Lord Forsyth of Drumlean
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“Approval of the fiscal framework
Nothing in this Part shall have effect until each House of Parliament has passed a motion expressing its approval of the agreement between the Scottish Government and the United Kingdom Government on the Scottish Government’s fiscal framework.”
Lord Forsyth of Drumlean (Con)
My Lords, I shall speak also to Amendments 57AB, 57AC, 68, 68A and 68B standing in my name. Amendment 56ZA is a probing amendment giving us an opportunity, for the first time, at 20 past six at night, in the final stages of the Bill, to discuss the fiscal framework. This will be the first opportunity for either House of Parliament to discuss this important measure. The amendment simply states that the proposals for giving the Scottish Parliament income tax powers should not have effect until each House of Parliament has had an opportunity to discuss the fiscal framework.
Amendment 57AB provides for the same matter in respect of the welfare provisions in the Bill. Amendment 57AC provides that a statement should be published on what exactly the Scottish Government have spent the £200 million on which, under the fiscal framework, is being provided to them as a one-off payment to implement the powers, and the £66 million per year being given to them to support the additional powers being provided to them. Amendment 68, on which, in the absence of an indication from the Minister that he is prepared to accept it, I intend to test the opinion of the House, simply states:
“None of sections 1 to 68 may come into force until … the Secretary of State has laid before each House of Parliament a fiscal framework setting out the arrangements and institutions underpinning the tax and spending powers included”,
and that,
“the framework has been approved by resolution of each House of Parliament”.
First, I thank my noble friend for the courteous and helpful way in which he has supported us in trying to do our job in this place, which is to scrutinise the fiscal framework. I know of the difficulties that have been caused by the lack of agreement between the Government and the Scottish Government on these matters, but I have to say that this is fundamental to the Bill, and it seems to me that the fiscal framework should be approved by both Houses of Parliament.
I found myself spluttering over my WheetyBangs when I was having breakfast yesterday reading the Sunday Times—it was probably only in the Scottish edition. Mr Jim Gallagher was a very distinguished Scottish Office civil servant indeed. I think I am right in saying that he was private secretary to my noble friend Lord Lang and, previously, Sir Malcolm Rifkind, and went on to be in charge of the Constitution Unit in the Scottish Office, and he is held in high regard by people on all sides of this House. I was very surprised to read his verdict in the Sunday Times, which I shall share with the House. He said:
“The compromise the Scottish government made is that the deal is not eternal. It will be subject to review. The compromise the Treasury made is that they handed over the money … The Treasury gave the Scottish government a deal it couldn’t turn down. How it will explain this to English MPs I have no idea, but that is George Osborne’s problem. From a purely Scottish perspective, you have all the advantages of tax devolution and very few of the risks”.
In the same article, the Sunday Times reported that, “According to well-placed Westminster sources, the deal between the Scottish and UK Ministers was struck amid Tory fears that sticking with the Treasury offer that could have left Scotland £3 billion worse off over a decade would have hurt David Cameron’s chances of winning the June EU referendum”. It strikes me as extraordinary that something as important as the future financing arrangements for the whole of the United Kingdom should be decided in this way and, indeed, that the agreement that has been struck is so unfair to other parts of the United Kingdom. We are talking in the Scotland Bill about trying to provide a permanent and stable arrangement for the future governance and funding of the United Kingdom.
If I may be permitted to make one political point, it is extraordinary, is it not, that in less than a month, had the Scottish people not voted by an overwhelming majority to reject independence, we would be experiencing Scottish independence day, which was set by the former first Minister, Alex Salmond, as 24 March 2016 What a mess we would be in with the oil price of $31. There would be a hole of billions of pounds in the Scottish Budget arising from the loss of oil revenues and other disastrous consequences. Fortunately, we in Scotland are part of the United Kingdom and have the security of the United Kingdom around us.
Therefore, I find it quite extraordinary that in the fiscal framework, the Government have agreed to give the Scottish Government £200 million in a one-off payment to meet the administrative costs of the additional powers contained in the Bill before us. Two hundred million pounds was what the First Minister was telling us throughout the independence campaign for the referendum would be the entire costs of setting up an independent Scotland. It is exactly the same figure: £200 million. Yet they are getting £200 million for taking on responsibility for the powers included in the Bill. I have no idea how that figure was arrived at, but as a taxpayer, I would like to know how it is spent, and one of my amendments refers to the fact that there should be an account for that.
In addition, under the fiscal framework, they are being given an extra £65 million every year, on a continuing basis, to administer the new powers. Again, one wonders why that is necessary, how the figure was reached and whether there will be any accountability for spending it. As I indicated at the time of the Statement, the First Minister appears to have been bought and sold for English gold. Those who remember their Burns will know that it refers to a parcel of rogues in the nation, and the SNP is a parcel of rogues in the nation. They told the country that there would be a one-off referendum and that it could all be done for £200 million, but now in secret they have been passing the begging bowl to my noble friend and requiring huge sums of extra money on the basis that it is needed to survive in the union. Thank goodness they did not get their way, break up the United Kingdom and leave Scotland exposed to the financial difficulties—now apparent even to them—that would have resulted.
