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Lord Sassoon: My Lords, this is not something that has come out of the blue from my mention of it now. It has been quite clear from the start-in the Command

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Paper-that that principle should apply. I am merely articulating something that has been in the construct all along.

Lord Forsyth of Drumlean: It is reassuring to hear that, but can the Minister answer my point? Does it mean what I have just said?

Lord Sassoon: Perhaps it would help if I write to the noble Lord to make clear exactly how the principle is intended to operate before we get to the next stage of consideration of the Bill.

Lord Forsyth of Drumlean: I do not want to press my noble friend; I am happy for him to elucidate what the position is; but throughout this afternoon, his speeches have been peppered with the word "accountability" and how this is making the Scottish Parliament accountable. If the suggestion is that the Scottish Parliament get compensated for the effects of changes in the tax base in England by the English taxpayer, that is not accountability; that is subsidy. It is about maintaining the status quo.

My noble friend shakes his head. Perhaps I have got it wrong. I thought he was saying that if changes are made to the tax system in England which have the result of narrowing the tax base, the Scottish Parliament will be compensated by being sent a cheque. Is that not what he is saying?

Lord Sassoon: What I am saying, and why I disagree with my noble friend's analysis, is that this is all about getting decisions about a certain part of the tax system to be made by the Scottish Government and the Scottish Parliament, and for the Scottish Government to be accountable to the Scottish Parliament and the Scottish people for a part of the tax system to have a clearer linkage between tax and spending in Scotland for the electorate and for the performance of the Scottish economy. Beyond that, there are certain areas where we want to ensure, as is only right and proper, that Scotland is not at risk of detriment because of decisions taken in interlinked parts of the tax system which disadvantage it.

Lord Forsyth of Drumlean: I hesitate to press this at this hour but, to give a real example, suppose that it is 2015. We are all enjoying paying these high Scottish taxes. There is a lower tax in England and the Government decide that they are going to introduce a far more generous scheme of tax relief on contributions to charity. Let us say that they make them wholly allowable and the result is that there is a reduction in the overall revenue available to the Scottish Parliament from the tax base on the Scottish income tax, because people are eligible for that. Of course, we are not yet clear whether that would apply to Scotland, but this power would enable the Treasury to implement a policy without any agreement of the Scottish Parliament and it would have a detrimental effect.

My noble friend appears to be saying that the answer to that is that they would be compensated for that, but there would be a transfer of resource from

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England to Scotland to compensate them for that change in the tax policy. Why would that be appropriate?

Lord Sassoon: My Lords, it has been a fundamental principle of devolution from the start that if a decision of one Administration impacts on another, the other Administration should be compensated. We are not doing anything different from the principle under which devolution has existed from the start. Yes, the tax base is shared, so if the UK changes allowances and thresholds, it is quite right that the effect of that should not fall to the detriment of the Scottish Government. As I said, that follows the general principle that applies across devolution spending, as it has from the start.

Lord Foulkes of Cumnock: I am not sure exactly where we are, but as my noble friend Lord Maxton drew my attention to the fact that there is this very interesting dialogue taking place, I was listening carefully to it. I am grateful to the noble Lord, Lord Steel, for his immediate understanding.

I am slightly disturbed because all along we have been talking about giving the Scottish Parliament greater accountability. That is why I am in favour of full fiscal autonomy, as I shall be arguing later. However, even if Scotland has full fiscal autonomy, if at any point it then goes, Oliver Twist-like, back to the Treasury and says, "I want some more", then that will not be full fiscal autonomy.

With these proposals in the Bill we are halfway towards full fiscal autonomy. I do not know whether the Treasury Minister, the noble Lord, Lord Sassoon, has seen that Alex Salmond has now come up with a list of what he calls shovel-ready projects-an awful-sounding term-that he wants the Treasury to provide huge amounts of money for. This is his technique. I am not sure whether I have got to the nub of the point that the noble Lord, Lord Forsyth, is making but at least it has given him an opportunity to sit down and think for a while. I was enjoying the Forsyth saga-that was inevitable-but I question whether it has revealed a flaw, in that we are not going to get the kind of autonomy that we want.

Lord Sassoon: No, my Lords, I do not believe that it has exposed a flaw. The decisions which under the Bill, if and when enacted, would be for the Scottish Government are quite clear and the Scottish Government will bear the fiscal consequences of those decisions. What I have described is made quite clear at greater length in the November 2010 Command Paper, Strengthening Scotland's Future. If parts of the UK tax system are not devolved but remain the responsibility of the UK Administration, then, if something changes to the detriment of Scotland, the no-detriment principle will kick in, the block grant will be adjusted and, as set out in the Command Paper, the Office for Budget Responsibility will work out all the numbers and establish the fiscal impact. Of course, the adjustment would not necessarily go one way-it would depend on the nature of the change. We have talked this afternoon as though everything is always going to go in one direction. However, this could conceivably be a two-way detriment that had to be adjusted through the block grant.

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The Earl of Caithness: My Lords, can my noble friend give us an example of the two-way process? If he cannot do so now, perhaps he can include it in the letter that he is going to send us.

Lord Sassoon: My Lords, one example is personal allowances, which have a potential impact on tax receipts, and that example is highlighted in the command document.

Lord Foulkes of Cumnock: I want to test this with one other example. Does the Minister recall when, under a previous Labour Government, the Scottish Executive introduced free personal care for the elderly? As a result of that, the old people who had free personal care no longer got the benefits that they had previously received. Malcolm Chisholm, the then Minister, sought a grant of hundreds of millions of pounds, which he claimed the UK Government had saved because they were no longer paying benefits to the people who were now getting free personal care. Would not that kind of situation arise in a number of areas under the scenario that the Minister is describing?

Lord Sassoon: My Lords, that was not a tax issue, and I do not know the detail of that case, but we are talking about changes to the structure of the UK income tax system, which is something that is done by the UK Government. We are talking about circumstances that are rather far away from a Scottish spending matter that the noble Lord described.

Lord Kerr of Kinlochard: I am lost. I fear that I do not understand this no-detriment principle. I may be showing my ignorance coming late to this subject. I thought that I understood the rationale for the Scottish rate: the UK system would remain the same but there would be this variable-take 10 per cent off and top it up. I assume that the allowances, thresholds and system would be the same over the UK. If, for example, a Government believed that more growth could be obtained by going for a lower rate of tax, or higher allowances, and thus lower revenue, that would be the case across the United Kingdom, including in Scotland. The only thing that would move would be the variable rate if the Scots chose to move it. What is this detriment? Are we saying that the Scots could enjoy the advantages of the greater growth in the United Kingdom but that the detriment to their revenue would be compensated through a block grant system? That would be winning twice. That cannot be what is intended. Will the Minister explain how the no-detriment principle works?

Lord Sassoon: The noble Lord has explained the construct absolutely correctly, so I have no problem with that at all. However, if the UK Government decide to raise personal allowances to take more people out of tax, that will flow through to a reduction in the receipts to the Scottish Government under the construct that he has described. The UK will compensate the Scottish budget through the block grant for such a reduction of the tax base for Scotland, based on forecasts by the independent Office for Budget Responsibility.

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Lord Kerr of Kinlochard: That is marvellous news. I do not have a house in Scotland now but I need to get up there fast and get a close connection. If, on the Minister's example, the allowances improve, that will suit me personally, but the Scottish Government and the First Minister will have more cash through compensation to make sure that the services I draw on in Scotland are in no way diminished.

Lord Sassoon: I would not want to get the hopes of the noble Lord or anyone else up too high. It will just bring Scotland back to where it was before we started this. It is not that Scotland will gain; it will just make sure that Scotland is brought back to where it was going to be before the change.

Lord Kerr of Kinlochard: May I ask the noble Lord about the economic benefits of the change and the reduction in the tax take, and to confirm that it would not suffer a reduction in its tax take?

Lord Sassoon: That is correct, and so it should be. If the UK Government decided to rebalance the taxes in some fundamental way, of course it would be wrong to take away the expected income tax take for Scotland that itself is reflected in all the calculations of the block grant. Again, I can attempt to see whether I can put down a worked example to show how the money flows will go, but this is not intended to give Scotland some great bonanza. It is a two-way balancing mechanism to make sure that neither Scotland nor the rest of the UK is disadvantaged by the way in which the effect of personal allowance changes will flow through the system.

5.30 pm

Lord Stewartby: For information, is the no-detriment principle embodied anywhere in statute within the devolution area?

Lord Sassoon: I will correct this if I am wrong, but I believe that it is set out not in statute but, along with a lot of other critical issues relating to the financial arrangements, in the financial accords with lots of other things that support the way in which money flows through to Scotland.

The Duke of Montrose: Is it a convention?

Lord Sassoon: My understanding is that it is not a convention as defined.

Lord Forsyth of Drumlean: My Lords, this has been a very illuminating debate. I have to say to my noble friend that this principle is bonkers. It says that if a Government take people out of tax by raising the threshold because they think that will help with welfare policy and encourage people to go to work because of the effects of the why-work taper, they follow the example that was given by the noble Lord, Lord Kerr, or they cut the top rate of tax-would that they would in order to generate growth and get the economy moving again-Scotland gets a cheque and gets the benefit. So a Treasury Minister trying to find the money to raise thresholds does not just have to find the money to compensate for the loss of receipts but

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has to send a cheque to Scotland to compensate it. It makes "We're all in this together" rather strange because we are not all in this together. There is a different rule.

It shows the paradox of this whole Scotland Bill. If anything, it almost makes me become a devo-max person. It almost makes me think that we should go for fiscal autonomy, because it is absolutely bonkers. It is saying that this is not about giving the Scottish Parliament tax-raising powers and accountability for what it does but about taking the block grant and pretending that it is a tax-raising power and, when the tax-raising power does not quite work because of changes in the tax system, topping it up. This is just about recreating the block grant, calling it a tax-raising power and dressing it up as accountability. That is what this principle means. I have studied this quite carefully, and I think that if this principle is to be applied, it is quite shocking that it is not in the Bill, because it is fundamental. It changes the whole architecture. Not many people follow this subject, but I do not believe that among them there is an understanding that changes in the position in England will be compensated for by expenditure north of the border, if, indeed, that is the position.

I would like to give an example from ancient times when I was in the Scottish Office. In England, water was privatised; in Scotland, it was not. The result was that there was no expenditure on water services because they were provided by private companies in England. The result was that the Barnett consequences did not come to Scotland. Under the ancien regime, we did not get an extra grant from the Treasury to compensate us for not doing what would have been the sensible thing, which was to privatise water services in Scotland. This is wholly new, although perhaps I am wrong.

Lord Browne of Ladyton: I enter this fantastic debate, as it develops, with some trepidation. It has perhaps been less illuminating than it could have been because, with respect to the noble Lord, people are using terms very carelessly. This is not a comparison between taxation in England and in Scotland; it is a comparison between decisions that are made for the UK and the consequences of this provision being devolved to Scotland.

I am not going to go any further because if I try to extemporise I am in danger of confusing this debate even more. It may be better if noble Lords wait to see whether the Government write to show how this will work, as they intend to. It is far from the case that those who understand how this works are surprised by this no-detriment policy. This no-detriment policy is actually at the heart of what we are doing because it is about accountability for an element of the tax-raising power, and that has to be sustained. Therefore, decisions made by the UK Government for all of the UK that undermine that accountability have to be compensated for in a balancing mechanism.

I go no further than that. I keep it very general. However, many of these examples that have been used to try to explain what is going on here are very far off the mark because they are comparing apples and pears. This is about what the UK Government do and the effect of that on the principle that we are trying to establish in this Bill.

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Lord Forsyth of Drumlean: I am most grateful for that very helpful intervention. I am glad that the noble Lord has a clear understanding of how this principle will be applied. However, I do not buy the argument that it is about the UK. Of course it is about the UK, but we still elect Members to the House of Commons from Scotland who are responsible for tax policy in the United Kingdom as a whole. If they support a Government who decide to cut taxes to create growth, they are accountable at the ballot box.

Let us take one of the recommendations of my tax reform commission-it has been abducted by the Liberal Democrat party-to raise the threshold for basic rate taxpayers. That is an example of something that would be compensated for. That is an example of a policy that is being applied across the United Kingdom. The threshold is being raised and it is very expensive. There is a substantial cost to it, and in order to achieve it other services are going to be less generously dealt with than they would otherwise be. Members of Parliament standing at a general election for the House of Commons are accountable for that. However, it is very odd indeed if it is argued that the Member for Stirling in the House of Commons is accountable for the policy that cuts the taxes, whereas the MSP for Stirling is not accountable because a cheque is sent north of the border to compensate for the consequences of this.

Lord Sassoon: Perhaps I might try again here. I do not think that my noble friend portrays it as it is going to be, and I am very grateful for the intervention of the noble Lord, Lord Browne of Ladyton. I am sorry that my noble friend portrays this as a great surprise. This was all discussed at length in the November 2010 Command Paper.

Lord Forsyth of Drumlean: That does not make it right.

Lord Sassoon: It does not make it right, but what we are discussing this afternoon is nothing new. This has been on the table for 15 months or however long it is, a good long length of time. The essential point that we have to understand is that there is going to be a permanent adjustment, as my noble friend knows, to the block grant for the move of the Scottish income tax to Scotland. The compensation that we are talking about is merely that if the basis on which the carve-out of income tax changes so that the relationship between the adjusted block grant and the income tax that Scotland expects to raise changes because of a subsequent decision, in effect we are saying that the permanent deduction needs to be adjusted because we have changed the income base from what it was expected to be, which seems entirely reasonable.

