". Language is one. We have the same language. Religion is another. Scotland may be divided by religion, but Scotland and England are not divided by religion. Another is difference over boundaries. There is no natural boundary between Scotland and England. I remember that when I used to go north as a child with my father and we crossed the Solway he used to say, "We are now in Scotland". If you drive that road now, you will see that the sign that says, "You are now in Scotland", is at least a mile and a half further up the road from the Solway, so even that is a movable feast. You could not set up a frontier or boundary between the two countries. There is no natural divide.

What divides us? History, which the SNP distorts the whole time. The SNP refers to Bannockburn as if somehow it was a great victory for the Scottish people and somehow makes Bonnie Prince Charlie into a great nationalist hero. If Bonnie Prince Charlie wanted to be the King of Scotland or to put his father on the throne in Scotland, he could have done it. Why did he march south into England and get defeated? He did not want the throne of Scotland but that of the United Kingdom. History is the one thing that possibly divides us-but only just. The other is sport.

My noble friend mentioned that he was at Hampden singing "Flower of Scotland". I have to beat him at that. I was at Murrayfield in 1990 when David Sole marched out and Scotland won the Grand Slam. We all sang "Flower of Scotland" and I was among them

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singing heartily. I accept that I was singing the words printed in the programme and did not know them off by heart, but I was singing them heartily. I support Scotland when it plays. I will also support the British team when it takes part in the Olympics next year. I even support Europe in the Ryder Cup. It depends on what the sporting occasion is as to where my support will lie.

There is no divide, so the SNP has to tell us why it wants us to split away from the rest of the United Kingdom. I am in some ways typical in this.

Lord Wigley:The one area that the noble Lord has not touched on is the possible difference in social aspiration. England and London are overwhelmingly Conservative and Scotland is not. Is he happy that Scotland should be governed perennially by right-of-centre parties when his own country does not espouse those values?

Lord Maxton: Those may be the social aspirations in London but I am not at all convinced. Certainly in several elections recently, the Labour Party has had a clear majority of Members of Parliament from London. Equally, the social aspirations of the people of Manchester are very similar to those of the people of Glasgow, as are those of the people of Newcastle to those of the people of Edinburgh, Glasgow and elsewhere. Those are the aspirations of the urban working class as opposed to the rural working class. The aspirations of people from the highlands are different from those elsewhere.

The third thing that the SNP has to do is say what it means by "independence". If you look at its own Scottish National Party website, it still does not tell you what it means. I have always assumed that it wanted to establish-I will not use the word "separate" because I gather it objects to that-an independent nation state on its own, with its own social security system, army, ambassadorial services around the world, a taxation system that is totally separate from ours and a currency, unless it wishes to be in Europe when Europe will tell it that it has to adopt the euro. I always thought that that was what it meant. It now seems to want to fudge that. It is constantly fudging what independence means. To me, it is clear cut; that is what it means.

I do not know whether I, as someone who comes here and has a flat in London, will have an English passport or a Scottish one. Presumably, when you come from Scotland to England and it is a separate state, you will have to carry a passport. Some people say that that is how it is in Europe. I have to carry a passport if I go to France, Germany, Spain or Portugal-all parts of Europe. What is so different in that? Does it want that or does it just want devolution-max? No, it does not want that. Its own supporters hate the English so much that they want an independent, separate state. It is time that we demanded that the SNP tells us exactly what it wants an independent Scotland to be and what it means by that term. That is why, although I give the Bill a cautious welcome, I will consider some details at considerable length in Committee in the coming weeks.



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11.40 pm

Lord Lyell: My Lords, I start by thanking my noble and learned friend for his very clear exposition of this Bill at the outset. He and I, and maybe one or two others, are the only two who have attended virtually every second of this debate. Perhaps there is something in it, that the first Lord Lyell, my great-grandfather, was in fact the Member of Parliament for Orkney and Shetland for 15 years. So there is doubtless something in the breeding that makes hard men, and indeed my noble and learned friend might perhaps be one of those. I think he has done a super job, but he has not started yet: he has to wait until Committee stage comes, and then we shall have enormous fun.