This fiscal framework makes a fundamental error. I served with my noble friend Lord Lang and others on the committee established by the late Lord Barnett to deal with what he regarded as a great embarrassment—that his name was associated with a formula that he believed was unfair to the rest of the United Kingdom, and to Wales in particular. We looked at the Barnett formula and concluded unanimously, in a report that stands the test of time, that we should have a system that treated all parts of the United Kingdom fairly, was based on needs and had transitional arrangements for the implementation of the changes for losers and winners. That has been ignored by Governments for political reasons—I understand that—by Governments on my own side and on the other side. I understand the political reasons why it has been ignored, but I cannot understand why, in this fiscal framework, it has been agreed that the Scottish Government will have a veto on any change to the Barnett formula in future.
Lord Forsyth of Drumlean
I tend to agree. I want to know how this will be calculated, how it will be enforced and what are the powers to do so.
Then the agreement goes on to make a change from the Smith proposals. Paragraph 46 states:
“These financial consequences of policy decisions have been termed policy spillover effects”.
“No detriment” has now become “policy spillover effects”. Paragraph 47 states:
“The main categories of these can be divided into … Direct effects—these are the financial effects that will directly and mechanically exist as a result of the policy change (before any associated change in behaviours); and … Behavioural effects—these are the financial effects that result from people changing behaviour following a policy change”.
I asked the Chief Secretary to the Treasury about this today. The example the noble and learned Lord, Lord Wallace of Tankerness, has used and I have used is from when I was in government. We decided in Scotland not to privatise water, but in England it was privatised and we lost the Barnett consequences of that. Does that mean that under the new arrangement of no detriment, where the Government south of the border decided to have a policy of funding water privately, not through the taxpayer, as a result, a cheque would have to be sent north of the border to compensate them for this policy under the no detriment or policy spillover effect that arose? “Spillover” is actually quite good in the context of water privatisation. Does it mean that? The Chief Secretary looked slightly puzzled and said, “No, of course it doesn’t”. Why does it not? Where does it say that? How is this defined? Nowhere is it defined.
Here we are, at the 11th hour, discussing the fiscal framework. Everyone is rather confused about how it is going to operate. Everyone is wondering how on earth the veto which has been given to the Scottish Government will operate. As I am sure at least one party will come to its senses at some stage and decide that we need a fair system for funding the United Kingdom, what happens if a party is elected on a manifesto which provides for replacing the Barnett formula with one based on needs or some other system and the Scottish Government say, “Hang on a second. We have an agreement that you cannot change it without our consent”? Then where are we? I have no doubt that the Minister will say that he believes that people will be guided by the results of an independent review. If he says that, I will say to him that he has not seen how the Scottish Government operate or how the Scottish nationalists operate. That is not their way of doing things, as I am sure many Members of this House would agree.
My simple request to the Minister is that he accepts the sunrise amendment which gives an undertaking that this House and, more importantly, the elected House—the House of Commons—have an opportunity to discuss this fiscal framework and to consider the impact on Northern Ireland, Wales, the north of England and elsewhere. It is far reaching and fundamental, and it is not acceptable that this should be agreed in secret and given out in dribs and drabs with little time for the House to consider it or for people outside to consider it and advise Members of both Houses on the way forward. I beg to move.
Lord Wallace of Tankerness
My Lords, I shall speak to the amendment in this group in the name of my noble friend Lord Stephen and myself. I am sure the House is grateful to the noble Lord, Lord Forsyth, for raising this important debate on the fiscal framework. It is long awaited. Although we had a very good debate in Committee, it was a bit like “Hamlet” without the Prince of Denmark; it was about the fiscal framework without the actual fiscal framework agreement. At least we can now have a debate on this important part of the architecture of Scottish governance following the Smith commission’s proposals in the light of the agreement which was published at the end of last week.
The amendment which my noble friend and I have tabled is to address the mechanism for the review of the fiscal framework. The Smith commission said that it was important that there was a review, and in Committee we moved an amendment to establish a review. We have tried to revise that amendment in the light of the agreement as we now see it.
When the Minister replies, it would be helpful if he could give us some indication of how the Government understand the review and the mechanisms. The Chief Secretary to the Treasury, Mr Greg Hands, was right to point out that there is a distinction between the review and dispute resolution. I am rather intrigued by the fact that in the agreement the review is referred to in paragraphs 20 to 23 and again in paragraphs 111 to 113, some of which appears repetitious and almost as if there is something uncertain about it. It is as if the more often you say it, it might just happen. Perhaps the Minister will tell us if there is anything we should read into the fact that it was felt necessary to repeat some of the proposals with regard to the review at a later stage.
The First Minister of Scotland in her Statement to the Scottish Parliament last week seemed to indicate—I sat and listened to it—that there could be a veto over the Scottish Government accepting anything which was not to their advantage following the review. Indeed, paragraph 112 states:
“It will be open to either government to propose changes to the fiscal framework from”,
the point of the review or the end of 2021, and:
“The fiscal framework does not include or assume the method for adjusting the block grant beyond the transitional period”.
The Chief Secretary seemed to say today that it was “our model”, which I assume to mean Her Majesty’s Treasury’s model, whereas the transition period was the Scottish Government’s transition period. So—this is a question which the noble Lord, Lord McConnell of Glenscorrodale, asked last week when the noble Lord repeated the Statement—what is the default position? Is the default position the Treasury model, or is there in fact a veto? What happens if there is not agreement following a review? One was left with the impression that it is a bit, “it’ll be all right on the night”. Those of us who have seen the negotiations with the Scottish Government know that it will not necessarily be all right on the night. They may well take things up to the brink.