This is not the blank cheque that my noble friend is portraying it as: that the UK Government will be prepared to write whenever the income tax changes. The deal with Scotland is that there will be a one-off change to be worked on, as my noble friend knows. If the basis of that is subsequently changed because the UK Government change the base on which income tax is raised, it is perfectly right and proper that a compensating adjustment is made. It is as simple as that. It is not that there is a double whammy for the UK.

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Lord Forsyth of Drumlean: It may seem simple to my noble friend and it may have been discussed for 15 months, but I have to tell him that I am not a supporter of this Bill. I thought I made clear at Second Reading why I am not. I am somewhat surprised at the argument that my noble friend has put. The noble Lord, Lord Kerr of Kinlochard, put it quite clearly. I do not disagree about the impact of the policy but what is being said is that, if there is a change in the tax regime that results in the tax base being made narrower and from which people in Scotland will benefit, in addition people will benefit in Scotland by the cost of that change being added to the block grant. To me, that is double benefit and I do not see how that has anything to do with the accountability of the Scottish Parliament.

It arises because the Scottish Parliament is not solely responsible for tax policy, which would be an argument for fiscal autonomy that no doubt the noble Lord, Lord Foulkes, will put to us. However, the scheme in this Bill is a kind of charade whereby the Scottish block is always topped up regardless of the benefits that accrue to Scotland from the changes in the tax base, which cannot be right. I defy my noble friend to explain why, say, the Scots would get the benefit. Let us say that thresholds were raised to £10,000 so that no one earning less than that would pay income tax. That would have a dramatic effect on the Scottish block. I guess that it would be many hundreds of millions of pounds-perhaps £600 million or something of that order. My noble friend is saying that the Scottish Government would be compensated by being given that money, but the people living in Scotland would have benefited from the fact that they are not paying tax on the first £10,000. That cannot be right.

When my noble friend says, "Well, we have all known this for 15 months", I had not appreciated that the situation was as stark as this. I thought that it might be a one-off thing at the start, but the idea that this should be a continuing matter is not about accountability; it is about giving people a guaranteed budget.

Lord Maxton: As the noble Lord understands it, would the reverse be true? If, say, Mr Alex Salmond decides that he has a project that he knows the Scottish people will support and he puts up the income tax to pay for it-for example, a free new hospital or something like that, on which he knows that the Scottish people will support him-will the block grant be cut accordingly to compensate for the fact that more money is now being raised in Scotland?

Lord Forsyth of Drumlean: I think the answer to that is no. As has been made clear, we are talking here about the Scottish block being compensated for changes in United Kingdom taxation policy. My difficulty with this concept is that the people in Scotland are within the United Kingdom. They benefit from those changes and then a compensating payment is made to the block grant to compensate for that, which cannot be right.

5.45 pm

Lord Kerr of Kinlochard: My Lords, I thank the noble Lord for trying to cast light into my ignorance, but it is getting worse; the fog is getting thicker. Does

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the no-detriment principle have a reciprocal? If not, why not? Should there not be a reciprocal? Let us suppose there was a tax change that widened the tax base. Would that be no detriment just to the Scots, or no detriment to the UK? Before the Minister responds, perhaps I may make a second point. I see two little gleams of light from the lighthouse in the fog. One was the suggestion made by the noble Lord, Lord Browne, that it might be good if one could set out on paper how this is to work. I should have got there long ago, but I had not realised it. That is central to the issue of accountability, but I had not quite got it. I turn now to the noble Lord, Lord Stewartby, for the second light. Since it is so central to the issue of accountability, should it not be on the face of the Bill?

Lord Sassoon: First, I shall repeat what I believe I said earlier. This adjustment would go two ways. We have talked about so many things as being a form of one-way traffic this afternoon, but that is not the case. However, we want to make sure that the Scottish Government are accountable for what they are responsible for under the construct in this Bill, which is the effects of their powers to set a Scottish rate of income tax. They are not accountable either for a windfall gain or a windfall loss-if you can have a windfall loss-resulting from things that are done by the UK Government subsequent to the setting of the block grant adjustment. If we set out a worked example of how this will operate, I would like to think that it will be made clearer.

Lord Forsyth of Drumlean: My Lords, that is probably a very sensible suggestion. We have had a useful debate, if for no other reason than that it has persuaded me that there is a stronger argument for fiscal autonomy than I had thought, although it is not one that I accept. I beg leave to withdraw the amendment.

Amendment 54J withdrawn.

Clause 30 agreed.

Clause 31 agreed.

Clause 32 : Definition of Scottish taxpayer for Scottish variable rate

Debate on whether Clause 32 should stand part of the Bill.

Lord Foulkes of Cumnock: I indicated in my remarks earlier that I had intended to oppose these clauses standing part of the Bill, but because we have had such a full debate on all of their aspects, I do not think that it is necessary.

Clause 32 agreed.

Amendments 55 to 58 not moved.

Clause 33 : Scottish tax on transactions involving interests in land

Amendment 58A

Moved by Lord Forsyth of Drumlean

58A: Clause 33, page 27, line 1, at end insert-

"(3) The tax may only be charged by the Scottish Government.

(4) The tax shall be set at a uniform rate across Scotland."

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Lord Forsyth of Drumlean: My Lords, by way of explanation, I felt that we had done to death compensation for the Scottish Parliament, which is why I did not move the amendment which would require the bill for costs of collecting Scottish income tax to be sent to the Scottish Parliament. We can return to that later in the context of a debate to which we have yet to come.

Amendment 58A is similar in its impact to Amendment 58C. It would simply ensure that if the Scottish Parliament decides to set different rates of tax as part of the development land tax powers that are set out in the Bill under Clause 33, they should be applied uniformly throughout Scotland. They cannot be used to create different tax levels in different local authority areas. I do not know whether the Government were thinking that that might be the case, and that is why it is not made clear in the Bill that the rate should be applied uniformly, or whether the Government think that it is desirable. The purpose of the amendment is to tease out the Government's view on this. I beg to move.

Lord Sassoon: My Lords, I will speak to both Amendments 58A and 58C, which have similar effects-namely that they would require the Scottish Parliament to set uniform rates across Scotland for taxes on land transactions and on disposals to landfill. My noble friend's amendments would be an inappropriate restriction on the power of the Scottish Parliament in this area. The purpose of devolving tax powers is to transfer some of the responsibility for public funding services in Scotland to the Scottish Government. My noble friend says that he has been converted to devo-max, whatever that may be, and that he wants more of it. Here is a good example of where we are suggesting in the Bill more devolution than the noble Lord would like through his amendment.

Accepting as I do that we should wholeheartedly support improvements in the accountability of the Scottish Parliament to the people of Scotland, the devolution of stamp duty, land tax and landfill tax is very important. The Calman report estimated that these could yield the Scottish Government over £600 million a year, so it goes to the heart of the accountability issue. Also, a key premise of the Calman report is for the Scottish Parliament to be fully accountable for its devolved taxes, a principle which the Government support. To achieve this, the Scottish Parliament must be allowed the full power to vary the rate of the devolved taxes. It is for the Scottish Government and its Parliament to take decisions over the design of the taxes through consulting the Scottish people and passing its own legislation. Scottish Ministers may well decide to set uniform rates of tax on land transactions, or on disposals to landfill, across Scotland, but I suggest that that decision is for them and not for this House or this Parliament. I cannot see a strong argument-any argument-as to why we should interfere with the Scottish Parliament's freedom to set its own taxes across Scotland as it sees fit, once there has been an agreement that a particular tax should be devolved. For that reason, I urge my noble friend to withdraw his amendment.

Lord Forsyth of Drumlean: When my noble friend says that the Scottish Parliament should not have to apply it uniformly throughout Scotland and thatit

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could be used in different areas, does he mean the Scottish Parliament, or does he mean local authorities?

Lord Sassoon: To be clear, my noble friend talked about different areas. I do not know how a rate may be changed, but it would not necessarily be changed on a geographical basis. There could be changes of rate based on other parameters which would not necessarily be geographic. The policy and the ability to deal with these taxes are entirely devolved to the Scottish Parliament and the Scottish Government. It is for them, on a national basis, to decide how they design the taxes from thereon.

Lord Forsyth of Drumlean: My Lords, I can see how the Calman commission had to scrape around to find taxes that the Scottish Parliament could be allowed to levy. As my noble friend has touched on the amendment which deals with landfill, I shall, if I may, speak to that issue at the same time to save the time of the House.

I do not really have a problem if the Scottish Parliament wants to set the tax on landfill or on development land. I do have a slight problem with my noble friend's suggestion that it could be different in different parts of Scotland, which he is enunciating as a principle, without it being clear who would set it in different parts of Scotland and who would get the money. If it is proposed that it should be possible for the tax-raising power to be devolved still further to local government so that we could have differences in different areas, the Bill should spell that out and make clear who is responsible for collecting it and who gets the money.

I can see how the development land tax could be used to make it more difficult to develop particular areas; I can see how it could be used positively-perhaps by not having the tax at all-to encourage development in particular areas. However, on the landfill tax-and I am all for competition in taxes-the idea that you should combine raising the revenue with creating some kind of competition between local authorities is a little worrying, because, on the whole, people do not like having landfill sites next to them and local authorities like having sources of revenue. I would have thought that if one was planning where the landfill sites were going, and wanted to have a sensible allocation and availability of landfill sites, how and where the taxes were levied would be rather important. I would feel much more comfortable if this power was being exercised by the Scottish Parliament on a uniform basis. If that is not so, the Bill should indicate how it would operate and who would do it. Just by devolving the power and leaving it to the Scottish Parliament, we may be creating difficulties caused by the desirability of the revenue over the proper planning of landfill and development activity throughout Scotland. Perish the thought that political and other considerations might fall into this, but I am very nervous about the laissez-faire attitude that my noble friend is taking towards this tax.

Lord Sassoon: Laissez-faire can be a good thing or a bad thing. I suggest to my noble friend and to the Committee that we must treat Scotland more respectfully than this. As Calman recommended, these are two

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taxes that should be devolved. If it is right to devolve them, as the Government believe, in line with the Calman recommendations, my noble friend should not suggest that it is inappropriate for the Scottish Government and the Scottish Parliament to determine-whether on a regional or any other basis-how they levy them. I am sure that all the considerations about the design of the taxes which my noble friend mentions, which are perfectly proper and important, will be taken into account by the Scottish Government and the Scottish Parliament. In our proposing the devolution of these taxes, that is precisely what is intended.

Lord Forsyth of Drumlean: Perhaps I may ask my noble friend just one more question. Does he think that it might be a good idea to devolve both these taxes to local authorities in England?

Lord Sassoon: I am sure that my noble friend is not proposing that the Scottish Parliament should somehow devolve the taxes on to England. I merely say that it is a decision for the Scottish Parliament and the Scottish Government, just as the UK Government decide how the taxes should be handled in the UK. The Scottish Government and Parliament may decide that the design of these two taxes should be much as it is now-I do not know. It will be for them. If they have a good reason for doing it differently in the circumstances of Scotland, that is what devolution is all about. It is their responsibility; their accountability.

6 pm

Lord Forsyth of Drumlean: That is all very well and fine in theory, but I suspect that the answer to my question is that if the Minister goes back and says to his colleagues, "I have got this bright idea of devolving development land tax and landfill tax to local authorities in Scotland", he will get about 10 boxes full of reasons why this would not be desirable-not least because it would introduce different rates of tax all over the country for people who are involved in housing and other commercial developments. It is hardly in line with the Government's declared policy of simplification of taxation and less onerous regulation.

If I were to table a Question and ask what the Government's policy is on this and why, I am sure that they would come up with a whole load of reasons. My noble friend has said, "Oh well, it is for the Scottish Parliament to decide". No, it is not. At the moment this a uniform tax throughout the United Kingdom, as I understand it, and the Government have decided to devolve it to Scotland. In devolving it to Scotland, whether or not it will be circumscribed by a requirement to apply it uniformly is an important point. In considering what the impact might be on Scotland, my noble friend seems far more relaxed than in considering what the impact might be on England. If he says that that is central to the whole devolution idea and that we must trust the Scottish Parliament to use this power in this way, I just say to him that if, as I suspect will happen, the Scottish Parliament does devolve it but does not let the local authorities keep the money, he will find quite a number of English local authorities knocking on his door citing the precedent-and especially so if they decide to allow the local authorities to keep the money.

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Rather than just saying, "Oh well, it is Scotland and devolution and so it must be a good thing to let them decide", my noble friend might like to think about whether it would sensible to circumscribe this in some way. However, having discussed the matter, I am happy to withdraw my amendment.

Amendment 58A withdrawn.

Amendment 58B not moved.

Clause 33 agreed.

Clause 34 agreed.

Clause 35 : Scottish tax on disposals to landfill

Amendment 58C not moved.

Clause 35 agreed.

Clause 36 agreed.

Amendment 59

Moved by Lord Forsyth of Drumlean

59: After Clause 36, insert the following new Clause-

"Air passenger duty

(1) In Part 4A of the 1998 Act (as inserted by section 28), after Chapter 4 (inserted by section 35) insert-

"CHAPTER 5Air passenger duty

80L Air passenger duty

(1) A duty of excise which is levied on the carriage, from a Scottish airport, of chargeable passengers on chargeable aircraft, is a devolved tax.

(2) In this section-

"chargeable passenger" refers, subject to sections 31 and 32 of the Finance Act 1994, to every passenger on an aircraft if their flight begins at an airport in Scotland;

"chargeable aircraft" refers, subject to section 29 of the Finance Act 1994, to every aircraft designed or adapted to carry persons in addition to the flight crew."