I had a look at this Bill, and the first clause that crossed my mind, a clause which has been beautifully and eruditely covered in great detail by my noble friend Lord Shrewsbury, deals with airguns. I consulted the Tayside constabulary in Kirriemuir, and was told that in broad terms it was very pleased and quite happy with what was set out in the Bill. It seems that many of the airguns used in our neck of the woods are used legitimately in a very rural area. If indeed airguns are spreading and multiplying in urban areas in Scotland, no doubt my noble and learned friend will be able to take care of that, and we shall be able to make some arrangement.

I would turn fairly quickly towards the financial aspects of the Bill. I think that is is Clause 28 and further on. At the outset there have been notable contributions from the Liberal Democrat Benches. My noble friend Lord Forsyth was a marvellous opening bat, and we will come to him later. The Liberal Democrat Benches dealt very well and very effectively with a federal system. I think the noble Lord, Lord Steel, referred to what might be a federal tax system in the United Kingdom. I certainly call it a lopsided federal system. There might be a very good reason for this. It seems to me that what is set out in the tax-raising powers in the Bill, and indeed has been set out from the outset in all the aspects of devolution, in giving more powers to the Scottish Parliament. It is lopsided devolution, in that the tax measures that might be proposed for the Scottish Parliament will be in the nature of-if I take the Federal Republic of Germany-a state tax, whereas every other citizen of the United Kingdom, be they English, Welsh or from Northern Ireland, will be paying tax under a unitary system. Marvellous figures have been quoted: my noble friend Lord Caithness-was he Chancellor of the Duchy of Lancaster?-was a great financial expert in his previous expert incarnation, and he mentioned some percentages. The noble Baroness, Lady Liddell, will be able to explain the Australian system.

About 25 years ago I took a German course. It was very carefully explained to me that in Germany you pay tax to your Gemeinde, your local district. For every 100 euros of tax you pay, you know that 15 per cent-15 euros-are going to your Gemeinde. The 85 per cent is-or used to be-split, fifty-fifty, so that 42.5 per cent went to the federal government, 42.5 per cent went to your Land, your land government. That would be an exact replica of what we are discussing tonight, and what might come about in a federal

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system. It was another notable Member of your Lordships' House from the Liberal Benches, a former member of the Institute of Chartered Accountants in England and Wales, the noble Lord, Lord Sharman, who said to me, "If you want to look at systems of federal taxation that might be relevant to the Scotland Bill and what we are discussing now, first of all look at Germany, then look at Switzerland". I have been visiting Switzerland for 35 or 40 years, perhaps not entirely for purposes of tax, mainly for skiing. Indeed the noble Lord, Lord Forsyth, is a noted denizen of Lenzeheide, and he represented your Lordships at skiing, so he will have some idea of the breakdown of how you pay your federal tax, your local tax, and the other taxes. The main crux of the discussions we have had is on tax-we have looked at landfill tax and all the other taxes-but mainly it is income tax.

I am so pleased that the noble Lord, Lord Forsyth, is here. I am sorry that the noble and learned Lord, Lord Fraser, is not with us because the noble Lord, Lord Forsyth, and I are both Angus lads. I think that in the words of the Bill the closest connection he might have is with the lovely town of Arbroath. There is another Scot-also an Angus lad, from Arbroath-who 50 years ago put together a melody that is to be found in Rossini's opera "William Tell". It was originally called "William Wallace" but it was translated. The melody went via the Crimea to a pipe major in the Gordon Highlanders who prepared the wonderful melody that we marched to called "The Green Hills of Tyrol". About 50 years ago, this marvellous denizen of Arbroath and Angus put the melody on a disc. It went platinum and trillions of copies were sold. He was called the "Scottish Soldier" and I look at many of his words as a Scottish taxpayer. In the words of Mr Andy Stewart, he wandered far away. Indeed, he did, and we have heard a great deal about that tonight from the noble Lord, Lord Watson of Invergowrie.