Under Section 64 of the Scotland Act 1998, the Scottish Consolidated Fund is established, and subsection (2) states that the Secretary of State shall pay sums into the Consolidated Fund, but the sums are not predicated by any agreement or formula, and certainly are not predicated by the statute. I imagine that if all else failed, the ball would be at the feet of the Secretary of State, who has to pay money into the Scottish Consolidated Fund. Perhaps the Minister could indicate how, in the event of impasse and of no agreement being reached, the UK Government, particularly Her Majesty’s Treasury, see that sum to be paid into the Scottish Consolidated Fund being arrived at, given that it is actually the Secretary of State’s decision and, according to statute, is not in any way fettered. It is important that we get some clarity about what should happen.
Lord Forsyth of Drumlean
Is it not clear throughout? Paragraph 52, regarding a dispute over the no-detriment principle, says:
“Without a joint agreement, no transfer or decision will be made”,
while paragraph 103, on dispute resolution, says:
“If no agreement can be reached”,
between the Governments,
“then the dispute falls—there would be no specific outcome from the dispute and so no fiscal transfer between the Governments”.
Lord Wallace of Tankerness
My Lords, I noted earlier, with regard to paragraph 103, that it surely cannot be conceivable that the funding would dry up. The House is therefore owed an explanation as to precisely what lies behind paragraphs 52 and 103 of this agreement.
The proposal that my noble friend and I have tabled is that there should be a review, which should be informed by a commission. The commission should be three persons from the Office for Budget Responsibility advisory panel, to be appointed by the OBR’s chairman, therefore taking it even more than arm’s length away from the Government, and there also should be membership of a Scottish professional body—it could be the Institute of Chartered Accountants of Scotland or CIPFA—to be agreed by Her Majesty’s Treasury and Scottish Ministers, whose members should be appointed by the senior office-bearer of that body. Again, that is an attempt to put it at one remove from the Scottish Government. It would be a genuinely independent body that would inform the review about how the fiscal framework had worked.
We go further than that by saying that no person appointed to the commission should have been a member of any political party for five years prior to accepting membership. Consistent with the fiscal framework, the report should be laid no later than 30 November 2021 and submitted to both Houses of this Parliament, the Scottish Parliament, the Chancellor of the Exchequer and Scottish Ministers.
All that we find out in the fiscal framework agreement is that the arrangements for review, including how independent they will be, should be left to the Joint Exchequer Committee. We may feel that in order to be reassured, it is not unreasonable for Parliament to set some parameters for how the independence of that review body will be established. The amendment is therefore intended to probe just what Ministers have in mind with regard to the working out of that review, and indeed to answer some of the questions about what happens in the event of a failure to reach agreement on the review. There are important questions to be answered, and I look forward to the response of the Minister.
I am sorry, is the noble and learned Lord, Lord Hope, waiting to intervene or to ask a question?
Lord Empey
My Lords, I said earlier that I considered the terms of the Smith commission to be effectively a treaty. Nothing I have heard last week or this week has changed my mind on that.
Can the Minister clarify a couple of things? A borrowing power for revenue shortfall is included in the framework. Certainly in Northern Ireland, if we had money left over, we used to be able to roll it over, but that was severely restricted, down to one year. On the point that the noble Lord, Lord Forsyth of Drumlean, made, about the spillovers and the behavioural changes, is that borrowing power designed to deal with the unintended, and perhaps unforeseeable, consequences of behavioural change; for instance, on welfare, which may not have been anticipated—some of it could have been weather-related or there could have been other sorts of issues—and is that borrowing power designed effectively to operate as an insurance policy to keep the wheels going until a review can take place, or are the spillover arrangements effectively an insurance policy against mistakes that are made so that the Scottish Government will not run out of money? What will the borrowing limit be, both for revenue and capital expenditure? Will it be tolerable for capital moneys to be converted and used for revenue? All these things are important, because it has already happened. I understood that there used to be a complete ban on that happening but it has happened, and I wonder where this process is going.
I understand that all the devolved Administrations are now able to borrow from the Treasury through the loans fund. Are there limits on this? The borrowing that occurs in Northern Ireland is becoming very substantial. By the end of the next financial year or maybe the year after it could go up to £3 billion, and £700 million of that is to pay off 20,000 workers because they did not take any precautions and start four years ago to gradually run down the number of civil servants that they knew they did not have money for. Their budgets were provided for them by the Treasury in 2010 and they knew about it four years in advance. Now they are borrowing £700 million to make 20,000 people redundant. I understood that the Treasury was very protective of the national cash limits, but it seems to have lost the plot and is now permitting devolved Administrations to borrow, and there do not seem to be any limits.
Lord Forsyth of Drumlean
My understanding is that it is proposed that the Scottish Government will be able to borrow money on the money markets and issue bonds, and will thus have more expensive borrowing than is available to the UK Government, which is another thing that is difficult to understand.