Lord Forsyth of Drumlean: My Lords, the effect of the amendment is to increase the tax-raising powers of the Scottish Parliament to include air passenger duty as part of its revenue. It is a probing amendment. I do not want to go back over earlier debates which provided for an order-making power for Ministers to designate new taxes as devolved taxes, which is a thoroughly undesirable innovation. It is dangerous because it is so open-ended in its commitment-notwithstanding the procedure, which is also undesirable.

In responding to the question of why there should be a general power for Ministers to allow the Scottish Parliament to introduce completely new taxes, my noble friend said that Calman said that there should be a general power to provide for specified taxes. Of course, in the Bill, that has been turned into any tax anybody can think of. I would like to see the Bill amended to bring it back to specified taxes. My noble friend will have spent longer reading all the consultation documents and the other material that has been produced

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than I have, but it seems that the aggregates levy and air passenger duty are two taxes that were specified by Calman but are not implemented. I thought it might help the Minister to include air passenger duty and the aggregates levy. There would then be no need to have the power to deal with the specified taxes, because they would already be in the Bill and we would have an opportunity to consider their merits.

I look forward to hearing the reasons why the Minister thinks that air passenger duty should not be devolved to the Scottish Parliament and provided for in the Bill. This is an example of where the Scottish Parliament might cut rather than increase taxes. It is a tax in a country that is highly dependent on tourism and on people who commute from Scotland to London-I suppose I ought to declare an interest here. It may very well make sense to get rid of air passenger duty, or not to tax aeroplanes rather than passengers, which has resulted in us all paying huge fares and being crammed into planes that are packed to the gunnels. The number of flights to Scotland is being cut, the fares are now astronomical-more than £500-and the air passenger duty is going up. I have been going to the car park at Edinburgh airport and observing it for the past 29 to 30 years. They have expanded it but I now see lots of spaces where there were none before. Air passenger duty has an economic impact not only on the business community but also on tourism and so on.

This is exactly the kind of tax that the Scottish Parliament might cut or reduce for economic benefit, although these are obviously arguments for the Scottish Parliament. I hope my noble friend will forgive me if I embarrass him, but I observed him answering a Question on the impact of air passenger duty on international flights, when he had to justify the way that tax bands operate in terms of countries and distance. It was one of those occasions when the Minister has a brief that will not stand up to scrutiny because clearly a mistake has been made somewhere along the line.

The Government seem to be very concerned about this, but if the Scottish Parliament was given these powers, it would also help-I note the noble Lord, Lord Foulkes, is not in his place-to change the position that we have at the moment where there is excessive dependence on a section of a narrow part of the tax base: the 10p on income tax. At every stage of this Bill, both the noble and learned Lord, Lord Wallace, and my noble friend have repeatedly told us that they are implementing the Calman recommendations-and that doing so was a manifesto commitment. This was a Calman recommendation and was consulted on. For all these reasons, I am longing to hear from the Minister on why it is not in the Bill.

I can see arguments against it. Indeed, someone sent me an e-mail from Newcastle asking me what I thought the effect would be on Newcastle airport. That is an important point. If the Scottish Parliament gets control of air passenger duty, I think that it will cut it and perhaps Newcastle airport will be able to persuade the Government that, worthy as the green agenda may be, this kind of tax is hugely damaging to our economy and to tourist interests. But that is a debate from another day. I beg to move.

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Lord Kerr of Kinlochard: My position is diametrically opposed to that of the noble Lord, Lord Forsyth, on the general power. I agree with him that it would be good not to have the accountability element so heavily dependent simply on the extra tranche of income tax. However, it is up to the Scots to decide how or if they wish to move further, and on which taxes. The general power seems wholly reasonable, and for us to pick and choose air passengers or whatever seems a rather bad idea.

Mine is not a complete laissez-faire position. As I said in my debate with the noble Lord, Lord Sewel, on a previous day in Committee, a counterpart to a general power is a mechanism for neutralising the macroeconomic effect. You would be very rash to start to recreate the situation that we have seen in the eurozone with Greece and Germany. That is why I am very nervous about having devo-max or devo-plus, unless and until the monetary or borrowing consequences of greater fiscal autonomy are spelt out. When we come to the borrowing bit of the Bill, I will have something to say.

I do not know what the right rate is for air passenger duty, and I consider it irrelevant to the debate on the Bill. I doubt very much that Mr Salmond, with his green credentials, would follow the noble Lord, Lord Forsyth, in thinking that a lower rate would be the right one. There are many taxes other than this one that he might prefer to lower. But it is up to them, following the procedure that would require consultation with us. The lead should come from them.

Lord Forsyth of Drumlean: The noble Lord says that it is up to them. They want this power and Calman recommended it, and it is not in the Bill because the Government have not included it, even though they have been telling us that the Bill will implement the Calman recommendations. The legislative consent Motion that was considered by the committee of the Scottish Parliament specifically requests that it should be a condition of Scottish consent to the Bill that the air passenger tax should be included.

Lord Kerr of Kinlochard: As always, the noble Lord, Lord Forsyth, follows precisely the recommendations of the Scottish Parliament committee.

Lord Kilclooney: When discussing what should happen with Scotland, we should always also take into account not just England but Wales and Northern Ireland. In Scotland at the moment, as I understand it, there is already a variation in air passenger duty. Quite a few of the airports in the islands are already excluded, so the idea of having a different air passenger duty in Scotland is, in principle, accepted. If the power was devolved to a Scottish Parliament, would that lead to a reduction in the block grant to the Scottish Exchequer from the central Exchequer? Is there not something of a contradiction in government policy on the issue of air passenger duty, in that the Secretary of State for Northern Ireland is already recommending that air passenger duty should be transferred to the Stormont Executive?

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Lord Davidson of Glen Clova: My Lords, we on these Benches oppose the amendment at this juncture. While true it is that the Calman commission recommended that this tax be devolved-and true it is also that Labour's White Paper said that tax should be devolved-if there is any thought that this is a sudden volte-face on the part of Labour, I am afraid that that is not the case.

Her Majesty's Government said in the Command Paper that air passenger duty was under review. There is a question on whether a tax per plane might be discussed. We consider that it is not appropriate at this stage to devolve this tax until the issue is resolved; I think that we agree with the Government on this. However, the noble Lord, Lord Forsyth, might be relieved to hear that there is a power to create new taxes, which I think he might be aware of. In due course, under new Section 80B, were the air passenger tax to be devolved, this option would be open.

6.15 pm

Lord Forsyth of Drumlean: The noble and learned Lord has not been listening to my speech. Frankly, I do not blame him-but I did say that one reason that I tabled this and the other amendment was to get rid of that general power, which I regard as highly undesirable. Perhaps he could help me; why is the fact that the UK Government are reviewing what they want to do about air passenger duty an argument against giving the responsibility to the Scottish Parliament? If it is decided that they are going to abolish or double air passenger duty, or whatever, the revenue may halve or double. We have already been told in a long debate that there is compensation for this, so why on earth would the Government not put it in the Bill now? The fact that they are reviewing it is surely irrelevant.

Lord Davidson of Glen Clova: It is not for me to answer for the Government. Doubtless that will be done in due course but, accepting the kind invitation for the moment, it is plainly desirable to have a coherent starting point. Simply to say, "This can now be devolved and the Scottish Government can set off on their own way, without any regard to what is happening in the rest of the UK", might be unhelpful not only to the rest of the UK but to Scotland.

I apologise if I did not pick up on his enthusiasm for advancing this in order to reduce the power to create new taxes. I understand his concern about the extent of that power. However, it might be interesting to note that the Holyrood Scotland Bill Committee has accepted that once the future of this tax has been decided, it should be considered for devolution then. Therefore, it would appear that while the noble Lord, Lord Forsyth, is in advance of the Scottish Government in their demands for ever greater powers, at least in Holyrood there has been an indication that they are prepared to wait.

The Earl of Caithness: My Lords, I did not find the argument of the noble and learned Lord, Lord Davidson, at all convincing. Does it mean that the UK Government are now not allowed to look at any taxes which they are proposing to transfer to Scotland? If they are

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looking at air duty and saying, "No, you cannot give it to Scotland as the UK Government are looking at it", and given that there is a Budget coming up, presumably, to follow the noble and learned Lord's argument, we should not devolve anything to Scotland.

Lord Davidson of Glen Clova: My Lords, it is always a danger to generalise from the particular. In this instance, one sees that we on this side are content that the tax be devolved in due course-but where the people in Scotland, as expressed through their Bill Committee, seem to see virtue in waiting, we would agree with them.

Lord Sewel: My noble and learned friend talks about being content for the tax to be devolved in due course. That would be the route that the noble Lord, Lord Forsyth, identified, in which the only parliamentary control is an order. Will my noble and learned friend tell me where he draws the line between those taxes that should be devolved through primary legislation and those that should be devolved through secondary legislation?

Lord Davidson of Glen Clova: I am obliged to my noble friend. There is considerable difficulty in identifying where that line should be drawn. However, where there is a significant tax, the view from this side is certainly that there would be virtue in its being found in primary legislation. If one were using a power under new Section 80B, it would be primary legislation in the context of the Scottish Parliament. I hope that helps.

Lord Sassoon: My Lords, I think I should allow the noble and learned Lord, Lord Davidson of Glen Clova, to continue; he seems to have made the points in a way that I could not hope to match. I suppose I should do more than say that I agree with everything that he said and sit down.

I do not want to reopen all the discussions that we had in the previous Committee session but it is important to recognise that, as the noble and learned Lord said, there is an appropriate series of checks on both sides before any power could be devolved under Clause 28. I remind my noble friend that a similar power exists under Section 30 of the Scotland Act. I see the noble Lord, Lord Sewel, nodding. A power already exists for the Scottish Government to request new powers, including on taxation, under Section 30 of the Scotland Act. Perhaps I should not have gone into this territory, but it provides important background to this matter.

My other point is that Scottish Ministers referred to the Section 30 power when seeking legislative responsibility for a whole range of things, from firearms to consumer protection. As noble Lords will know, in each case the Government rejected the requests made by the Scottish Government. As background to this discussion about air passenger duty, it is important to remind ourselves that there are proportionate powers under Clause 28.

Lord Forsyth of Drumlean: I have the Explanatory Notes to the Scotland Act here. They state:

"Section 30 ... permits certain alterations to be made to the legislative competence of the Scottish Parliament but only with the agreement of both Parliaments".

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As I am sure my noble friend will agree, tax has always been dealt with entirely differently, not least in the exclusion of this House from consideration of tax matters since the 1911 Act. Tax is dealt with by a procedure under the Finance Act and is subject to a proper Committee stage on the Floor of the House of Commons. I believe that that is still the case. To suggest moving to a situation in which taxes can be introduced and imposed by orders-which are not amendable and which, traditionally, we do not vote against in this House-is to stretch the elastic to breaking point.

Lord Sassoon: I merely refer my noble friend to the arguments that I made on this point in our previous Committee session two weeks ago. I will not repeat them because it would take up too much of the Committee's time to refute those points. It is important, as other noble Lords, including my noble friend, have said, to remind ourselves of the context in which specific taxes are referred to in the Bill. I certainly agree that, as the noble and learned Lord, Lord Davidson of Glen Clova, said, the reason not to take the issue of air passenger duty further at this time rests partly on the existence of the powers in Clause 28.

Lord Sewel: I thank the noble Lord for giving way. I have had a reply to my question from my noble and learned friend on the Front Bench; perhaps the Minister could also reply. Where does he draw the line between those taxes that can be transferred or created through primary legislation and those that should be created or transferred through orders?

Lord Sassoon: I think that the line is drawn as the Bill stands in its present form, as we debated at considerable length on a previous Committee day.

Lord Sewel: Will the Minister outline the principled argument on which the division is based?

Lord Sassoon: No, my Lords; I do not propose to repeat the arguments and debates-interesting, important and lengthy though they were-because we should turn to the specifics of air passenger duty, which is the subject of the proposed new clause. Air passenger duty is an important issue on its own account, but it is not an easy one, for reasons to which my noble friend and others have referred. It is precisely because air passenger duty is so important that the Government have specifically sought views on the merits of devolution from a UK and a devolved perspective in their recent consultation. The responses provided arguments both for and against. Several respondents argued that devolution was necessary to reflect the distinct economic and social conditions in Scotland, and the impact that this has on flights to and from Scotland, in support of the Calman recommendations. Others opposed any devolution of air passenger duty, arguing that it would complicate the APD system and create potential distortions in the market for flights. There was no clear view either way. The Government's response to the consultation was published on 6 December 2011.

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The Duke of Montrose: I hope that the Minister will forgive my ignorance on this matter, but he put forward in support of his argument the power under Section 30 of the Scotland Act. My noble friend Lord Forsyth was looking at that, as am I. Section 30(4) states:

"An Order in Council under this section may also make such modifications of-

(a) any enactment or prerogative instrument (including any enactment comprised in or made under this Act), or

(b) any other instrument or document".

Does that cover tax?

Lord Sassoon: My Lords, I think my noble friend will find that taxation is set out in Schedule 5 to that Act, if memory serves. Section 30 can amend Schedule 5, so tax-

Lord Forsyth of Drumlean: My Lords-

Lord Wallace of Saltaire: My Lords, it would be appropriate to allow the Minister to finish answering one point before the next one is made.