However, there is something that worries me very much, as it does several of the expert groups. I declare a tiny and humble interest as a member of the Institute of Chartered Accountants of Scotland. The institute briefed me in 1998 on aspects of who would pay the Scottish tax and who would be classified as a Scottish taxpayer. It seems that not much has changed since then. I purloined volume 593 of your Lordships' Hansard report, which covers 6 October 1998. I made pretty well the same speech as I may be making in Committee about who would be a Scottish taxpayer. I received a wonderful, courteous briefing from the government spokesperson-the wonderful and very courteous noble Baroness, Lady Ramsay, who explained the matter quite vividly. If your Lordships glance at paragraph (4) at the top of page 24 of the Bill, they will find an exact description of what was in Section 75 of the 1998 Act concerning one's residence in Scotland as being on a boat or vessel. Earlier, we heard a dissertation about houseboats, rafts and other things, but what the noble Baroness was pointing out then-I think that it is a major flaw in the Bill-was a ferry. I recall the late Lord Dunleath asking what would be the tax status of people from Northern Ireland arriving on a ferry at Stranraer or Cairnryan. Certainly I was given to understand that even if a UK taxpayer from Northern Ireland never set foot on Scottish soil, because that

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ferry was tied up on Scottish land he would be deemed to be, and would be classified as, a Scottish taxpayer. That was set out by the noble Baroness in a very erudite fashion at col. 296 of volume 593, but even with her great humility and wonderful courtesy I do not think that she was entirely convinced. Indeed, the late Lord Mackay of Ardbrecknish was in no way convinced. However, I hope that we can move on from that and that my noble and learned friend will be able to take care of it.

I think that it was the noble Lord, Lord Sewel, who during that debate referred to lorry drivers. He had been the Minister taking care of it. In 1998, I referred to a firm in my own neck of the woods in Kirriemuir which employed 360 lorry drivers, 27 of whom had residences in Scotland, Therefore, straight off they were Scottish taxpayers. When you start looking at midnight at where you are with new Sections 80D, 80E and 80F under Clause 30 relating to Scottish taxpayers, you become just as confused as you were in 1998. You have to start totting up how many days you spend in Scotland or elsewhere. We have not moved on from there. Could my noble and learned friend take this on board, so that we can come back to it at greater length in Committee? I worry about how many other non-Scots are going to be classified as Scottish taxpayers. I am delighted to hear-I think that I heard that it has been confirmed-that the decision as to who will be a Scottish taxpayer, let alone a rate payer, will be taken not by the Scottish Parliament, though that may cause consternation and anger, but by Parliament here.

The transport firm found that up to 70 out of their 360 employees would easily be deemed Scottish taxpayers. They have homes in England and all other aspects of their lives, including paying tax, are in England too. But if they are to be classified as Scottish taxpayers, the din down in the other place will be something like the zoo at feeding time. I do not think that even with a three-line Whip these tax measures will be pushed on to so-called Scottish taxpayers who do not live in and have nothing to do with Scotland, apart from the fact that for a certain hour at a certain time of the year they will be north of the border. I am grateful to my noble and learned friend for the details that he has provided, and I look forward with great relish to Committee, whenever it may come. I hope that it may be this year, not in 2012.

11.51 pm

Baroness Liddell of Coatdyke: Your Lordships can be reassured that I am not going to give a lengthy seminar on the Australian taxation system. At this late hour, I would not wish your Lordships to become overly excited. I thank the noble Lord, Lord Forsyth, and my noble friend Lord McAvoy for taking into account my plight. Scotland had to wait 115 years to have a woman Secretary of State, so having to wait seven hours to speak is not all that challenging.