Lord Empey
I can say to the noble Lord that we raised several times with the Treasury the question of issuing bonds for capital projects. Some people in America who wanted to be helpful said that they would be interested in providing resources. However, the Treasury blocked that on the basis that it would have to go on to the national debt because, unless it was ultimately guaranteed by the Treasury, there would be less likelihood of investors coming forward to take over the bonds. Therefore, the national Government would be required to guarantee the debt. I do not know whether the Treasury is no longer concerned about things going on to the national debt but that used to be the big thing that it wanted to ensure was adhered to. Is the situation here that the Scottish Government’s decisions are effectively being insured? If so, I assure the Minister that there will be others knocking on the door for that insurance policy.
Lord McFall of Alcluith (Lab)
My Lords, even if one were dozing during this debate, there would be no doubt how the House felt on the issue. I note the comment of the noble Lord, Lord Kerr, that the debate on the Barnett formula is lost. We must realise that situation. I shared a flat near Joel Barnett for many years. Joel never tired of telling me that the Barnett formula was introduced in 1978 to settle a relatively minor dispute in devolution so that he would get “them” off his back. He used a profane word that I will not use in this House. However, since 1978 that formula has stuck.
When I was in the other place, the noble Lord, Lord MacGregor, manfully defended the Treasury but still was very generous with the Barnett formula. The noble Lords, Lord Lang and Lord Forsyth, as Secretaries of State for Scotland, skilfully manoeuvred the Barnett formula in Scotland. I had to sit on the Opposition Benches and admire their chutzpah on that particular issue. That is the politics of the situation now. Sadly, in many ways the political bandwagon has moved on but the analytical one is behind it.
At the end of last week, the First Minister said that there was not a penny of detriment to Scotland. She spat that out but every Scottish party in the Scottish Parliament agreed with her. The noble Lord, Lord Forsyth, mentioned in adulatory terms Professor Jim Gallagher. I looked at Jim Gallagher’s blog at the weekend. I mentioned that every Scottish party was involved but he said that, in the event, with the fiscal framework,
“the politicians have come to a compromise: one suggested first, publicly at least, by the Scottish Conservative leader Ruth Davidson”.
She proposed this, and then the Chancellor, George Osborne, intervened and offered the Scottish Government a safety net for the first five years. That effectively delivers what the SNP Ministers asked for: namely, protection for their tax income in the event that Scottish population declines. That is the reality, so perhaps I am not being ungenerous in saying that maybe the right hand of the Conservative Party does not know what the left hand of the Conservative Party is doing.
Lord Forsyth of Drumlean
Speaking very much for the right hand of the Conservative Party, I think that perhaps the noble Lord did not hear the quote from Jim Gallagher. He said that the compromise the Treasury gave is that it handed over the money. That is what we are talking about: it is not a compromise.
Lord McFall of Alcluith
My Lords, the noble Lord tells us nothing new. I looked at that issue as well. I think I made the point in the last debate here that the two no-detriment principles are irreconcilable. We must try to work out the politics of that at a later date but there is absolutely no doubt of that. Professor David Bell in his submission and the work he did for the Economic Affairs Committee illustrated that very much. In fact, I sat for about three hours looking at that report from the IMF with David Bell and I thought I was back at university. After those three hours, I understood maybe 15% of the whole issue. It is hugely complex—we all agree on that.
I mentioned the issue of the safety net. This is a good deal from Her Majesty’s Treasury but after the five years there will be the review. What will the Treasury do at that time? That will depend on how the population looks then and what other political and economic factors are going on. I agree with individuals who say that this is a five-year or six-year proposal. At the end of the day, negotiations must start again. One thing I am interested in here is to see that we develop a narrative as a result of this fiscal framework which will ensure that the grievance mentality is abandoned. Some would say it will not be but there is a possibility of that happening. I will mention that later on in my speech.
For clarity’s sake, we see that the Scottish Parliament is supported by, as we said, shared UK resources from Barnett, its own tax revenues levied in Scotland, and a cash supplement from UK resources. That could possibly force all the parties in Scotland to go into what they are offering the Scottish electorate in terms of tax and spend. We have seen it already; today I read it in the Scotsman as I was coming down in the plane. For the first time, in many ways, we are getting on to the reality of devolution and have moved on from the process. Sadly, the Labour Party was very much involved there because it was mentioned that devolution was a process rather than an event. That got it wrong. As my old friend Tam Dalyell said, it was like a motorway without exits. Let us try to build the exits as a result of this fiscal framework.
We can go on indefinitely in asking who won the fiscal framework battle. Yes, the Treasury model is being used. We call it levels reduction. Yes, the UK is reimbursing Scotland for any money it would have received under the indexed per capita deduction in place. In effect, one side is happy saying, “The Treasury model is being used”. The other side is happy saying, “Yes, it is being used but we ain’t going to be disadvantaged because at the end of the day the per capita will be involved”. How far has that taken us? It has taken us five years down the road in terms of politics. We will have to come back and see how far it takes us down the road in terms of finance.
There is a big picture here as well, which nobody has mentioned. This will be the biggest ever transfer of powers to the Scottish Parliament. In fact, it will have as much autonomy as it had in 1707. It has demanded both good will and compromise to reach that position.