Lord Sassoon: I hope that I may finish. I merely wanted to remind noble Lords, as a background to this discussion of whether it is appropriate for this tax to be in the Bill at this time, that there is a power, which we debated extensively, that would enable air passenger duty to be devolved in due course, if appropriate. I also remind noble Lords that there are similar powers in Section 30 of the Scotland Act. Of course they are not exactly the same; they work in different ways. However, we are not going into uncharted territory. This is territory in which the Government have been requested to devolve powers-not tax powers, although they could have been requested, but powers in other important areas. The Government have consistently said no because they do not believe that the arguments for that have been made.

Lord Forsyth of Drumlean: Section 30 clearly does not provide for tax powers. But if my noble friend is correct and it does, then why does he need the powers contained in the Bill to implement the taxes?

6.30 pm

Lord Sassoon: My Lords, I think that we will have to differ on the construction of powers under the 1998 Act. However, I am quite clear on it. Now, instead of an Act with a construct providing for a general power for the Scottish Government to make requests to the UK Government, and for the UK Government to accede to those or not, and because we are now getting to a very significant devolution of tax powers, it is entirely appropriate, as I hope my noble friend will agree, that if such devolution is to go ahead as the Government wish, the full structure should be set out as it is in this Bill although not in the 1998 Act. I hope that that explains that one. Perhaps I should carry on with air passenger duty, which is the narrow but important subject of these amendments.

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Lord O'Neill of Clackmannan: If the Minister is discussing air passenger duty then it is surely incumbent on him to try to put it in another context apart from the rather narrow one of revenue-raising, namely its impact on the provision of transport. Transport is a devolved responsibility, but sometimes that devolved responsibility seems a moveable feast. We talk about a high-speed train and claims are made that it should start in either Edinburgh or Glasgow, or at least finish in one, but there is no clear indication of who will fund it. But let us face the fact that regardless of whether the funding comes out of a block grant or a form of increased air passenger duty, a fast train would largely eliminate the need for Edinburgh-to-London or Glasgow-to-London air journeys. However, that would be the case only within the United Kingdom. The paradox is that were we to have the power to reduce airport duty, we might well have a situation in which transatlantic travel from Edinburgh or Glasgow is a more attractive option than travelling from Manchester and London, which are currently the main-almost oligopolistic-providers of transport across the Atlantic.

It is therefore incumbent on the Minister to get away from this narrow tax-raising, shopkeeper approach. This is a matter of greater significance to Scotland, given the devolved powers. The Government must consider this issue rather more seriously than their current, somewhat blinkered approach would suggest. Although I realise that the noble Lord, Lord Forsyth, has framed the issue in the context of taxation, it has implications which make taxation itself not a sufficient context in which to consider it. It has to be done on a broader basis. I would therefore be grateful if the Minister considered it in his response.

Lord Sassoon: Before this stream of questions and interventions I made precisely the point that, in response to the consultation, arguments were raised pro and against the devolution of APD on grounds relating to distinct economic and social conditions-indeed, those were the points that I was addressing rather than revenue-raising points. I am slightly surprised at the noble Lord's intervention on this. I completely agree with him that APD has all these potential effects. Some of the effects that he suggested go very wide, but I agree that this is complicated and the economic and social issues are relevant.

Lord O'Neill of Clackmannan: My Lords-

Lord Sassoon: Forgive me if I do not give way to the noble Lord immediately. His last intervention was rather long and I had already covered the point. May I carry on with the argument?

Lord O'Neill of Clackmannan: We have spent 30 minutes on this amendment, and that is not unduly long.

Lord Sassoon: I would suggest that it is really very long for this amendment. The previous intervention from the noble Lord asked me to address points that I had precisely addressed: the non-tax-raising issues indeed include important issues related to APD. Those

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were the issues that, among others, came up in response to the consultation. That is why, in the response to the consultation published last December, we continued to explore the feasibility and likely effects of devolution of APD to Scotland-for the very reasons, among others, that the noble Lord sets out. That is what we will do.

I should like to think that not only the noble Lord, Lord O'Neill, but other noble Lords would recognise that it would be inappropriate for the Government to devolve APD until we have considered the impact of the proposals fully from both the Scottish and the UK perspectives. In this connection, I say to the noble Lord, Lord Kilclooney, that a particular consideration applies in Northern Ireland because of the land connection in Ireland and competition on flights of a different nature, which is why a particular stance was taken on Northern Ireland.

Lord Kilclooney: I certainly accept that point, but my question particularly related to Scotland. There are people in Scotland and Northern Ireland who increasingly want tax-raising powers devolved to Edinburgh and Stormont. They seem to think that they can then reduce taxes in Scotland and Northern Ireland without any implications. If the Scottish Government has air passenger duty devolved to Edinburgh and reduces the duty in Scotland, will it or will it not mean a reduction in the block grant to the Scottish Government?

Lord Sassoon: I thought that the noble Lord, Lord Kilclooney, asked me two questions. I answered one; I was coming on to answer the second; although I know that he asked them in the other order. It is completely clear that there will indeed be a permanent adjustment to the block grant for any devolved tax, including, if it came about, APD. That is unequivocal.

We need to consider the full impact. The Bill contains powers in Clause 28 which would enable the Government and Parliament to devolve APD should they decide to in future. Although I fully agree with my noble friend about the importance of the recommendation for APD, I agree on this point with the noble and learned Lord, Lord Davidson of Glen Clova, that now is not the time to amend the Bill. APD can be looked at on its merits under the framework of the Bill in due time. I therefore again urge my noble friend to withdraw his amendment.

Lord Forsyth of Drumlean: My Lords, the St Augustine approach to the Calman commission is upon us. We have heard repeatedly that the Bill is to implement the Calman recommendations, which included devolving air passenger duty. Now we are being told by both Front Benches that the time is not right: "Oh Lord, make us have air passenger duty, but not yet". The reason that the time is not right is that the Government are reviewing air passenger duty. We learnt from the noble Lord, Lord Kilclooney, that the Government are prepared to devolve it to Northern Ireland and that the Secretary of State is prepared to give it to Northern Ireland. We are told that it would be difficult to include it in the Bill because there could be all kinds of implications because of changes to air passenger

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duty. We already have differences between Scotland and England. My noble and learned friend Lord Wallace will know the answer to this question, but I am pretty certain that highlands and islands airports are exempt from air passenger duty.

Lord Wallace of Tankerness: Only one way.

Lord Forsyth of Drumlean: Only one way. One-way tickets. Perhaps I may suggest that this is a possible area for the Office of Tax Simplification to consider. You can just see how a committee has sat down and said, "Which way is it? If you're leaving Inverness there's no air passenger duty, but if you're arriving there is". I am told that it applies in both directions for Inverness.

Lord Wallace of Tankerness: From memory, it applies both ways for Inverness but the relief is available only one way for airports in the islands and Wick. For the life of me I cannot remember in which direction. I think it is when travelling from the islands and Wick but I would have to check.

Lord Forsyth of Drumlean: So it is a policy that encourages emigration from the highlands and islands. The very fact that there is this degree of complexity torpedoes any suggestion that it would be possible to give this power to the Scottish Parliament now. Of course, if the regime changed then the revenue would change, and we have already heard at great length how this would be compensated for under the principle of "heads you win, tails you win", which is apparently central to the Bill.

I entirely take on board the noble Lord's chastisement. He was absolutely right. I tried to talk about the economic benefits but he is right to focus on the fact that this is not about tax. Actually, the tax revenue is not hugely significant but I believe that the impact of the tax could be, and he gave an example. I remember all the battles that we used to have in the late Lord Younger's day about saving Prestwick, and I am aware of the stress and pressure on these islands services. I hope that I will not embarrass my noble and learned friend Lord Wallace but this is highly political to the extent that I think the Scottish Government leant on an airline-Loganair-to withdraw an invitation to him to address its 50th anniversary dinner. That is a disgraceful example of the poisonous way in which members of the SNP-led Government behave. Therefore, this is very political and very important to the islands, and I am disappointed that my noble friend is maintaining this St Augustine position, saying that he favours it but the time is not right.

The Earl of Caithness: For Wick and the islands, the duty is relieved on the way out, not the way in.

Lord Forsyth of Drumlean: So my noble and learned friend was right. That is odd, as it encourages people to leave and not to arrive. It is very strange, although I am sure there is an explanation for it.

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Perhaps I may put it to my noble friend that it is entirely possible that the Bill will be amended at a later stage to remove this general power to create new taxes by order. It is a very important constitutional development which goes way beyond the importance of air passenger duty and the aggregates levy. It seems that my noble friend's assumption that we can always just use this general power and not have the tedium of primary legislation may not survive the passage of the Bill through this House. What will he do then in order to give the Scottish Parliament the opportunity to benefit from air passenger duty? If the position of the opposition Front Bench is one of "not yet but this is something that we can do in due course", I have to say that I think the chances of getting primary legislation to amend the Scotland Act to provide for air passenger duty in the absence of this order-making power are pretty limited. However, being a reasonable sort of chap, I have a compromise to propose to my noble friend. Many of us in this House do not like the general order-making power for introducing new taxes. This is being justified on the basis that we might want to introduce air passenger duty at a later date, or introduce an aggregates tax at a later date-I do not think that we have heard about any others.

Why not bring forward a government amendment to amend that order-making power in line with the Calman recommendations so that it is for specified taxes and not generally open? In that way, everyone will be happy, constitutional propriety will be fulfilled, and the Government will meet their commitment set out in the manifesto in respect of Calman. On that basis, I beg leave to withdraw my amendment.

Amendment 59 withdrawn.

6.45 pm

Amendments 60 to 62 not moved.

Amendment 62ZA

Moved by Lord Forsyth of Drumlean

62ZA: After Clause 36, insert the following new Clause-

"Aggregates levy

(1) In Part 4A of the 1998 Act (as inserted by section 28), after Chapter 6 (inserted by section 36C) insert-

"CHAPTER 7Aggregates Levy

80N Aggregates Levy

(1) A levy charged on aggregate subjected to commercial exploitation is a devolved tax.

(2) In this section "aggregate" means (subject to subsections 4 and 5 below)-

(a) any rock, gravel or sand, together with whatever substances are for the time being incorporated in the rock, gravel or sand or naturally occur mixed with it, and

(b) the spoil, waste, off-cuts and other by-products resulting from the application of any exempt process to any aggregate;

but does not mean anything else resulting from the application of exempt process to any aggregate.

(3) In this section any quantity of aggregate is, in relation to any occasion on which it is subjected to commercial exploitation, a quantity of taxable aggregate except to the extent that-

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(a) it is exempt under subsections 4 and 5;

(b) it has previously been used for construction purposes (whether before or after the commencement date);

(c) it is, or derives from, any aggregate that has already been subjected to a charge to aggregates levy in the United Kingdom;

(d) it is aggregate that on the commencement date is on a site other than-

(i) its originating site, or

(ii) a site that is required to be registered under the name of a person who is the operator, or one of the operators, of that originating site.

(4) Aggregate is exempt under this section if-

(a) it consists wholly of aggregate won by being removed from the ground on the site of any building or proposed building in the course of excavations lawfully carried out-

(i) in connection with the modification or erection of the building; and

(ii) exclusively for the purpose of laying foundations or of laying any pipe or cable;

(b) it consists wholly of aggregate won-

(i) by being removed from the bed of any river, canal or watercourse (whether natural or artificial) or of any channel in or approach to any port or harbour (whether natural or artificial); and

(ii) in the course of the carrying out of any dredging undertaken exclusively for the purpose of creating, restoring, improving or maintaining that river, canal, watercourse, channel or approach;

(c) it consists wholly of aggregate won by being removed from the ground along the line or proposed line of any highway or proposed highway and in the course of excavations carried out-

(i) for the purpose of improving or maintaining the highway or of constructing the proposed highway; and

(ii) not for the purpose of extracting that aggregate;

(d) it consists wholly of aggregate won by being removed from the ground along the line or proposed line of any railway, tramway or monorail or proposed railway, tramway or monorail and in the course of excavations carried out-

(i) for the purpose of improving or maintaining the railway, tramway or monorail or of constructing the proposed railway, tramway or monorail; and

(ii) not for the purpose of extracting that aggregate;

(e) it consists wholly of the spoil, waste or other by-products, not including the overburden, resulting from the extraction or other separation from any quantity of aggregate of any china clay or ball clay; or

(f) it consists wholly of the spoil from any process by which-

(i) coal, lignite, slate or shale, or

(ii) a substance listed in subsection 5(b) below,

has been separated from other rock after being extracted or won with that other rock.

(5) For the purposes of this Part a quantity of any aggregate shall be taken to be a quantity of aggregate that is exempt under this section if it consists wholly or mainly of any one or more of the following, or is part of anything so consisting, namely-

(a) coal, lignite, slate or shale;

(b) the spoil or waste from, or other by-products of-

(i) any industrial combustion process, or

(ii) the smelting or refining of metal;

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(c) the drill-cuttings resulting from any operations carried out in accordance with a licence granted under the Petroleum Act 1998;

(d) anything resulting from works carried out in exercise of powers which are required to be exercised in accordance with, or are conferred by, provision made by or under the New Roads and Street Works Act 1991; or

(e) clay, soil or vegetable or other organic matter.

(6) For the purposes of subsection (3)(c) aggregate subjected to exploitation in Scotland is aggregate that has already been subjected to a charge to aggregates levy if, and only if-

(a) there has been a previous occasion on which a charge to aggregates levy on that aggregate has arisen; and

(b) at least some of the aggregates levy previously charged on that aggregate is either-

(i) levy in respect of which there is or was no entitlement to a tax credit; or

(ii) levy in respect of which any entitlement to a tax credit is or was an entitlement to a tax credit of an amount less than the amount of the levy charged on it.

