My Lords, I join others in welcoming the noble Baroness, Lady McIntosh of Pickering, and the noble Lord, Lord Campbell of Pittenweem, to this House. Their arrival could not have been better timed.
As a member of the Economic Affairs Committee, ably chaired by the noble Lord, Lord Hollick, I naturally endorse the criticisms that he made of the process for scrutinising the Bill. The Bill is full of holes; for example,
Part 2 lists the taxes to be devolved or assigned but tells us nothing about how they will interact with other parts of the settlement—for example, the highly complex but vital indexation mechanism for uprating revenues and for calculating the abatement of a block grant. That sounds a mouthful and it is very complicated, but I predict that it will be the single most powerful mechanism in this new settlement. We will have to find some way in which to understand it.
The Bill also tells us nothing about the borrowing and debt regime. The UK Government have an objective to eliminate the budget deficit by the end of this Parliament. In a country with a single currency, exchange rate and monetary policy and a unified public debt market, the fiscal policy of the devolved Administrations must be consistent with the national policy. The argument that Scotland should be free to set its own borrowing, subject to a no-bailout rule if it gets it wrong, is simply not plausible. There must be clear statutory limits to debt. So this Bill is like buying an Ikea flat-pack with no instructions on how the pieces fit together, or a mobile phone with no operating manual.
I therefore welcome the Minister’s assurances, as far as they go, that it is the Government’s firm intention that the fiscal framework should be made available to Parliament before the passage of the Bill is completed. But that does not tell us what happens if negotiations drag on. In my view, the Bill is of such importance that its proper scrutiny should not be sacrificed to the timetable. Like the noble Lord, Lord Gordon of Strathblane, I think that the answer is not to delay the Bill but to start work right now on accelerating work on the framework.
This is a very important Bill, which seeks a major advance in the degree of devolution in Scotland, taking it from a very low level by international standards to among the highest in the world. The settlement transfers responsibility for revenues approaching £16 billion and should give Scotland the incentive to develop its revenues and spend them wisely, rather than simply moaning about the inadequacy of the block grant. It is also trying to establish a settlement that lasts. The Smith commission used the word “durable”, while the White Paper seeks an “enduring settlement” and the Bill uses the term “permanent”. The success of the Bill is important for the union but if the settlement is poorly designed and collapses in confusion and acrimony, the union will be put in peril.
As well as serious flaws in process, the Economic Affairs Committee has highlighted a number of concerns of substance. A key feature of the proposal is the retention of the Barnett formula by assertion rather than detailed justification. I am grateful to the noble Lord, Lord Thomas of Gresford, for pointing out the rather oblique way in which the Barnett formula appears as obiter dicta in a Statement which appears to be about health funding. Does the Smith commission really believe that every jot and tittle—every parameter—of the Barnett formula should be immutable for all time? By adopting the stance of “What we have, we hold”, Scotland seems to think so.
The defects in the Barnett formula are well known to this House. It was thoroughly reviewed by a Select Committee in 2009, and its report set out some principles
for a new system: it should consider both the baseline and any increment to funding; it should be fair, and be seen to be fair; and it should take account of relative need. None of these conditions is being satisfied. The current allocations are grossly and, as they might say in Wales, grotesquely unfair. Scotland has a gross value added—that is what we used to call GDP—per head 29% higher than that of Wales. That is a significant gap in its prosperity. It has the highest GVA per head of any region of the UK after London and the south-east, and identifiable spending per head 4.5% higher than Wales.
There is nothing in the Barnett formula which has regard to the baseline and nothing to promote any convergence towards a fairer reference point. A settlement whose starting point is so unfair cannot prove to be durable, permanent or enduring. It will embed a festering grievance which will lead to the breakdown of the settlement and, in this way, imperil the union. An enduring settlement will, over time, have to adopt needs funding as its reference point, even if it takes many years to get there. Some witnesses argued that calculation of needs would be too complex even though, ironically, need is one of the factors by which the devolved Administrations divide up the direct grant once they have it.
I have two further observations to make. First, the House of Commons has just amended its procedure to provide for English votes for English laws. Study of the finances of the devolved Administrations, even after the changes now proposed, tells us that their finances and those of the national Government are closely intertwined. The pure English law which has no consequences for tax or spending beyond England will turn out to be a rare beast indeed. Secondly, the work of the Economic Affairs Committee has demonstrated that there is little transparency in the current arrangements and a poor public understanding of them. We need mechanisms and organisations—maybe the OBR or something like it—not to make decisions, as in the Australian grants commission, but to keep the numbers honest and document the methodology.
Let me include one final point on this famous second detriment. Suppose that health spending in England increases by 4% this year and the Government plan to increase it by 3% next year. Is that a 3% increase —or is it a 1% cut, which has to be compensated for? I do not think you would get agreement on that and if you cannot get agreement on something so simple, I do not see how you can make this thing work. We are therefore drifting into dangerous waters. We should heed the warnings of the Constitution Committee about piecemeal change, inadequately scrutinised by Parliament.
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