Scotland Bill

Before I get into my remarks, may I apologise to the House for three things? First, it is not my birthday; secondly, I have not written a book; and thirdly, I think I am the first speaker in the debate not to have a Scottish accent. I do have a Scottish name, however, so I shall do my best with that. I really have only one point to make about the Bill to those on the Government Front Bench. Overall, however, it is a good Bill that takes what Calman recommended and implements it sensibly. Indeed, a whole set of well-made recommendations will be introduced. The principal part of the Bill, as others have said, relates to fiscal autonomy, the change in the level of the block grant and the compensatory change to income tax. The theory behind it is absolutely spot on, because it is right that Scotland is given an incentive to nurture its own tax base and to become accountable for how it spends that money. The important issue, which is not directly in the Bill but an unintended consequence of it, however, is the baseline for that allocation, the current Barnett settlement. The Barnett formula is not a subject for today's debate, but others have spoken about it, and I shall put in my tuppence-worth. The formula has been going for 35 years, and the most recent review of it was last year by the Lords Barnett Formula Committee, which produced an excellent report that received a poor response from the then Government. People accept that the formula no longer represents a needs basis for the allocation of moneys. The Calman report accepted that point, too, but the reason why we persevere with the formula is inertia. In the response to the Lords Committee, it was accepted that the formula was straightforward, but there are two reasons why it provides the wrong result. First, there has been no attempt to make any changes based on relative population movement over the past 35 years between the three countries in the Union which are most affected, Wales, England and Scotland. The result, as Holtham stated, is that the settlement for Scotland is about £4 billion more than it would be if it was worked out on a needs basis. How does that relate to the Bill? The baseline will use that higher amount to set income tax, and to flex it up and down. In consequence, it will be harder to change the Barnett formula in future, because it will be linked directly to the level of income tax in Scotland in a way that it is not at the moment. From a political point of view, it would be hard for people to accept that the UK Government, while making a fairer allocation, were forcing up income tax in Scotland. A second unintended consequence of the current baseline is that Scotland will for ever have a larger public sector in its economy than in England. I say to colleagues on the Government Benches, of whom there are not many, that it is wrong for us to go on about Scotland having to rebalance its economy towards the private sector and away from the public sector if we approve a formula that makes it arithmetically impossible for that to happen.