(7) For the purposes of subsection (5)(b) above, any credit the entitlement to which arises in a case which-

(a) falls within section 30(1)(c) or 30A of the Finance Act 2001, and

(b) is prescribed for the purposes of this subsection,

shall be disregarded.

(8) In this section-

"coal" has the same meaning as in the Coal Industry Act 1994;

"highway" includes any road within the meaning of the Roads (Scotland) Act 1984;

"exempt process" means-

(a) the cutting of any rock to produce (stone with one or more flat surfaces);

(b) any process by which a relevant substance is extracted or otherwise separated (whether as part of the process of winning it from any land or otherwise) from any aggregate;

(c) any process for the production of lime or cement from limestone or from limestone and (anything else); and

"relevant substance" means any of the following-

(a) anhydrite;

(b) ball clay;

(c) barytes;

(d) china clay;

(e) feldspar;

(f) fireclay;

(g) fluorspar;

(h) fuller's earth;

(i) gems and semi-precious stones;

(j) gypsum;

(k) any metal or the ore of any metal;

(l) muscovite;

(m) perlite;

(n) potash;

(o) pumice;

(p) rock phosphates;

(q) sodium chloride;

(r) talc; or

(s) vermiculite.

(9) The Treasury may by order made by statutory instrument-

(a) modify the list of relevant substances in subsection (8) above by adding any substance to that list or by removing any substance from it; and

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(b) make any such transitional provision in connection with the modification of that list under this subsection as they may think fit.

(10) The Treasury shall not make an order under subsection (9) above by virtue of which any substance ceases to be a relevant substance unless a draft of the order has been laid before Parliament and approved by a resolution of the House of Commons.

(11) A statutory instrument containing an order under subsection (9) above that has not had to be approved in draft for the purposes of subsection (10) above shall be subject to annulment in pursuance of a resolution of the House of Commons."

(2) Duty may not be charged in accordance with the provision inserted by this section if the exploitation occurs before the date appointed under section (Disapplication of United Kingdom Aggregates Levy)(4)."

Lord Forsyth of Drumlean: This feels like Groundhog Day.

I thought that the committee of the Scottish Parliament that looked at the latest Bill just before Christmas last year had wanted to include air passenger duty in it, but I am told that that is not the case and that the committee was prepared to wait. It is certainly not prepared to wait on the aggregates levy. As noble Lords will see, it takes three pages of legislation to provide for the power to obtain the revenue from the aggregates levy. Here, once again, we have a case of St Augustine: "We are in favour of this, but we don't actually want to do it now".

The argument being put against including this in the Bill is that it would be subject to legal challenge-the power might be put in the Bill but the result might be that no revenue for the Scottish Parliament arises from it. That is not an argument for not putting it in the Bill. Primary legislation is difficult to achieve, and it is even more difficult to achieve in a decent time in Westminster. I think that my noble friend should accept my amendment-which is probably technically deficient-and extend the range of tax powers available to the Scottish Parliament, if for no other reason than to mitigate the effects which we have talked about at length today of having a narrower income tax base. I beg to move.

Lord Foulkes of Cumnock: While the noble Lord, Lord Forsyth, has been talking, and now that he is talking about aggregates tax, I have been aggregating the time that we have taken to deal with half a dozen or so groups of amendments. I see that we have about twice as many groups still to deal with before we reach the target that the Government have set themselves. We have taken six and three-quarter hours to deal with these half a dozen or so groups of amendments, and at the rate we are going it will take until about 7 o'clock tomorrow morning to deal with the rest.

Although I am prepared to stay here, I think that it really is unfair on all the staff-on Hansard, on the catering staff, the doorkeepers, the civil servants and the clerks of course-who do such a wonderful job on our behalf. It is incumbent on the Minister and the noble Baroness the Whip to start thinking about how the Government will deal with this. We lost one whole day of our Committee stage because the Welfare Reform Bill took it up. We all sat round for a whole day but eventually the Government said, "We are not having it today. You can all go home". That was a wasted day for many people. We are having a detailed debate on

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this Bill. I have not participated in much of it but I have been listening to all of it-and yes, as a noble Baroness says, I nodded off on one occasion as well.

It is incumbent on the Government to give an indication to the staff-to everyone around the House-of what will happen. How late will we go tonight and what is the target? They should also give us more time to deal properly with this very important constitutional Bill. It was not dealt with properly in the other place, but it is our responsibility to deal with it properly. There is plenty of time after Easter for Report. We could continue the Committee stage in the two days that are allocated for Report and deal with it properly then. I hope that the Government will give that serious consideration. Otherwise, we will not be treating dedicated staff as we should if we are to be a good employer.

Lord Sassoon: First, on my count of the progress that we are making, I have ticked off 19 groups and we have 10 to go, given the breaking up of groups and regrouping. My understanding is that the usual channels agreed that we should target and complete Amendment 87A. It was made quite clear in everything that I have read that there was that expectation. I very much appreciate all those who support us in keeping the House going, but I know that their expectation and our expectation over the past few days is regrettably that we will rise considerably later than normal today. Rather than spending too much time confirming what the usual channels have agreed, I think we should press on.

Lord Foulkes of Cumnock: Perhaps the Minister's count is more accurate than mine-I would split the difference-but it is still going to take a long time. We have important issues to deal with such as the Barnett formula, the referendum, the Scottish Consolidated Fund, the Civil Service in Scotland, surcharges, financial privileges, legislative consent Motions and the delay in legislation on a referendum. If we are going to deal with all these things properly, we cannot deal with them now. We have all been sitting here for six and a quarter hours already. It really is important that we consider the staff in this. I hope the usual channels will have another look at this.

Lord Sassoon: Right. I had quite forgotten that we are on the aggregates levy. Let me answer my noble friend's points. Yes, the Calman commission recommended the devolution of the aggregates levy and, as my noble friend knows, the Government agree with that recommendation. We are committed to devolving the aggregates levy to the Scottish Parliament but, to confirm what he said, we believe that that can and should be done only once the complex legal challenges against it in the European and UK courts have been fully resolved. The Government were clear about their position in the Command Paper for the Scotland Bill, and we remain firmly committed to it.

The position is still moving on the court challenge. The European General Court delivered its judgment in the case of British Aggregates Association v the Commission on 7 March this year. The judgment does

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not conclusively resolve the legal challenges. Appeals can still be brought against the judgment to the European General Court. Once the action in the European General Court has concluded, action in the UK Court of Appeal will resume. As we have discussed at considerable length, the Bill enables the Government to devolve taxes in future, and it means that devolving the aggregates levy after full resolution of the legal challenges can be achieved quickly. I am happy to say that my noble friend's very extensive amendment technically broadly works. He is too modest. There would be one or two things to look at, but that is not the issue.

To make sure that things continue and we do not lose momentum on this, as a practical and necessary step to prepare for devolving the levy the independent Office for Budget Responsibility will start to provide forecasts of Scottish aggregates levy receipts from April 2012. The Treasury will also notionally assign these forecast receipts to the Scottish budget. Together with the tax powers in the Scotland Bill, this will allow for the speedy devolution of the levy when the legal challenges have been fully concluded. At that time, the order can be drawn up to reflect the position post the completion of the challenges.

I hope I have made it clear that the Government's desire to devolve the levy as soon as is feasible continues. It is not feasible to do it while the legal challenges are ongoing. The Bill gives adequate powers for that devolution in future. I thank my noble friend for putting forward a carefully thought through amendment, but I ask him to withdraw it.

Lord Forsyth of Drumlean: My Lords, I am very puzzled by this. The Minister says that the amendment is competent. The Minister says that it was included in Calman. The Minister says that the Bill is about implementing the Calman proposals. The levy is certainly subject to a legal challenge. He did not explain why the fact that it is subject to a legal challenge precludes accepting my amendment and putting it in the Bill, and making that a devolved tax for the Scottish Parliament.

Lord Sassoon: I tried to make it clear that while we could draw up-as he has had a shot at drawing up-a technical solution within the framework of the levy as it exists now, and put through something in the form that he has proposed or a government amendment to do it, until we know whether it is premised on a legally sound basis it would be a waste of time to do so. We need to have a firm legal basis on which the levy exists before we can be sure of the proper basis to devolve it to Scotland. It is as simple as that.

I am surprised that he expresses such puzzlement. As I said, in the mean time we are doing all the practical things we can to make sure that when we have the legal green light, the devolution powers can be progressed as speedily as is appropriate.

Lord Forsyth of Drumlean: I am still a bit puzzled. Perhaps I do not understand it. Are the Government still collecting this levy?

Lord Sassoon: Yes, they are.

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Lord Forsyth of Drumlean: An argument that says, "We cannot put it in the Bill because we are not sure about the legality but we are still taking in the money" is a bit thin. I can give way to my noble friend and he can explain why it is not at all thin-it seems pretty thin to me. If the Government think that the legal basis is uncertain, why are they collecting the cash and spending it? As we know, their spending is way beyond their income. It is a very curious argument that says, "We are still collecting the tax but we cannot put this in the Bill"-which is subject, by the way, to commencement provisions that give the Treasury pretty considerable powers as to when it is enacted. The legal position is going to be sorted out one way or the other. If it means a change, there are already powers in the Bill to enable the Government to deal with that. I am at a loss to understand the logic of the Minister's position.

7 pm

Lord Sassoon: Let me make one last attempt at trying to help my noble friend as to why particularly the legal challenge means that it would be foolish and unsafe to try to draft an appropriate devolution mechanism now. As he may know, a central aspect of the challenges has been allegations of tax discrimination across borders. We do not know where it will come out and what the constraints may be, but since we might be doing something where borders would be relevant, we need to understand the legal ruling before we can construct a robust, devolved approach to this. It would be a ridiculous waste of our time and would make no sense to put up something if we thought that it would be immediately knocked down and that we would have to rewrite it in a year's time.

Lord Forsyth of Drumlean: I have to say to my noble friend that at 7 pm on a Thursday night, after six hours of this Bill, to use an argument about wasting time is grave to say the least. The whole process that we are going through is in order to work out an appropriate Bill in terms of the Calman recommendations. If he is saying that if we make aggregates tax a devolved tax, although it might change as a result of changes arising from the legal challenge, I can just about get there, but when he says that it is about cross-border issues, presumably that refers to such issues between countries in the European Union and not within countries in the European Union. If we are now starting to say that we cannot devolve measures because of cross-border issues within the United Kingdom, are we not ceding a very important principle? He surely is not talking about the Scottish border in this context.

Lord Sassoon: I simply do not know where the courts will come out, but there are some constraints. As regards some of the amendments that my noble friend did not speak to, alcohol duties are one area where we are constrained by Europe, which says that there should be a uniform rate nationally. Therefore, there are other areas, although my noble friend might not like it. Alcohol duty is one area where there are precisely those constraints.

This illustrates why I do not think that it would be productive-there is a challenge, which is still not resolved and final-to base new legislation on an

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insecure foundation. In the mean time, as I have explained, we are operating the levy on a shadow basis, with the help of the Office for Budget Responsibility, so that we know what is attributable to Scotland from April 2012.

Lord Forsyth of Drumlean: That is to concede the point. If my noble friend is saying that the legal challenge might result in the Scottish Parliament not being able to have a higher or lower duty, should there have to be a uniform duty throughout the United Kingdom because of EU rules, that is not an argument for allowing the Scottish Parliament to have the revenue that arises from the aggregates levy. It is not just about setting the rate; it is also about having the revenue and broadening the tax base.

Perhaps the noble Lord is right. Who knows what the EU is capable of? The fact that we may end up with a uniform application, as in the case of alcohol duty, is not in itself a reason for not providing for this power in the Bill. If my noble friend's concern is that the nature or the application of the tax may vary as a result of the legal case, and if he says to me, "Withdraw your amendment and I will come forward with a government amendment that provides for the aggregate levy but gives us the flexibility", and my goodness, this Bill is bristling with examples, "for the Treasury to provide for it in secondary legislation", that would be a much more desirable position-I know my noble friend hates it when we go back to this-than the general power to invent new taxes that is being justified on the basis of the Government's inability, which I do not understand, to include in the Bill provisions that would allow for the aggregates levy and for air passenger duty. Can he help me with that?

Lord Sassoon: No, my Lords, I am afraid that I will not be able to help my noble friend. There is one subsidiary point on which perhaps I can do so. To be clear, I have said that it is a case against the Commission. For the avoidance of doubt, it is not that the UK is continuing to collect this levy on some inappropriate basis; it is just that the Commission is facing a case that may mean that the whole basis on which the levy system operates may have to change. I am afraid that I cannot give him any comfort on that. We shall draft the provisions as and when we have a safe basis on which to bring them forward.

Lord Forsyth of Drumlean: When my noble friend says that we will draft them when there is a safe basis on which they can come forward, I hope that by the time this Bill is given Royal Assent there will not be an open-ended power for him to come along and, by order, invent taxes that have not been subject to proper scrutiny as this aggregates tax would be, if he were to accept the amendment, by the House of Commons using the established procedures that we have always had for the consideration of tax.

There is one other question I want to ask my noble friend. Given the very strong line that he has taken on this matter-that it would be impossible to do so because of the legal challenge-and on the previous matter, the development land tax, which we have been told that it is not possible to put into the Bill, can I

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assume that this is no part of the negotiations that are going on with the Scottish Parliament to get legislative consent? I hope that the Government are not saying one thing to this House and another thing privately. Can he confirm that we are not going to be faced with this being delivered as the result of some deal, because of course that could not be done given the very firm line that my noble friend has taken on the impossibility of including those taxes in the Bill?