On that particular point, I commend the Government for their work in this area. However, in terms of the reporting of the fiscal framework, it could be helpful if the Government teased this issue out. The fiscal framework states that the Government will be required to produce reports on the implementation and operation of new powers in line with those produced under the Scotland Act 2010. Will this be done on an annual basis? If not, when will such reports be published? If we are to have an independent review, it should be set up very quickly and should not wait until the last minute, as we had to do with the fiscal framework now, where eight weeks of Smith translated itself into a secret cabal deciding it and then presenting it to us. We should have that transparency so that that independent commission can report to Parliament on an annual basis. By doing so, there will be transparency and individuals can look at it from the two no-detriment principles—particularly the second, of fairness to UK taxpayers.
This is a solution. Is it a neat solution? We can argue about that until the end of the day but there is a political momentum on this issue with the political parties in Scotland. The Government have responded to that. We wish them well in the negotiations.
Lord Forsyth of Drumlean
I entirely accept the Minister’s argument that if we were to move to a needs base, or whatever, there would have to be transitional arrangements. However, what about the point that this fiscal framework has given the Scottish Government a veto on any new settlement, which means that the transitional arrangements would become permanent?
Lord Dunlop
I am coming to that point. The idea that it would be easy or straightforward to replace the Barnett formula with a needs-based one—or seek to do so—does not stand up to scrutiny. I have read, with great interest, the report of the House of Lords committee on the Barnett formula, published in 2009. John Swinney, now Deputy First Minister of Scotland, gave evidence to that committee’s review and made it absolutely clear that he did not support the move to a needs-based formula. There has been lots of talk about a veto. Another way of putting that is that if you do not have a veto then the UK Government unilaterally imposes something on Scotland. In that situation, we would have to proceed as we have done in this fiscal framework agreement—by negotiation and agreement.
The no-detriment principles have been raised several times in this debate. I have talked directly to people who sat on the Smith commission including the noble Lord, Lord Smith, himself. The commission recognised that these were high-level principles. It was always accepted that the two Governments would have to sit down and decide how those principles were applied in practice. It is not surprising that there is a greater level of detail and a lot of talk about the direct effects, which we want to capture mechanically in the agreement. However, the indirect, spillover effects are very difficult to capture, because of the causality. It is the direct effects which we are seeking to capture in this agreement. Although there is a backstop power to deal with the spillover effects, it will be used rarely. One needs to draw a distinction between the review, where we need to proceed and get an agreement, and the dispute resolution mechanism, which is very much attached to specific issues regarding how spillover effects actually work.
I turn to the review itself. It is obvious and self-evident that this is five years away. The details of the review have still to be determined. I am not going to stand here today and say otherwise, because noble Lords would not accept it. The Government would positively welcome the House of Lords Economic Affairs Committee feeding in its views about how the review should be structured. That would inform the deliberations we will have with the Scottish Government about constructing that review.
Lord Dunlop
I think I am right in saying that it does require this Parliament to establish the Scottish Fiscal Commission as a statutory body but I am happy to clarify that in more detail, perhaps in succeeding debates that will deal with this issue. That is certainly my understanding.
Lord Forsyth of Drumlean
Presumably my noble friend is anticipating using the Henry VIII clause for that purpose. Can he just explain to me how it can be right that the Scottish Parliament—in my view, quite rightly—and the Scottish Government have insisted that the fiscal framework should be available to the Scottish Parliament before it gives approval to this legislation but he is maintaining that that should not apply to the House of Commons?
Lord Dunlop
I am not sure that is what I am maintaining. The fiscal framework is available to this House and to Parliament and we are having a debate about it now.
Lord Dunlop
I think that we are debating the fiscal framework at this moment. As to whether there will be debates on the annual reports, it will up to each House to decide what debates it wants to have on them and what scrutiny it wants to give. Given the interest in the subject, I anticipate that there will be detailed scrutiny.
Lord Forsyth of Drumlean
I am sorry, but my point to my noble friend is this. The Scottish Parliament will decide whether it is going to give legislative consent to this Bill, which will have the effect of making the Bill reach the statute book. It has the opportunity of discussing the fiscal framework because we now have one.
Lord Forsyth of Drumlean
Yes, it has the opportunity of approving it, whereas the House of Commons has not had the opportunity to do that. What possible justification can there be for not giving the elected Members of the House of Commons the opportunity to consider the fiscal framework, which has implications for the whole of the United Kingdom, when the Scottish Government have quite rightly insisted that they would not give legislative consent without the Members of the Scottish Parliament having an opportunity to consider it? I honestly think that my noble friend has to concede that there has to be an opportunity for the House of Commons to be treated in exactly the same way as the Scottish Parliament.
Lord Dunlop
That is a matter for the House of Commons; it is not a matter for the House of Lords. The House of Commons has decided to pass the Bill through its stages, in full knowledge of what the state of play was on the fiscal framework.
Lord Dunlop
I will give way one more time but throughout the passage of the Bill, I think that I have taken every intervention and I really need to make progress.
Lord Forsyth of Drumlean
We are all extremely grateful to my noble friend and very sympathetic to the position in which he finds himself. However, he says that it is a matter for the House of Commons. If we were to pass my amendment then it would go back to the House of Commons, so it is a matter for the House of Lords whether the House of Commons will get the chance to consider it.
Lord Dunlop
For the reasons that I have explained, the Scottish Parliament is giving its legislative consent to the Bill and this House is being asked to approve the provisions of the Bill, so we are absolutely on the same footing.