As the only woman who has ever been Secretary of State for Scotland, perhaps I may give this House one piece of advice that previous male Secretaries of State could not give. You cannot be a little bit pregnant, just as you cannot be a little bit independent. Some of the recent debate that we have heard in Scotland, from the First Minister in particular, leads us to believe that he

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thinks that you can be a little bit independent, with the same monarchy, the same embassies, the same army, the same regiments. No. One of the valid points made by the noble Lord, Lord Steel, was that the Bill was intended as a fine-tuning of the devolution settlement.

There is a certain symmetry in our sitting here late at night. Prior to devolution a lot of Scottish legislation was done very late at night in the other place. Devolution is a modern word for what happened at the Act of Union and was re-emphasised with modern legislation and the establishment of the office of the Secretary of State. The noble Lords, Lord Forsyth and Lord Lang, presided over a department that covered the equivalent of 13 different UK government departments. That was the argument for devolution. The aim of this Bill is to fine-tune that. But as the noble Lord, Lord Forsyth, said, this Bill has missed its time. It was introduced when it was legitimate to look at ways by which we could improve devolution, make it more effective, and in particular deal with this issue of fiscal and financial accountability. Last May's election changed that. I was active in that election. I am sure that many Members of this House were very attentive in watching the Scottish media. All of us in this House have things to have answer for in not winning that election. But there is one thing of which I am certain. Separation was not part of the debate. I agree with the noble and learned Lord, Lord Boyd, who says that it is not enough to portray the negatives of separation. You must portray the positives of the United Kingdom.

I am a Scot who is proud to be British, and I am a Brit who is proud to be European. I am quite comfortable with having multiple identities. I believe that one of the key issues that we have to address in a mature manner is that the debate in Scotland is not about soft and cuddly words like independence but about secession. As we look to the future and to the ramifications of what is in this Bill, we should look in detail at the elements of this Bill in relation to secession. There are certain things, particularly in relation to tax, on which we need some adequate costings. If we were to find ourselves negotiating a secession treaty-I do not believe that we will find ourselves in that situation, but it is a foolish person who does not plan ahead-would we want to have conceded so much in advance? Frankly, I want answers on some elements of this Bill.

In general, I support the Bill. In principle, I support the Bill. I had nothing to do with the Calman commission-I was in the colonies at that time, fortunately as a free person, not as a prisoner-but I can see the reasoning behind what Calman has come up with and is embodied in this Bill. However, there are many aspects of this Bill that require further thought, I have issues that I want to raise in Committee, and I have questions that I do not expect the Minister to reply to tonight. He is always most gracious in trying to answer people's questions. I want to flag up these questions because I want to refer to them in some detail in Committee.

The points on taxation made by the noble Lord, Lord Forsyth, are extremely valid. One of the key arguments around the 3 per cent variation on taxation in the second question in the first referendum was around how much would be raised. There are three

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elements in the development of any tax. The first is the amount of money that it will raise, the second is the cost of collecting it, and the third is the ability to avoid it. I am sorry that the noble Lord, Lord Sassoon, is not in his place, although I saw him in the Chamber earlier, as some of these issues are for the Treasury. I would like to know how HMRC proposes to manage the introduction of a separate variable rate of income tax in Scotland, the cost of transferring that, how the burden of collection will be shared and the level of avoidance anticipated. Many of us in this House are forced into having two dwellings-the point that the noble Lord, Lord Forsyth, made-so where are we liable to be taxed?

The other area I would like to cover is borrowing. Anyone who has been watching the bond markets in recent weeks knows that the issue of government borrowing is extremely fraught at the moment. We have seen the debate about the US AAA rating, and we have had huge debates about Greece and Italy and their credit ratings, and France and its credit ratings. What would Scotland's credit rating be, particularly when we take into account that RBS is headquartered in Scotland? What element of that comes into the computation of the interest rate in relation to Scottish bonds floated in the open market? These questions may seem esoteric, but they are not esoteric if we are considering a secession treaty. I ask the Minister to ask the Treasury to look at some of these issues.