Lord Sassoon: My noble friend may have misunderstood me because I am sure that it would not be out of mischief, but I have never said that any of this is impossible. This Parliament can do whatever it wants in this area, but I have explained the practical and other reasons why it would be inappropriate at this time. I certainly do not want him to go away with the suggestion that any of this is impossible. It would just be wrong in the case of both of these taxes to proceed at this time for the reasons that I have set out at greater length than I thought I would have to, but I am happy to have had this debate.

Lord Forsyth of Drumlean: I am sorry that my noble friend is getting bored with this, but he has not actually answered my question. Let me put it in another way. Is he saying that if this House were minded to see the inclusion in the Bill of both these taxes-let us stick to the one we are on at the moment, the aggregates tax, although the development land tax had the support of those on both Benches-that whatever the strength of the arguments that are put, or even if this House were perhaps to vote in that direction, although that does not look particularly likely, he would resist it, but that it could be conceded as part of a negotiation with the Scottish Parliament in order to get its legislative consent, which is not required by statute? If he is saying that, that gives us considerable cause for concern, because what that says-and my noble friend talks about wasting time-is that it does not really matter what we say or do, or what arguments we advance.

In the end, what goes into the legislation will be determined by a backroom deal between Ministers and the First Minister on the basis of a legislative consent Motion that, right at the beginning of our debate, my noble friend refused to say would allow the Bill to go forward if it was accepted. It is a very simple question: will the line that my noble friend has given be held in the negotiations with the Scottish Parliament? It is a relevant question, because the committee that has looked at this wants it included in the Bill.

Lord Sassoon: I am struggling to see where this is going. The Government have said all along that we intend to devolve the aggregates levy. I think there was a slip somewhere, and perhaps I misheard, but the aggregates levy and the APD are the two taxes that we are talking about, for which it is inappropriate to bring forward measures at the moment. On the aggregates levy, we have been completely clear all along, so there is no question of any negotiation on this.

Lord Forsyth of Drumlean: Right. Well, on the basis of that undertaking, I am happy to beg leave to withdraw my amendment.

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Amendment 62ZA withdrawn.

Amendment 62ZB not moved.

Clause 37: Borrowing by the Scottish Ministers

Amendment 62A

Moved by Lord Davidson of Glen Clova

62A: Clause 37, page 29, line 2, after "may" insert "with the consent of the Treasury"

Lord Davidson of Glen Clova: My Lords, this is a very, if I may put it this way, gentle, probing amendment. It looks at Clause 37 and, in particular, subsection (3). The reason that one is advancing this is that one understands from the Command Paper, Strengthening Scotland's Future, that there would be a current borrowing capacity for Scottish Ministers of up to £500 million. In the terms of subsection (3) that seems to be designed to cover, putting it broadly, a temporary shortfall in receipts.

When one looks at Clause 37, one sees that, in terms of capital expenditure borrowing, if Scottish Ministers wish to use that power they are required to obtain the approval of the Treasury. In subsection (5) there is reference also to the Secretary of State making an order pursuant to,

What one is endeavouring to ascertain by the amendment is the thinking of the Government in relation to how temporary shortfalls may be met by borrowing, and what control there would be over that. Plainly, at least in Scotland but certainly in other jurisdictions, temporary shortfalls have a way of becoming fairly permanent. Borrowing by subsidiary jurisdictions can occasionally get out of hand, which requires being brought back under the control of central government. One is simply endeavouring to find for what reason no consent order or other order was put specifically on this power in the Bill.

I can perhaps put it better. One sees that there is a power here. It is going to be controlled, we are told in the Command Paper. Why is it not being controlled in the Bill, given that it is the very nature of borrowing that it might run out of control?

7.15 pm

Lord Sassoon: My Lords, the short answer to the noble and learned Lord, Lord Davidson of Glen Clova, is that the additional safeguard proposed in his amendment does not need to be written into the Bill in this way because the limit and sources of borrowing are already controlled in the legislation and the Command Paper. I could leave it at that, but I feel that I should say a little more, because I understand what the noble and learned Lord and the noble Lord, Lord Browne, are driving at in their amendment. I agree that control over the borrowing powers needs to be careful and considered. They have given us an important opportunity to look at this matter and to confirm what I believe to be the case; namely, that sufficient controls exist.

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The extended current borrowing facility proposed will provide Scottish Ministers with a lever to deal with the deviation between forecast and actual outturn receipts from devolved taxes. It will also enable them to deal with the volatility in revenue flows from taxes as they enter the Consolidated Fund at different times over the tax year and beyond. The current borrowing power will come into operation when the taxes are devolved, up to a limit of £500 million. I do not think that the noble and learned Lord is suggesting that there is anything inappropriate about that-he is confirming that he does not challenge the logic of that. In addition to the current borrowing facility, Scottish Ministers will have the power also to borrow to fund capital expenditure to a limit of up to 10 per cent of the Scottish capital budget in any year, with the overall stock of debt for capital purposes not exceeding £2.2 billion.

Such borrowing will need to be self-financed through increased revenue from taxation in Scotland or a reduction in public spending. So there are controls in place on the levels of borrowing, as there must be. On that basis, the Bill allows Scottish Ministers to access the most competitive source of lending, which is the National Loans Fund.

All other things being equal, Scottish borrowing will increase UK borrowing and debt. The limits in the Bill and the controls set out in the Command Paper will ensure that the Scottish debt is affordable from within the UK fiscal position.

While I support the intention behind the noble and learned Lord's amendment, which is that borrowing by Scottish Ministers must not risk the UK's fiscal position, I believe that the borrowing limits reflect a judgment of what is affordable and do not put that position at risk. The limits on borrowing for capital expenditure were judged by my right honourable friend the Chancellor of the Exchequer to represent an acceptable level of risk that he was willing to place on the UK's public finances. The limits on borrowing for revenue expenditure were based on an assessment of the size of forecast errors in income tax in normal times. Unlike capital expenditure, where a stock may build up, borrowing for revenue expenditure is related to a technical assessment of forecast errors and the timing implication.

The protections already in place in the Bill are sufficient to ensure that the UK's fiscal position is fully protected. I again thank the noble and learned Lord for stimulating this short discussion, but ask him to withdraw his amendment.

Lord Davidson of Glen Clova: I am obliged to the Minister for his careful clarification of the position. There is much content in what he has said and I shall reflect on it. Meanwhile, I beg leave to withdraw the amendment.

Amendment 62A withdrawn.

Amendments 63 and 64 had been withdrawn from the Marshalled List.

Clause 37 agreed.

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Amendment 65

Moved by Lord Forsyth of Drumlean

65: After Clause 37, insert the following new Clause-

"Allocation of public funds to Scotland

(1) The allocation of public funds to Scotland shall be based on a needs assessment, rather than the population basis of the Barnett formula.

(2) The Chancellor of the Exchequer shall, by order, establish a commission-

(a) to agree a methodology for assessing Scotland's needs; and

(b) periodically to review the allocation of public funds to Scotland in the light of its needs.

(3) The first review by the commission must be completed no later than 1 April 2015."

Lord Forsyth of Drumlean: My Lords, the noble Lord, Lord Barnett, left me a note saying that unfortunately he had been detained and would not be here to move his amendment, and asking me whether I might find the time to do so. As I have added my name to it, I will do so with pleasure. I know that the noble Lord was keen to discuss the issue in Committee.

We had a good preparatory discussion for the amendment when we heard from the Minister how any reduction in the tax base would be compensated for by an addition to the block grant. The fundamental flaw in the Bill is that it is presented as being about accountability, but the accountability is limited. This is partly because of the limited nature of the taxes being devolved and partly because of the compensation for changes in policy in the tax base, to which I have just referred. However, the accountability is limited mainly because the bulk of the funding in the block grant is still based on the world as it existed in the 1970s, as amended and altered by subsequent Governments, including those of which I was a member. I plead guilty to using some of the techniques to enhance the effects of the Barnett formula and to reduce the squeeze that otherwise would have occurred on Scotland's budget.

A Scottish Parliament has to be accountable when it pursues its different policies, whether they are on health, free care for the elderly, free tuition fees, free bus travel, extra nursery care provision or free prescriptions on the NHS-all of which are no doubt popular. Indeed, I venture to suggest that one reason why Mr Salmond did so well in the elections was because he was able to make such promises. I am not sure he will be able to keep them, but he certainly benefits from the fact that Scotland is more generously funded relative to need than the rest of the United Kingdom. That is historically the position and I do not apologise for it. When I was in office I did everything that I could to keep it that way.

However, we are going to move to a Parliament which has its own tax-raising powers. It was interesting that at the start of our discussions people tried to maintain the idea that the tax-raising powers might be used to lower taxes. That finally fell over and the debate swung toward the consequences of higher taxes. One can imagine what the consequences would be of lowering taxes while providing additional services and

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being funded at a rate of 20 per cent more per head-perhaps a little less-as a result of the impact of the Bill and the 10p tax-raising power. Over time it would cause great resentment and great difficulty in other parts of the United Kingdom. As the noble Lord, Lord Browne, pointed out, we should always focus our attention on what the consequences are for the United Kingdom and the union as a whole.

The noble Lord, Lord Barnett, has a habit of landing me in it on this subject. He had several goes on the Floor of the House, as he did today on the car park-and if it is in order to give advice to Black Rod, I would urge him to give in gracefully, because the noble Lord is a terrier. He tried and tried to get the House to set up a special Select Committee to look at the Barnett formula. I served on that committee, along with my noble friend Lord Lang and a number of distinguished Members of this House. We laboured long and hard, took lots of evidence and were absolutely unanimous that the funding for Scotland needed to move to a system based on need. Various arguments have been put against that. The one put by the Government is perhaps the weakest-that the time is not right and that they are concentrating on reducing the deficit. Both of those reasons seem to be difficult to understand and illogical. Surely, the right time to address this is when you are seeking to set out hugely innovative constitutional change.

Lord O'Neill of Clackmannan: Will the noble Lord not concede that this is probably the wrong time to change the Barnett formula, given the failure of the nationalist Administration's economic policy in Scotland, where unemployment is rising at a faster rate and the economy is growing even more slowly than in the rest of the United Kingdom? Sadly, we need the Barnett formula to keep the show going in Scotland. I admit that there are areas of expenditure that we may well dispute-I am not happy about the priorities of the nationalist Administration-but nevertheless, the money is required to try to keep our economy limping along at this very difficult time.

Lord Forsyth of Drumlean: The noble Lord may be surprised to hear that I agree with him. I am deeply concerned about what is going to happen to jobs and public services in Scotland as a result of the impact of the Bill. If he is saying that this is the wrong time to fiddle around with the Barnett formula, I would say that this is absolutely the wrong time to introduce tax-raising powers in Scotland that are limited in scope, with an Administration that appear to spend money without any idea of where the resources will come from. The Scottish budget is very stretched-the promises that have been made are on a very large scale and the revenue that can be raised from the income tax provisions is very limited. Despite that, the damage that will be done will be considerable.

Earlier in our proceedings, people said that I seemed to think that politicians were just going to keep putting up taxes, even though they have to get elected. However, it is not just about tax but about preserving our public services: our schools and so on. It is a fact that spending per head on health and education is very

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much higher in Scotland than in England and in Wales, but that spending has not produced the same levels of productivity. The noble Lord is absolutely right that despite all the bluster, the Brigadoon economics and the Braveheart talk, the nationalist Administration have singularly failed to deliver on any of the outputs that they promised. Among the real concerns are the rising levels of unemployment and youth unemployment. The noble Lord may be surprised that I agree with him on this. I personally would take this Bill, put it on the shelf and get on with deciding whether Scotland wishes to remain part of the United Kingdom-and then have a proper look at the consequences that follow from the Bill.

This Bill is from another time. Its genesis or midwife was an attempt by the unionist parties to avoid the nationalists getting a majority. It failed, and the world has moved on; the senior civil servant in the Scottish Office writes blog posts to his colleagues saying that it is lost in the mists of time and is irrelevant. No one who spent even a quarter of an hour listening to our proceedings this afternoon-whichever side of the argument they were on-could say that the Bill is not a huge constitutional change. It is taken for granted and people do not know what is happening. If we are going to go down this track-and I certainly would not want to-and if the idea is to make the Scottish Parliament accountable, the basis on which it is funded from Westminster should be one that is fair and is seen to be fair by the rest of the United Kingdom.

7.30 pm

I return to the Barnett committee, which took a huge amount of our time, and on which there were some real experts, such as the noble Baroness, Lady Hollis. I am sorry that she is not here, and I think that she must be the only person who understands local government finance as well as welfare finance-as with the Schleswig-Holstein question, which only three people understood. She was tremendously helpful in the deliberations on how to create a needs-based system of funding that would work and be fair.

One argument that was put was that this could not be done for Scotland because it has large geographical areas and particular problems. The interesting thing is that when the block grant lands in Edinburgh, hey ho, what are the biggest recipients? They are health and education, distributed by means of a needs-based formula. So it is okay to have such a formula to give out and allocate money but not to decide how much Scotland receives. There is a very good reason for that, which comes to the noble Lord's point.

Again, we had serious academic evidence showing that the consequences of the Barnett formula were that Wales was severely underfunded and Scotland overfunded on the basis of need. The frightening thing is that the numbers are very large. Professor Bell at Stirling University reckons that it is of the order of £4 billion to £4.5 billion-which would mean quite a lot on Scottish income tax just to stand still. Clearly, it would be absolutely impossible to make the adjustment overnight.