Turning to the review of the fiscal framework, this is an agreement between Governments and it will be operated by Governments. Ultimately, therefore, the formal review should be conducted by Governments. However, as I have said, there is plenty of room for independent contributions. We have built an independent report into the review process for the first time for Scotland’s fiscal framework and, as I have said, I hope that the House of Lords Economic Affairs Committee will contribute its views on how this report should be structured. In addition, there is nothing to prevent other independent voices giving their views to either Government at any stage.
Let me reassure the House on one final aspect of Amendment 57AA. It is already our stated intention to have an independent report for the end of 2021. My expectation is that report will be published, although it will be for the Government of the day to determine that.
Finally, I turn to Amendment 57AC, tabled by my noble friend Lord Forsyth. I fully support the principle behind this amendment, as Governments should be accountable for all the public money that is spent, in whatever context. However, the Scottish Parliament already has an important scrutiny role over more than £30 billion-worth of spending. I therefore think it is primarily for the Scottish Parliament to monitor how the Scottish Government use the funds they will have to implement devolution following the Smith commission. I hope and expect that it will fulfil this role vigorously.
To reassure the House, I point to the scrutiny afforded to implementation of the Scottish rate of income tax following the Scotland Act 2012. The Scottish Parliament has taken on a significant role here, holding the Scottish Government to account. However, this does not mean that the UK Government and this Parliament are without a role. As I have said, we have committed to report annually to Parliament on the operation of the framework. I know those reports will receive full scrutiny. I therefore ask my noble friend to withdraw his amendment.
Lord Forsyth of Drumlean
My Lords, we have had a lengthy debate in which we have covered a lot of ground. However, a number of questions remain unanswered, which makes the case for both Houses to have an opportunity to consider the fiscal framework. I am extremely grateful to the many eminent and distinguished Members of the House who took part in the debate. I will not list them all as we need to get on, but I find it difficult to resist making one point to the noble Lord, Lord McFall. He said that the Scottish Parliament will be in the same position in terms of its powers as it was in 1707, and I will leave the House to speculate on who is playing the role of Queen Anne in that respect. It is, I might gently suggest, a slightly ridiculous position, although the big difference with 1707 is that it was not then dominated by one political party.
When I used to go to European Council meetings, I would always take the advice of the noble Lord, Lord Kerr, when he was in charge of UKRep. I am tempted to take his advice and withdraw Amendment 56ZA, but give notice that I will divide the House on Amendment 68.
Lord Higgins
I entirely take the point which is made about the later amendment, but I merely suggest to my noble friend that the vote will become detached from the debate which we have had now. We could go over the whole process again on the other amendment but that does not seem a very sensible way of proceeding. I would have thought, given the debate, we are much better really taking a decision now.
Lord Forsyth of Drumlean
I always listen very carefully to my noble friend. I therefore beg leave to test the opinion of the House.
Lord Hope of Craighead
My Lords, I support what the noble Lord, Lord Kirkwood, has said. Even with the advantage of the websites, it is very difficult to get an accurate and up-to-date version of amended legislation. If you go to the official website, you usually find that mention is made of amendments which have not yet been incorporated into the legislation as shown on the website. That time lag makes it very difficult for ordinary people to see exactly what the content of the legislation is. I think I am right in saying that when the Law Commissions were set up they had a function to keep an eye on the need for consolidation. If the Minister is not inclined to accept the amendment proposed by the noble Lord, Lord Kirkwood, perhaps he might, through his offices, encourage the Scottish Law Commission to get to work on consolidating these measures in a way that would be useful for anybody working in the Scottish Parliament or who was trying to understand what the current legislation really is.
Lord Forsyth of Drumlean
My Lords, I will speak briefly in support of Amendment 60, tabled by the noble Lord, Lord Kirkwood of Kirkhope. I am sure the Minister will be advised that it is not necessary to include this in the Bill but it would be excellent if he were to give an undertaking at least to produce a draft Bill. I am not a lawyer, but I have certainly found it extremely difficult to cope with the piecemeal changes that have been made over the years and to follow the cross-references back to the 1998 Act. The noble Lord has made probably the most sensible suggestion of the evening.
I presume the noble Lord, Lord McAvoy, will not press his amendment to a Division or anything of that kind. The Labour Party is in its debating society mode at present. When the Minister responds to the amendment, which is about setting up this welfare monitoring joint committee, will he answer a question I asked earlier, arising from the fiscal framework? Paragraphs 16 and 17 appear to contradict each other. Paragraph 16 says:
“For welfare, and all other spending unless stated otherwise in this agreement, the chosen method will be the Barnett formula”.
However, paragraph 17 says that,
“whilst achieving the outcome delivered by the Indexed Per Capita (IPC) method for tax and welfare”.
This is very important, because it makes a considerable difference to the amount of money that is available for welfare purposes in Scotland. Will the Minister indicate which I am to believe: paragraph 16, which would involve a substantial cut in the current budget, or paragraph 17, which appears to contradict it?
Lord Dunlop
My Lords, I thank the noble Lords, Lord McAvoy and Lord Kirkwood, for their amendments. I turn to Amendments 56F and 57B, moved and spoken to, respectively, by the noble Lord, Lord McAvoy. We had a good debate in Committee on similar amendments and I hope I was able to provide much detail on the joint working and scrutiny that will govern the transition and implementation of the new welfare powers. The Government are clearly sympathetic to the intent behind the amendments and the importance of a seamless transition that makes sure that the ultimate clients for welfare services are not in any way disadvantaged.