The mechanics of bond issuing also have to be looked at. Are we going to have to replicate the Debt Management Office in Scotland? You get the impression that Scotland would just suddenly come along and say, "Oops, we want to have another hospital. Let's go and raise some money. Let's get it on hire purchase". It does not work like that. Government debt has to be managed, and we also have to know what would be the impact of putting the Scottish borrowing requirement alongside the United Kingdom borrowing requirement and what would be the projected or extrapolated rate of interest on UK bonds as a consequence of Scottish borrowing. I ask the Minister to give us some answers in due course.

The debate around the future of the Crown Estate is extremely complex, not least because there is a pressing need for considerable investment in wind and tidal energy. The Crown Estate will end up having to shoulder a fair amount of that. Where will it come from? Who is liable for it? The growth of wind and tidal energy requires the upgrading of the national grid, which is creaking at the moment, particularly in remote parts of Scotland. Where will the money come from to allow the national grid to be upgraded? To pay for that, is it likely that Scottish-generated electricity will have to be sold to England to raise revenues and that the Scottish consumer will therefore face a higher cost for electricity? I do not know the answer to that, but I would like somebody who is clever to go away and work out what it is.

We have had a fairly vituperative debate about the Supreme Court. Many of us in this Chamber have been around the houses a few times in Scotland. The level of debate there has always been quite robust, but we have seen it in recent months become increasingly

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personalised. I think that the appalling attacks on the noble and learned Lord, Lord Hope, in particular cause many of us distress and do Scotland's reputation no good. I dread the detail that we will have to go into because we will hear that kind of vilification again, but we must not desist from asking the questions. We have to ask the questions, and get the answers, as to what this model of secession will look like. This Bill is an opportunity to do that. I know that it will be some time before it comes back to the House in Committee. That is a positive thing, because it will give time for the work that needs to be done. No one dreamt at the beginning of this process that the Bill would be so pivotal to Scotland's constitutional future. It is understandable that some of the work has not been done but we cannot delay any longer. It is vital that we get a move-on in looking at some of these issues, particularly in relation to costing, accountability and who carries the burden.

My noble and learned friend Lord Boyd talked about the benefits of being part of the United Kingdom. I believe that the people of Scotland, whenever they confront the realities of being part of the United Kingdom, will recognise the strength that we get from it. We are told that the Scottish Government would seek to become a member of the European Union. One has to comply with certain rules before one can do that, and new accession countries have to become members of the eurozone. I wonder how many people in Scotland right now would like to have euros in their pockets rather than pounds sterling. These are issues that people are going to have to address.

My father was in the RAF. Most people in this House will have fathers, uncles or brothers who served in the forces. They did so because of the concept of a country that brought us all together. I entered politics not because I was concerned about the vulnerable in Scotland; I was concerned about the vulnerable throughout the United Kingdom. I see the challenges that we face in building a better Britain as a route to building a better Scotland. We should be self-confident enough now to know that we play a dominant role in the United Kingdom and long may that continue. The Minister always seems to get the thin end of the wedge and these long, rather complicated Bills. I think that the Bill will be a long time in Committee, but it will be one of the most vital things that we do in this term of this House.

12.04 am

Viscount Younger of Leckie: My Lords, my lowly position in the batting order is mitigated by the pleasure I have in following the first lady Secretary of State for Scotland and indeed the questions she has raised.

I give my broad support to this Bill, with some key reservations, as I believe it presents a firm platform from which devolution for the Scottish people can be extended and enhanced but with some practical limitations. Its strength derives from two main sources. First, the detailed and well researched Calman report, with recommendations that underpin this Bill, has been approved and broadly acknowledged across the professional and academic diaspora in Scotland, in addition to the three main UK political parties. Secondly, the report and the Bill are clear cut as much for

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their recommendations for exclusion and for further devolution as for inclusion, following the debate in another place.