The Select Committee recommended moving to a needs-based formula over a period of 10 years and that there should be an independent commission, as

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they have in Australia, to deal with federal funding-an independent commission to work out the formula, free of any political input and seen to be independent. The commission would be responsible for the basis on which the funds were allocated. This is not rocket science; it is done all over the world. The proposals in the Bill on tax do not come into effect until 2014. In answer to the noble Lord's question, "Why now?", we need to get a stable basis for the funding so that the accountability of those who advocate the principle is there.

I have my doubts about accountability. It reminds me of the argument that we used to have on local government, when people would say, "Get rid of rate-capping because you'll have more accountability", which eventually morphed into, "Let's have a poll tax, because that will produce accountability; everyone will pay, which will make local authorities more responsible". That did not quite work out as intended, because the level of the tax was too high. My concern about this whole project is that the level of the tax will have to be very high indeed to deal with the consequences of Barnett, which already favours Scotland. I would have left things as they were, but the voters decided otherwise.

We are now in territory which, as the noble Lord, Lord Browne, reminded us, we should look at in the context of the independence debate. Some people might say that the last thing we should do is interfere with Barnett, because that will mean Scotland will get less money, the nationalists will argue that Westminster is responsible for the tax increases, and we will end up with independence. Every time we have discussed this in this Chamber, there have been no speeches at all in favour of retaining Barnett apart from those of the Minister on the Front Bench, whose words seem to turn to ashes in his mouth as he reads out the brief from the Treasury.

There is no constituency for it down the Corridor; in fact, there is a considerable constituency of people who have an exaggerated view of how generous Barnett is. I say to the Government that if they are to achieve their objectives, which I think are misguided, of having an accountable Scottish Parliament which raises its own revenue and is held to account for its policies, it would be more than sensible-indeed it would be essential-for the Government to have a funding basis that is uniform and seen to be fair throughout the United Kingdom.

I believe that is the genesis of the amendment, and why my noble friend Lord Barnett was so concerned to table it. It seems a particularly cruel thing to saddle a Treasury Minister with a formula named after him, in which everything he believes in and stands for is offended. There is a bit of a conspiracy here. We all know that the Barnett formula is unfair and not sustainable in the long term. However, it is a bit like my noble friend's attitude towards the aggregates levy: "Not yet, but this is something we will turn to". Even Calman acknowledged that the Barnett formula would have to be dealt with, and that in time we would have to move to one that was based on need.

I say to my noble friend that if we are going to do this, it will take at least two years for a commission to work out what should be done, and how it could be done. It will need to be phased in over a very long

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period. It can be phased in gently and we can take the heat out of the argument that says that Scotland gets too much money. We can do something that is generous considering the considerable patience and forbearance which other parts of the United Kingdom have shown, most notably the Welsh, in terms of their deal in the United Kingdom. As we move into the phase where the future of the United Kingdom itself will be debated, and decided in Scotland on a referendum, it will be essential to address the matter. If, by the way, we are going to go down the track of devo-max, as some people suggest, there will have to be a referendum in the rest of the United Kingdom on that issue.

In moving the amendment on behalf of my noble friend Lord Barnett, I ask my noble friend to consider it very carefully indeed. I understand of course the superficial reasons why people might recoil from it, but quite honestly an argument-from a Government who are introducing a Bill to create a Scottish income tax and invent completely new taxes in Scotland-that says, "We can't deal with the formula because we are concentrating on reducing the deficit", is not really one which sustains much scrutiny. It is essential to the future of the United Kingdom, and I believe to the Government's own declared policy of making the Scottish Parliament responsible for the political decisions that it takes and for having to raise its revenue, that the basis on which any allocation is made that is not covered by the tax-gathering powers of the Parliament is done on a fair and sensible basis. I beg to move.

Lord Foulkes of Cumnock: My Lords, very briefly, I cannot support this amendment. It will not achieve what the noble Lord, Lord Forsyth, thinks it will in terms of fiscal responsibility. I understand why he is suggesting a change from the present arrangement to a needs-based arrangement. That is perfectly valid and he has argued the case very well. However, for as long as we still have mixed funding for the Scottish Parliament-powers to raise taxes and the block grant-there could always be a situation in which the Scottish Government hold the UK Government to ransom and say, "We are not going to raise more taxes. We want more money from the United Kingdom Parliament".

That is why I think the noble Lord, Lord Forsyth, was coming round in his logic earlier, and will ultimately come round, to full fiscal responsibility. The Scottish Parliament should be given a basket of tax-raising powers, which is what I think Calman recommended, to raise money not just for part of its expenditure but for all of it. Until we get to the stage where the Scottish Government are responsible for making not just spending decisions but revenue-raising decisions, they will not have full fiscal responsibility. I know why the noble Lord is putting this forward but his amendment would still leave an Oliver Twist situation, whereby a First Minister such as the one we have now keeps pressing the UK Government for more and continues to blame them.

Lord Forsyth of Drumlean: Could the noble Lord just explain to me how that would work? What basket of taxes could meet the bill, given that there is a gap between the taxes that are raised and expenditure? How would that work?

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Lord Foulkes of Cumnock: That is the conundrum that needs to be resolved, but it can be resolved by giving the Scottish Parliament a full range of tax-raising powers. I know that the argument is that Scotland does not have a big enough tax base to enable it to raise money to fund its domestic services. That cannot be the case if it has tax-raising powers, or you concede the argument that there is a major transfer of resources from England to Scotland to keep services going in Scotland. The First Minister of Scotland says that that is not the case. He says that Scotland is a wealthy country that can manage on its own. Therefore, you should take that as a challenge.

Lord Forsyth of Drumlean: I am most grateful to the noble Lord. However, the First Minister also says that Scotland could join an "arc of prosperity" with Iceland, Ireland and the rest. What the First Minister says and what the facts are are not the same thing. There is a gap; if there was not, we would not be arguing about the nature of the Barnett formula. Of course we spend more per head and of course we do not raise more taxes per head. Therefore, by definition, there is a gap-that is the point. My worry is that the road we are going down will narrow the gap and we will end up with less money and higher taxes in Scotland. That is the challenge. I live in Scotland and I want to die in Scotland. I worry about how services will be funded if we go down this road.

Lord Foulkes of Cumnock: I hope the noble Lord will continue to live in Scotland for a long time and that his life will not end too soon. From what he said earlier, I gathered that he wanted, in his heart, to move towards full fiscal responsibility. He said that in an earlier intervention. How can he not see the point that I am making? I may not have the right solution, but does he not see my point in relation to the continuation of a dual function? If the Scottish Government have the power to raise money and can still get a substantial amount of their expenditure from the United Kingdom Government, the incentive will be not to raise taxes-we have seen that with plus or minus 3p in the pound-but to ask the UK Government for more. That is why mixed funding would create tremendous problems.

7.45 pm

The Earl of Caithness: My Lords, I would like to join in the discussion on this almost Second Reading series of amendments. Twenty minutes to introduce an amendment seems to me a little long.

I support the premise made by the noble Lord, Lord Foulkes. To my mind it is utterly ridiculous for any Government or Executive to have responsibility for 60 per cent of the expenditure but for raising only 4 per cent of the income. That is a certain way in which to upset every other member within the union. If one looks at that 4 per cent, it is quite staggeringly low. When countries such as Germany raise closer to 30 per cent of taxes locally, it seems that a huge amount of leeway can be given to Scotland. It is only by giving Scotland tax-raising powers that one will get accountability. You cannot get it any other way.

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The so-called Barnett formula never started off as a formula; it was a device, as the noble Lord, Lord Barnett, has admitted. It has become a formula, and a political formula at that. All that it does at the moment is transfer to Scotland the equivalent of the oil revenues that Scotland is due. It is interesting to note that the needs spending gap in Scotland derived through the Barnett formula over the past 24 years totals about £128 billion in real terms yet the amount of revenue from North Sea oil that Scotland would have been due is about £134 billion. The great advantage that the Barnett formula has given to Scotland is that it has evened out the funds. If Scotland had had to rely on the oil revenue alone, given price fluctuations it would have had much greater difficulty in balancing the books than has been the case.

Therefore, in principle I agree with my noble friend Lord Forsyth that we should amend the Barnett formula. However, in doing so, I follow the noble Lord, Lord Foulkes, in saying that we should give the Scottish Government the responsibility for raising a lot more revenue and thereby make it more accountable.

Lord Lyell: My noble friend, who has far more experience of finance than I ever will have, mentioned Germany; I used to call it the Federal Republic of Germany. In 1983 I took a course in German at the Berlitz language school. I was given excellent advice on how to pay tax. Your Lordships may have heard me refer to this matter on Second Reading. I will quickly go through it again. For every €100 you paid in tax, the local tax office took €15 of that. For the noble and learned Lord, Lord Davidson, and me, the local tax office would probably be in Forfar or Dundee. The balance of €85 was split, with 50 per cent going to the state, which might be Baden-Wurttemberg, Bavaria or North Rhein-Westphalia, and 42.5 per cent going to the federal budget. My noble friend mentioned 30 per cent. I do not know how much of that would go to his Gemeinde-his local area-how much would go to the state, say Baden-Wurttemberg, and how much would go to the federal system. That is one example of how taxes are distributed.

My noble friend and the noble Lord, Lord Foulkes, are right to suggest giving the Scottish Parliament the power to raise taxes. However, the whole system should be looked at. As my noble friend Lord Forsyth has pointed out, we are planning what I call an asymmetric federal system. I am delighted to warn my noble friend on the Front Bench that we have hardly started to have a proper dig into the matter of who is a Scottish taxpayer. It is rather like a sort of dance that he goes on about; he talks about a close connection as if one is dancing with someone. When we consider who is a Scottish taxpayer, we should be aware that that will affect masses of English people, but we will come to that matter another day. In replying to my noble friend Lord Forsyth, will my noble friend the Minister take on board his idea that this Bill may go through but at least we can look at having a better tax system than that which is planned-certainly in the Bill before us-possibly on the lines of what happens in the Federal Republic of Germany or Switzerland? You can look at how this is done elsewhere, but what is proposed in the Bill is a mishmash that will provide

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eternal difficulty, eternal grounds for gripe, and screams of, "We are not satisfied". There will be all this and more. There is a problem, and I hope that when the Minister winds up he can give me some reassurance and take on board the point made by my noble friend Lord Forsyth.

Lord Maclennan of Rogart: My Lords, I have listened to this debate with fascination and I agree with the basic view of the noble Lord, Lord Barnett, and my noble friend Lord Forsyth about the injustice and unfairness of the Barnett formula. The aspect of the amendment that I appreciate and support most is the notion of establishing a commission, but it should go wider than one that is charged with the task of looking at only Scottish needs-it should look at the needs of the United Kingdom as a whole. The amendment, in so far as it suggests that the first report should be completed by April 2015, is also sensible.

The general view is that the Barnett formula is unjust. This is becoming the backdrop to consideration of devolution in other parts of the United Kingdom. There is a serious risk that this will turn a large part of our population into a very angry opposition to devolution or any advance in self-government or self-taxation. This is not the right time to decide precisely how far these matters should go. Since the Calman commission reported, there has been a considerable widening of the debate due to the success of the Scottish National Party in the previous Scottish election. It may well be that many who would not have taken seriously what is now called devo-max will now take it more seriously. However these things need to be looked at in the round and I would not go down that line at this time.

What is given out by public funds to all parts of the United Kingdom is a matter for the United Kingdom Government, and they do not need specifically to be empowered in the Bill to base their decisions on a needs assessment. As I understand it, the Barnett formula is not based in statute, and it would be perfectly possible for the Government of the day to advance a change. I say yes to a commission to enable us to make a decision, if appropriate, at the right time. When I say that the decision should be made by us, I mean the Government of the United Kingdom. The postponement of consideration of ways and means-the process for changing the allocation of public funds-has been delayed for too long. We have had all kinds of academic input into this discussion. The committee on which my noble friend Lord Forsyth served was absolutely clear on this, and there has been too much delay in taking this issue seriously and getting down to the small print. Only when we have that nexus of information are we going to be able to make a judgment-against the backdrop of what has been decided about tax-as to what would be the appropriate way to deal with the Scottish question.

Lord O'Neill of Clackmannan: My Lords, I am opposed to the amendment on the basis of the rather feeble argument of the doctrine of unripe time, which is always a favourite for people to hide behind. I say so because, as I said in my intervention on the noble Lord, Lord Forsyth, I do not think that the Scottish economy is sufficiently robust at the moment to have a

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dramatic ground shift in financing. We have to be far sharper and more accurate in our criticisms and attacks on the Salmond Administration and the consequences of their failure to protect Scotland from the worst aspects of the economic crisis that we are going through.

Secondly, on the suggestion in the amendment that we set up a commission, a considerable part of the speech of the noble Lord, Lord Forsyth, if not half, was certainly taken up by a paean of praise not only for the noble Lord, Lord Barnett, but for the Select Committee which the noble Lord set up here. I am not sure whether the commission will come up with anything very much different by way of information regarding the Barnett issue. In the first instance, to start talking about ending the Barnett formula is a bit premature; in the second instance, I do not really see that a commission is going to do much more than the Select Committee of which the noble Lord was a distinguished member.

The Barnett formula is not set in stone. Some of us are old enough to remember the Goschen formula, which was the predecessor of Barnett and which was a lot simpler to understand. As I recall, 11-80ths was the ratio and there was a needs resources element. The formula of the noble Lord, Lord Barnett, was probably too clever by half at the time and it certainly requires review 30-odd years on from its conception.