At the heart of the UK and Scottish Government scrutiny and implementation of these welfare powers is the Joint Ministerial Working Group on Welfare, which, as I said in Committee, has met four times since February 2015 and will meet again soon after the Scottish parliamentary elections. I have also given the assurance that I will explore how we can make the work of the Joint Ministerial Working Group on Welfare more visible in this place. I am already acting on that promise. Scottish and UK government officials will discuss the issue tomorrow at the next meeting of the joint senior officials group before it is then raised at the next joint ministerial group, which will take place after the Scottish parliamentary elections.
Beyond the range of work I have already outlined, there are other committees, both in the UK and the Scottish Parliament, which will have a role in the scrutiny of the new powers being devolved. For example, the Minister for Employment will be appearing in front of the UK Parliament’s Scottish Affairs Committee on 9 March to give evidence on the welfare and employment powers that are being devolved through the Bill. Ministers also often appear before committees in the Scottish Parliament to aid the scrutiny of Scottish Government proposals. Most recently, the Secretary of State for Scotland appeared before the Scottish Parliament’s Devolution (Further Powers) Committee just seven days ago to discuss issues such as the fiscal framework and the role of the Joint Ministerial Committee on welfare.
Lord Dunlop
For example, we have worked to build a strong relationship with the Convention of Scottish Local Authorities to ensure that universal credit is implemented and delivered in a way that best reflects the views of Scottish local authorities. Citizens Advice Scotland is another organisation that we have engaged with. This has been a genuinely joint approach to improve delivery in Scotland and is just one example of many.
As I said in Committee, I am sympathetic to the noble Lord’s intention in what his amendment proposes to achieve but we believe that robust, strong and effective mechanisms are already in place. We will absolutely put the customer at the heart of any change and will work with the Scottish Government to ensure that the transition and implementation of powers is simple, clear and effective. This will protect the delivery of existing benefits and customer interests, and ensure a great future for all the people in the UK, including those in Scotland.
Turning to Amendments 58 and 59, spoken to by the noble Lord, Lord Kirkwood, Clause 29 gives the Scottish Parliament legislative competence to establish employment programmes to support disabled people and those at risk of long-term unemployment. It devolves power over support for unemployed people through employment programmes currently centrally contracted by the DWP; this is mainly but not exclusively the Work Programme and Work Choice. These two programmes represent virtually all funding across these contracted employment programmes and therefore, in our view, provide the Scottish Government with a significant policy space within which to operate.
The powers are very broad in scope and concurrent with the UK Government’s powers. Any claimant on a reserved benefit at risk of long-term unemployment can be addressed in this way, so the Scottish Government have the ability to create schemes, programmes or grants in this space as the UK Government can. It gives the Scottish Government the ability to better align with the employment support they already provide through the devolved skills system. That is a very substantial package of powers which the Scottish Government can already use. I think the estimated annual spend in this area is some £600 million.
Support for those at risk of long-term unemployment must last for at least a year. The three restrictions seek to define the space which Smith said that the Scottish Government should have in designing new programmes. This creates clear lines of accountability between what the Scottish Government are able to do and what Jobcentre Plus is required to do. It is also important for there to be a clear handover point, so that Jobcentre Plus and Scottish Government programmes do not try to deliver different support to the same claimant at the same time. Jobcentre Plus will continue to deliver smaller-scale support, with the Scottish Government delivering more significant interventions.
The amendment of the noble Lord, Lord Kirkwood, would remove the limitations that assistance should be for persons claiming reserved benefits and be for at least a year. These limitations are necessary safeguards to ensure that those who need support over and above that provided by the enhanced Jobcentre Plus offer receive assistance for an intense period. Smith was clear that Jobcentre Plus and the conditionality regime “will remain reserved”. As I have said, there needs to be a clear handover point so that Jobcentre Plus and the Scottish Government’s programmes are not overlapping in that sense.
It is vital that the Jobcentre Plus work coaches have the right tools to support claimants into work and smaller-scale employment programmes at their disposal, such as mandatory work activity or locally commissioned support via the flexible support fund. If responsibility is split, the result could be people spending longer on benefits and employment support, and if we remove these restrictions, it will in the Government’s view create a confused, muddled system of support which claimants and third sector organisations would struggle to understand or navigate. That would be a much worse system and have unintended consequences. We have sought to strike the right balance: enabling the Scottish Government to provide employment support for people who are at risk of long-term unemployment, and giving the Scottish Government the opportunity to take clear responsibility over a substantial portion of the claimant journey.
Finally, I turn to Amendment 60, which concerns “Consolidation of the Scotland Act 1998”. We addressed points in Committee about the scope of the powers in the Bill related to welfare. Once the Bill is passed, it will be available on legislation.gov.uk, alongside the Scotland Act 1998 and the Scotland Act 2012. In the Government’s view, it would not be a good use of Parliament’s time to bring forward another Bill simply to repeat what is included in previous Scotland Acts. The dynamic nature of the devolution settlement means that the two Governments work together on Section 30 orders, which adjust the terms of Schedule 5 from time to time, so any consolidated version would quickly be out of date. That is no bad thing; it is testimony to the devolution settlement working responsively.