Further devolvement is both an expression of faith in, and hope for, the Scottish people in extending self-determination. However it remains an experiment because, as my noble and learned friend has said, the new powers represent the largest transfer of financial responsibility to Scotland since the union, but as yet there is no clear financial plan. With a reduction of part of the block grant as a quid pro quo for increased tax-raising powers to cover 35 per cent of the spending budget, there will have to be either a reduction in public services in Scotland, the major sector, or increased taxes, bearing in mind there are already free prescriptions, free elderly care and no tuition fees north of the border. However the experiment has some monitoring in place. The introduction of regular OBR forecasting for the first time in Scotland means there will be some transparency in observing progress on how receipts from revenues from all taxes match expenditure, or indeed not, and the reasons for this.

Transitional arrangements have considerable merit. The new borrowing powers proposed from 2015 for the Scottish Government at £2.7 billion are in excess of Calman's recommendations of £400 million more than the Scottish Government's total capital budget for the current spending review period. The decision to delay until 2015 the point at which the new tax powers can be exercised is pragmatic as the UK continues to tackle its enormous deficit-a protection required to manage tax volatility, but a hedge against a potential Scottish reduction in income tax, without the credible quid pro quo of corresponding public spending cuts or other tax rises. Other measures of interim support are welcomed and exceed the Calman proposals, such as the provision for payments into the Scottish cash reserve, the offer of cash pre-payments from this year to progress work on the new Forth crossing and the facility to borrow money by issuing bonds without the need for primary legislation.

The items that were included in the Calman report but rejected as unworkable have caused considerable debate in the other place. As the noble Baroness, Lady Ramsay of Cartvale, has mentioned, it has to be recognised that the devolvement of corporation tax-raising powers would likely create instability for Scotland. Assuming the Scottish Government lowered taxes, there is no convincing evidence to support the case that there would be a corresponding financial growth in businesses, particularly as those benefiting would be the banks and other major corporations and not the myriad small businesses, many of which pay no corporation tax. A reduction would cause a draw of businesses to north of the border, but over time this would likely be counteracted by market forces and a reduction of the English rate with a spiral downwards of the UK corporation tax rate as a whole. Sharp practices, including arbitrage and tax avoidance, would be encouraged to the detriment of the Exchequer. A further knock-on effect could be a rise in income tax in Scotland to counteract a decrease in corporation tax to balance the books, which would harm small businesses-surely from where one might expect economic growth to emerge.



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On the question of excise duty, which has hardly been covered this evening, I agree with those who state that the issues surrounding the purchase and consumption of alcohol are complex and cannot be simplified to the basic principle whereby a rise in duty leads to reduced consumption.

On the assumption that a Scottish Government, given powers, would raise excise duty post-2015, as has proved the case with the land border between the Irish Republic and Northern Ireland, Scottish citizens would surely flock south of their border to purchase alcohol and other goods at the same time for convenience, thereby hurting Scottish outlets. It is widely recognised that complex social problems lie at the core of excessive drinking, not the unit price.

The Calman commission and the Bill have excluded from their deliberations the matter of the UK block grant, not revisited since the Callaghan years. However, we are at risk of creating in England a sourness-a word coined by the honourable Member for Birkenhead in the other place in relation to the Barnett formula-if we do not tackle now the unfairness of the Scots receiving 19 per cent more public money per head than the English. First, the block grant is inextricably linked to the Scottish fiscal and financial budget in aggregate and by department, and therefore a plan for reform should be included in this Bill. We should commence the lengthy process of analysis, research and renegotiation now and not delay to 2015 simply because of deficit distractions. I am convinced that Barnett 2 must be needs-based and take account of complex regional differences in addition to national variations. Although a costly process, the benefits will be seen in the longer term, not least to restore fairness and trust in the grant allocation process.

The Calman commission report was balanced, professional and non-political. However, there are important underlying political ramifications resulting from the contents of this Bill. This Bill is not a step towards full independence. The Scottish nationalists are unwise to push for further demands as reflected in their six main amendments moved in another place, not least because these demonstrate a degree of financial recklessness over prudence.