Even allowing for that, I think it is foolhardy at this stage to lay out a stall for devo-max. Discussion of devo-max is something that happens after a referendum on the question of separatism. Once the separatist cause has been defeated in a referendum, we can look the options and what Scotland actually wants. At the moment, there is an assumption that if we do not move quickly we will get hammered in a referendum and that the result could be anything up to 65:35. Personally, I think that if we had a referendum, we would have a very close run thing one way or the other. I would desperately hope that the unity of the kingdom was sustained, and would hope to play a small part in achieving that result. Let us not forget that less than half of the Scottish electorate voted in the elections last year, and 45 per cent of them voted nationalist. So we are talking about a separatist party enjoying 23 to 24 per cent of the votes of the Scottish electorate as a whole. I know that Governments get elected on low turnouts and less than 50 per cent shares, but for us to start developing a complete political construct to accommodate what might be a negotiating position once the fundamental question has been resolved one way or the other is a bit of a waste of time.

In a number of respects, the noble Lord, Lord Forsyth, and I are not that far away, but the implication of his remarks is that the commission would transform Barnett fairly quickly. I think that we must focus our attention on the inadequacies of the Salmond Administration and make sure that the money currently available to the Scottish Government is used more effectively for the Scottish people. Therefore, I do not think that we need to look at the formula in the way that he is suggesting, and we certainly do not need another talking shop. We have had one already and, no matter how distinguished the personnel involved in it were and no matter how good the information and

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evidence they produced, it did not have a great deal of effect. At present, it would be far more sensible for us to carry on with this muddled legislation-which nobody really likes but not many folk want to get rid of-and try to get it finished, not necessarily this evening but in the fullness of time.

8 pm

Lord Sassoon: My Lords, first, it is a pity that the noble Lord, Lord Barnett, has not been able to join us this evening to discuss his eponymous formula. Nevertheless, we have had an interesting debate. I am afraid that, in the words of the noble Lord, Lord O'Neill of Clackmannan, I am probably going to take the feeble-argument way out of this, although he has given it a degree of respectability. I fully share the concerns about the formula that have been expressed in this House and in another place, but I think that this is the wrong time and place to be dealing with it. Perhaps I may explain a little more fully why I say that.

What is the Bill about? It is about increasing the accountability of the Scottish Parliament to its people by devolving fiscal powers from Whitehall to Holyrood. In this debate we have heard a number of Peers say that they would like much more to be devolved. I suppose that at the extreme end the noble Lord, Lord Foulkes of Cumnock, my noble friend Lord Caithness and others have pointed out the limits to the amount of devolution of tax powers and accountability that can take place. Nevertheless, I still contend that an important and significant step in the right direction is contained in the Bill and we should not minimise that.

Future decisions taken by Scottish Ministers will affect the overall level of funding for Scotland's public services as they decide whether to increase or decrease devolved taxes relative to the UK. That happens whether or not there are any changes to the Barnett formula in the future. I think it is quite appropriate to link considerations of the Barnett formula with what we are discussing in the Bill. On the other hand, I argue that it is not necessary to reform the Barnett formula for the Bill that we are discussing to have real impact. I would not go as far as saying that reforming the Barnett formula is an entirely separate issue but I do not think that it is necessary in order to let the Bill have full effect. Incidentally, the Calman commission remarked on the Barnett formula but it made no recommendations in relation to it.

Lord Forsyth of Drumlean: I have been listening quite carefully to my noble friend's argument and I see the logic of where he is coming from. It is this wretched Augustinian argument-the time is not right. My noble friend may not want to say this but if he thinks that the Barnett formula is unfair and will need to be dealt with at some stage in the future, would it not be much harder to deal with it then? At the moment, if you dealt with Barnett you could phase in the reduction in the grant that would follow. In circumstances when the Scottish Parliament has the power to raise income tax to make up the gap, it would be politically very much more difficult to deal with Barnett because people would be able to translate the reduction in Barnett into huge and geared increases in income tax. I wonder whether my noble friend will think about

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that and indicate whether he thinks that that may be a reason why it is better to proceed with funding and tax-varying powers in parallel.

Lord Sassoon: My Lords, I do not know whether it was an Augustinian argument but I was going to start by saying that the pace is not right rather than that the time is not right. However, we might come on to the time as well. I appreciate that the two things are much of a muchness. Let me continue with the reasoning.

First, as my noble friend knows full well, the current formula is an administrative procedure. It does not appear in legislation so it is not itself something that requires to be dealt with in legislation. More importantly -something that has been alluded to by one or two noble Lords-we need to have in the centre of our thinking that it is not specific to Scotland; it is a mechanism for allocating funding across all four countries of the UK. It would not be appropriate to legislate to alter the formula-a formula that is not in legislation anyway. If we were to legislate for something else, we could not do it in isolation for Scotland.

To reiterate, the Government understand the concerns that have been expressed in both Houses about the devolved funding arrangements. I say that loud and clear, I hope, to my noble friend Lord Lyell in particular. He gave examples of how other countries do it and sought reassurance that we have the matter under consideration. I certainly believe that it is a matter that will not and should not go away. My noble friend Lord Maclennan of Rogart also stressed the importance of this. Unlike some other noble Lords, he made the point that this is a United Kingdom and four-country matter. I agree with the noble Lord, Lord O'Neill of Clackmannan, that while we recognise the difficulties, the Government's position-Augustinian or otherwise-is that at this time the priority has to be to reduce the deficit. I hear my noble friend loud and clear, and he would not expect to hear anything else from me. Any change to the current system and to the formula must await the stabilisation of the public finances.

Let us remember that the Bill does nothing to rule out or rule in reform of the formula in future, so we are doing nothing through this Bill to make it any more difficult to do it. I understand the logic of much of what my noble friend says but, as he would expect, I conclude that the Barnett formula is not the purpose of this Bill. It would not be appropriate to legislate for it in this more targeted piece of legislation, so I ask my noble friend to withdraw the amendment in his name and that of the noble Lord, Lord Barnett.

Lord O'Neill of Clackmannan: I am a wee bit suspicious of Conservative government Ministers when they tell me that they agree with me. I want to make it perfectly clear that I do not criticise the Barnett formula in respect of any aspect of deficit reduction, because I consider that we have reduced too much too fast. I would be in favour of the reallocation of resource within the United Kingdom and the reallocation of resource within Scotland, because the priorities of the Scottish Government are wrong at this time. I may agree with the Minister on this Augustinian position, but not on any other aspect of his analysis of the economic situation.

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Lord Sassoon: I am very glad that we have that clearly on the record. I did think at one point at the beginning of the remarks by the noble Lords, Lord O'Neill and Lord Foulkes, that I would be able to say that I agreed with everything they said. I agree with their conclusion that this amendment should be opposed or, I hope, withdrawn, but I certainly accept that we are probably not in full agreement.

While I am on my feet, it gives me the opportunity to say that the Calman report said that the Barnett formula should continue to be used as the basis for calculating the block grant so, for the avoidance of doubt, when I said there were no recommendations, there were no recommendations to deal with it along the lines proposed in the amendment. The report went on to say quite a lot of things because this was only recommendation 3.4, but perhaps I can end by asking my noble friend to withdraw his amendment.

Lord Forsyth of Drumlean: I am most grateful to my noble friend. The only sadness I have about this debate is that we did not have the noble Lord, Lord Barnett. We will clearly have to have another go at this when he can attend at a later stage in the Bill. My noble and learned friend Lord Wallace has lost his sense of humour-I was joking.

As I said, it is a shame that the noble Lord, Lord Barnett, was not here. We have had some interesting speeches. I have to say that I am not an authority on Calman. The report certainly says that, but I think it goes on to say that it should be reviewed. I think it was important to have this debate. I entirely accept that it does not have to be included in the Bill, but given that the Government are bringing forward this Bill, it was an opportunity to raise the important question of Barnett and the consequences of not addressing the issue now.

I thought that what my noble friend Lord Maclennan had to say was entirely sensible both because this is a United Kingdom issue, not a Scottish issue, and because there should be a commission. I think it was the noble Lord, Lord O'Neill-or was it someone else? I cannot remember-who said that there are endless commissions, that we had the Barnett commission that did not make much difference and that commissions come and go.

I think there is a misunderstanding. The Select Committee on Barnett recommended that a statutory commission along the lines of that in Australia should be set up with the job of working out the formula on a fair basis for the United Kingdom as a whole. I do not know, because he is not here, but I suspect that that is what the noble Lord, Lord Barnett, is referring to in his amendment. I agree with my noble friend Lord Maclennan that it would be sensible to get that work under way because the tax-raising powers are not going to happen until 2015.

I also agree with the noble Lord, Lord O'Neill, that this is probably not the moment to start unwinding the Barnett formula, but we would need to have a commission of that kind in order to move to a fairer system, and that work will take four or five years. The Select Committee of this House on the Barnett formula recommended that any changes, and they would be considerable, should be phased in over a very long

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period of 10 to 12 years. My anxiety is that as we move down this track and as it generates heat and anxiety in parts of the United Kingdom, it may be very much more difficult to do this in an orderly way that produces the minimum stress for the union and for our public services in Scotland. That is where I am coming from on this issue.

I have to say to my noble friend Lord Caithness, who seems to have joined the devo-max party of the noble Lord, Lord Foulkes, and wants to have more taxes, I have not seen his name on any of the amendments that have argued for an extension of the tax-raising powers of the Scottish Parliament: the aggregates levy, the air passenger duty and so on. Of course, this whole Bill as it is currently constituted in respect of the income tax powers is very narrow. It is only the product of 10p.

The noble Lord, Lord Foulkes, is trying to get me into his camp because I said that I was beginning to see the merits of the argument for fiscal autonomy. However, that was only in the context of what my noble friend was saying, which was that the Scottish Parliament will be compensated for any changes that are made in the tax base south of the border.

8.15 pm

My amendment may well not be appropriate for inclusion in the Bill, but it is certainly appropriate that the Government should consider how they will address these issues of funding in the context of the massive changes that they propose. My noble friend has performed valiantly today and I can just about get along with his argument that the time was not right, but not the argument that says, "We are concentrating on reducing the deficit"-they must have lines to take in the Treasury that they pull out for things that they do not want to do. The last time I heard this line was before the Scottish elections when I was trying to persuade my right honourable friend the Prime Minister to go for an early referendum. Even when we were in opposition, and the late lamented Wendy Alexander bravely said, "Bring it on and let us have a referendum", the argument put by my own party colleagues in Scotland was, "We must concentrate on the economy".

Lord Maxton: The noble Lord said "late lamented"-Wendy is still very much alive.

Lord Forsyth of Drumlean: She may still be alive but she is no longer leading the Labour Party in Scotland. I do not want to ruin what career she may have ahead of her, but in any discussions I had with her I found her to be exceptionally able and far-seeing, looking beyond the immediate prospect of events and what is in today's newspapers.

I am not enthusiastic about this whole devo train that we have got on. I believed from the beginning that it would lead to the nationalists dominating the Parliament and that it could lead to the break-up of the United Kingdom. I am not particularly smart for thinking that. Enoch Powell was arguing that years ago. All I am saying is if we are going to go down this track, we should anticipate some of the problems and that Barnett is going to be one of them.

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I sense that the House probably does not want to discuss this at any more length, so I beg leave to withdraw the amendment in my name and that of the noble Lord, Lord Barnett. I look forward to receiving some criticism by him for not making all the points that he would have made, and for not making them as eloquently as I am sure he would have done.

Amendment 65 withdrawn.

Amendment 66

Moved by Lord Foulkes of Cumnock

66: After Clause 37, insert the following new Clause-

"Referendum about further devolution of taxation

Referendum about further devolution of taxation

In section 30 of the 1998 Act (legislative competence: supplementary) insert-

"(5) Her Majesty may not by Order in Council amend Schedule 5 or make any other provision which removes any tax or excise duty from being a reserved matter ("the proposed devolution of taxation competence") unless subsection (6) is satisfied.

(6) This subsection is satisfied if a referendum has been held throughout Scotland about whether the proposed devolution of taxation competence should take place and the majority of voters in the referendum vote in favour of the proposed devolution.

(7) Her Majesty may by Order in Council cause the referendum to be held.

(8) The Order in Council shall contain the question that is to appear on the ballot paper.

(9) An Order in Council under subsection (7) may not be made unless a draft of the statutory instrument containing the Order has been laid before, and approved by a resolution of, each House of Parliament.

(10) For further provision about a referendum held by virtue of this section, Schedule (Referendums under this Act) to the Scotland Act 2011 applies.""

Lord Foulkes of Cumnock: Hours ago, when we started this Committee, we got into a terrible fankle over which amendments we were dealing with, the groupings and how one amendment related to another. As we go on through these amendments, that problem will manifest itself even more. There is a lot of overlap and interrelationship, and I am not sure of the groupings. That is probably my fault as well as other Members, as much as it is of the clerks or anyone else. Nor am I sure that the groupings are as sensible as they might be.

However, this group is fairly sensible. The confusion is not in terms of the grouping. The confusion, which is in here to some extent but outside to a greater extent, is when we talk about referenda. That is because we are talking about different referenda. I accept what my noble friend Lord Browne said about this earlier. He is absolutely right and probably we would get unanimity in this House. The crucial referenda is the yes/no on separation. That is absolutely essential and vital. We will discuss that later in Committee. We will all focus on that and will have a really important debate.

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