However, the points made by the noble Lord, Lord Kirkwood, raise an interesting question about knowledge of the devolution settlement more generally. I think that the noble Lord, Lord Smith, referred to it in his personal recommendations. The Government very much support the objective and have taken steps to improve the knowledge in UK government departments and beyond. For example, in March 2015 the UK Government published a leaflet explaining the changes to devolution in Scotland. The Secretary of State has also undertaken visits to local authorities and is keen to ensure that they know what powers are coming to the Scottish Parliament. The Scotland Office communications directorate’s work will also seek to make clear the Scottish Government’s existing powers—powers coming into force from the Scotland Act 2012 and those being delivered by the Scotland Bill. Its work raises awareness not just of the debate on what powers may or may not be devolved in future but on where the existing powers are today. With that, I ask the noble Lord to withdraw his amendment.
Lord Forsyth of Drumlean
Before my noble friend sits down, could he possibly answer the question I asked him about the welfare funding and the two paragraphs in the fiscal framework? If he does not have that information now, perhaps he could write to me.
Lord Dunlop
We have agreed that welfare will be funded through the Barnett formula and that tax deductions will be calculated through the comparable model. However, during the transition period, we will reconcile both to index per capita.
Lord Forsyth of Drumlean
Perhaps my noble friend could help me. Does that mean that if the Barnett formula model resulted in a shortfall in the resources available in Scotland for welfare, it would be topped up?
Lord Dunlop
It means that if you look across the total Scottish budget, it would deliver the outcome that we discussed earlier. It is up to the Scottish Government to decide how to use the resources within that: it is not ring-fenced within that total figure.
Lord Stephen (LD)
My Lords, this is all complex, although perhaps not as overwhelmingly complex as the fiscal framework itself. However, I am very pleased that the Government have brought forward amendments to respond to the views of the Delegated Powers and Regulatory Reform Committee. At this late hour, I do not intend going into all the detail, but it is interesting to note that, instead of—as the noble and learned Lord, Lord Hope, my noble and learned friend Lord Wallace of Tankerness and I proposed—deleting words and cutting back on these very wide and open powers to Ministers to change primary and secondary legislation here, in Northern Ireland and in other parts of the UK, the Government have introduced extra words to try to restrict those very wide powers. The restrictions are welcome; I would still have preferred such wide powers for Ministers—given inadvertently, I think—to be removed.
Doubtless, however, due to the political imperative, at this hour we will all accept the Government’s approach and amendments. I close by thanking the noble and learned Lord, Lord Hope, for raising the issue and the Law Society of Scotland for the hard work that it has done on the detailed wording that it provided to us in presenting our amendments. I hope that, through constructive opposition to the Government, we have a set of measures brought forward by them that respond to the correct concerns voiced about the nature of the Bill as drafted. I look forward to the Minister’s explanation, so that we can make sure that all the points of concern have been covered.
Lord Forsyth of Drumlean
My Lords, I wanted to delete this clause entirely in Committee, and was persuaded that the approach being taken by the noble and learned Lord, Lord Hope, was perhaps more forensic and justified. I agree with the noble Lord, Lord Stephen, that half a loaf is better than no loaf. This is a very useful example, both in the original draft and the slightly grudging response from the Government, which we can discuss when we come to debate the Strathclyde review and the Government’s attitude towards the use of secondary legislation.
Our previous debate, when we spent 10 minutes arguing whether the House of Commons ought to be able to discuss the fiscal framework, to my mind underlined an Executive who are increasingly treating Parliament as the ornamental part of the constitution. That is very regrettable.
I thank my noble friend for at least moving as far as he has, but I would not want him to think that the Bill as it stands is in any way acceptable. I hope that on a future occasion we will have more opportunity to discuss the increasing use of secondary legislation. If it is not a Henry VIII clause, perhaps it is now a Queen Anne clause, in deference to the noble Lord, Lord McAvoy, who thinks that this is putting the Scottish Parliament in the same position as it was in 1707.
Lord McFall of Alcluith
Yet again, the noble Lord has got it wrong—it was me who said that. However, let us finish on a positive note tonight. First, I would like to thank the Delegated Powers Committee for its report, because it was very clear at the beginning that the Scotland Office provided a delegated powers memorandum, the explanation of which was inadequate. As a result of that, I thank the noble and learned Lord, Lord Hope, for tabling these amendments, and the noble Lord, Lord Norton of Louth, who made an excellent speech last time on the Henry VIII powers.
The Law Society of Scotland was mentioned, and Michael Clancy has been sitting in the box for many weeks, although he is not there tonight. He has been helping us—and I well remember taking over the shadow Home Affairs responsibility in the 1990s for the Labour Party, when Michael was helping one and all political parties. So I thank him, too.
As the noble Lord, Lord Forsyth, said, it is better to have half a loaf than none. It is important to say that the Government have not outlined totally why the consequential powers are required in Parts 1, 4, 5 and 6, in every other respect. Perhaps the Minister will at this stage give your Lordships’ House some indication of the type of saving powers that the Government expect to propose. As the noble and learned Lord, Lord Hope, said in Committee, if we are going to keep faith with what we are trying to achieve, the Government have to go that step further. With those comments, I commend the work that noble Lords have done and the response that the Government have given to the suggestions.