The Bill is a giant leap of faith, but the experiment does, crucially, still preserve the union. It is now critical that we advance and consolidate the arguments in favour of a continued union and, as my noble friend Lord Forsyth and the noble Lord, Lord McConnell, have highlighted this evening, be fully prepared legally and logistically should a referendum be called.

Those who through blind emotion seek full independence for Scotland should not forget the experience of Czechoslovakia, which has been raised this evening, which fought long and hard to gain independence from its Austrian rulers in 1918, only to find that there were too many differing nationalistic and ethnic factions, post-independence, for it to have a chance of working. It was rapidly an abject failure.

As the noble Lord, Lord Maxton, has pointed out already this evening, ultimately perhaps James VI of Scotland, later James I of England, a well-educated king, is to blame for raising Scottish hopes so high for

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self-determination and then abruptly abandoning the Scottish cause, with his court, when he succeeded to the English throne in 1603. This enduring Scottish national insecurity remains potentially financially dangerous for a country whose sum populace totals barely 8 per cent of the UK total, and indeed for Great Britain.

12.13 am

Lord Gordon of Strathblane: My Lords, I thank the noble and learned Lord, Lord Wallace, for introducing the Bill and sitting so patiently through a very long debate. I am happy to report, as you will all notice, that we are in fact into the second day of the debate-it is just that we have not had a night's sleep in between.

Administrative devolution in Scotland is over 125 years old. The Scottish Office was set up in 1885. The change that we had in 1999 was to give democratic control over the administrative devolution, and this measure does very little in the way of increased powers, because so much was already devolved. It simply tries to ensure that the elected representatives of the Scottish people in the Scottish Parliament are more responsible for raising some of the money. All my instincts tell me that you will get better government if you make the politician who makes the promises also raise the money for it, be responsible for it and get the opprobrium from the electorate. My instincts would be to let them raise 100 per cent of the money and see whether they want to promise so much. We do not quite go that far-we have the figure of 35 per cent. In fact, I would be happy to go further.

I make one general observation about the Bill as it stands at the moment. If it is only going to be 35 per cent, I would much rather that it was 35 per cent that covered 100 per cent of expenditure in certain clear areas, so that there was clear responsibility and we knew who was responsible, rather than 35 per cent of all areas. Any decent politician, even if he has totally mismanaged his expenditure of his 35 per cent, will blame whatever has gone wrong on the lack of the 65 per cent, or its not being 70 per cent, and so the blaming of Westminster will still continue. It is an end to this blame culture that we have to try to get through in Scotland. As I said in a previous debate, the Scots enjoy blaming other people for their problems: if you can blame the English, you score double; if you can blame English Conservatives, you hit the jackpot.

I take the view that Scotland is already independent. It is entitled to be, and already is, in the sense that nobody is stopping us doing exactly what we want. We are a totally free country. If we decided next year to be a full, autonomous, independent country, the tanks would not roll up from Carlisle to stop us. We are an independent country; we simply chose to live in an economic union with our neighbour to the south. That union has endured, as has already been mentioned, for several hundred years and has been hugely beneficial to both parties. There would not have been such industrial growth in 19th century Scotland had it not been part of the British Empire. As has already been alluded to, the Scots did rather well out of the British Empire, sometimes in a rather unsavoury way. When we are talking about increased tax-raising powers for the Scottish Parliament, any objection to that is based

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not on issues of entitlement, but rather, I think, on whether it is imprudent, impracticable or would have unfortunate side effects.

Perhaps we should look at practicability first of all. It is very important to recognise that we have a land border with England. I would refer the noble Baroness, Lady Kennedy of the Shaws, to the experience of Northern Ireland and the Republic of Ireland: there was constant smuggling going one way or the other, depending on which economy was doing better at that moment. In my view, if there is a land border, there are three alternatives: either we leave the rate of excise duty, or whatever it might be, to be fixed at Westminster; or we devolve it, with the clear understanding that all the Scottish Parliament will do is mimic what Westminster does, but at least it is apparently deciding this for itself; or we create the possibility that the Scottish Parliament will choose a different route, in which case we have to be quite clear about how we are going to police that. Are we actually going to have a customs post at the border?

For example, the noble Viscount, Lord Younger, mentioned the possibility that Scotland might raise excise duty. That would be very acceptable to the medical profession, but the licensed trade would go out of business in Dumfries, as it has done in ferry ports on the south coast of England, and the M74 would have to be widened still further to cope with the traffic going down to pick up cheap booze south of the border. This is a very small island. People will vote with their feet and buy things where they are cheapest. You can impose whatever taxes you want; I will go elsewhere and buy those goods cheaper unless you physically stop me. A lot of taxation proposals will founder on this test, as it is simply not practicable to enforce them without a customs post at the border.

We must also consider the fact that, if we are not going to have a separate currency, passport controls or customs, there are severe limitations on what we can do differently from our near neighbour. That has led most people so far to think that we are much better off being part of that larger neighbour as a unit, so that we can at least influence the rates of taxation and the policies reached, rather than being outside it, and so simply having to copy our neighbour and imitate what it is doing.

There is another consideration which I think on grounds of prudence would give us pause before we introduced a different form, which is the question of Scotland's size and relatively sparse population. We are, after all, about 30 per cent of the UK land mass but only 10 per cent of the population or slightly less. That would make me, frankly, very worried about going it alone on anything involving transport, broadcasting, rolling out broadband or anything else. It stands to reason with those costs-the cost of broadband rollout, for example, would be a lot higher proportionately in Scotland than in London, which has two and a half times the population but could do it at a fraction of the cost.

There are other issues of unintended consequences. Reading the Scottish media during recent months, you get the impression that we are looking for a variation in the rates of corporation tax and income tax so that we can be lower than the rest of the UK and attract all

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the high-flyers. Who are we kidding? Scotland has a higher dependency on public services than any other part of the UK. If you raise less in taxation, you have less to spend on public services so that is another area where we have to be cautious.

All I really look for from this Bill is that, while nobody can say that anything is a final settlement, let us at least hope that it can be a stable one, because uncertainty is bad. My noble friend Lord Foulkes has already referred to things such as the green bank. Would any UK Government prudently site any UK activity in Scotland over the next few years? You might as well site it in Dublin. If it is going to be an independent country, you cannot take the chance and we are in danger of losing out on some things unless we get some certainty.

The final point I would make is that in many ways this debate is a bit unreal-and not just because it is well past my bedtime. The fact is that the real action is taking place offstage. This Bill is out of date; the sea change took place last May. I am well aware that, in the past, support for the SNP has fluctuated quite wildly and it may well do so again. I do not think that it is downhill all the way or anything like that, but it is a pity that there is no representation of the SNP in the House of Lords. I think that is the fault of the SNP and I would genuinely like to have heard its voice answering in the debate and explaining why some things that some of us have been saying are, in its view, wrong. I would be genuinely interested in that debate.

Lord McConnell of Glenscorrodale: Would the noble Lord want to comment on the fact that this whole debate, which has taken some several hours this evening, has been filled with speeches from Members on all sides who are here at the nomination of, or at least have a connection with, the political parties in the Chamber? In fact there was only one Cross-Bench speech, right at the beginning, from the noble and learned Lord, Lord McCluskey. Perhaps there is an issue being highlighted here about the geographical spread represented in the House by the Cross-Bench Peers-an issue that might be for the commission to look at in terms of future debates about Scotland in this House.

Lord Gordon of Strathblane: I genuinely disagree with that observation. It is not a question of the overall representation of Scotland but the nature of the political representation. The SNP has chosen to set its face against the idea of anyone taking a seat in the House of Lords. That has disadvantages for the nationalists, because the honest truth is that they would get a fairer hearing in this Chamber than in any other because we are not up for re-election and running the risk of losing seats to them. That is a mistake.


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