I am not quite clear whether he is saying that it was my idea or Gordon Brown’s. The key point about the vow is that three UK party leaders agreed it.
On the night of the referendum, as I waited for the results to come in, I listened carefully to what my noble friend Lord Forsyth of Drumlean had to say on the BBC’s “Scotland Decides” programme. He cut straight to the chase, as he so often does:
“The three party leaders made a promise—which I think they’ll find very difficult to deliver—but it has to be delivered”.
I agree with him—no one said it would be easy. Indeed, I can safely say to this House in all humility that, today, I am gaining some appreciation of what my noble friend foresaw. This Bill is the fulfilment of
that promise. It has to be delivered. Yes, there has been scepticism. Would all parties come to the negotiating table? Would they stay? Would someone walk out before a deal was struck? Could all the milestones be met? For the first time in the history of devolution, all five of Scotland’s main political parties came together, stayed and reached a unique agreement. Every one of the milestones have been met on time.
Here, I want to pay tribute to the noble Lord, Lord Smith of Kelvin. Hot on the heels of leading the fabulous Glasgow Commonwealth Games, he skilfully steered the process to a successful conclusion. We owe him a debt of gratitude. It is good to see him in his place today and back in rude health.
Much has been said about the Smith commission reaching an agreement of such great constitutional significance after only an eight-week process, yet the agreement was the culmination not of an eight-week process but a four-year process which started in 2011 with the election of a majority SNP Government. So the Smith commission agreement did not emerge from a vacuum. It emerged from four years of lively constitutional discussion and debate in Scotland, which was informed by the body of evidence compiled by the Calman commission, and from a discussion punctuated by the publication of numerous reports from Scottish Labour’s devolution committee, the home rule commission chaired by the noble Lord, Lord Campbell of Pittenweem, and the commission chaired by my noble friend Lord Strathclyde, alongside academic and think tank contributions, such as Reform Scotland’s devo plus and IPPR’s devo more reports. Indeed, I believe the Smith agreement was made possible because common ground had already been established by this body of preceding work.
Delivering the agreement in full is therefore a manifesto commitment of not only the Conservative Party but the Labour Party, the Liberal Democrat party and the Scottish National Party. So this Scotland Bill is not just a manifesto Bill; it is a super-manifesto Bill. Its provisions were agreed in the other place, where the Government listened to the debate, responded to the scrutiny and tabled more than 100 amendments on Report, and where the Bill was passed unopposed at Third Reading.
The Daily Record declares its famous vow met, and Gordon Brown says that the Smith commission recommendations, which arose from the vow, are delivered. The noble Lord, Lord Smith, has confirmed that the Bill honours what was agreed by the five parties. “A promise made is a promise kept” is surely an absolute precondition for earning the trust of the people of Scotland. Ahead of next year’s Scottish Parliament elections, the debate in Scotland is increasingly turning to how the powers are used, as it certainly must.
This Bill is not simply about keeping a promise. It is about bringing a better balance to Scotland’s devolution settlement and strengthening the union as a result. The Scottish Parliament was created with extensive spending powers—its budget today is around £30 billion— but little responsibility for raising the funds it wants to spend. The result is a fiscal gap and an accountability deficit. Before the Scotland Act 2012 is fully implemented, the Scottish Parliament controls almost 60% of public
expenditure in Scotland yet is responsible for raising only some 10% of its funding. Once this Bill comes into effect, the Scottish Parliament will be responsible for raising more than 50% of what it spends. Holyrood will be transformed from a pocket-money Parliament reliant on an annual cheque from the Treasury, to the powerhouse Parliament the people of Scotland want it to be. If the Scottish Government want a higher level of public services than the rest of the UK, they will have first to explain to voters in Scotland how they intend to pay for them.
Of course, some argue this Bill does not go far enough, yet it will make the Scottish Parliament one of the most powerful devolved Parliaments in the world. No amount of devolution is going to be sufficient for those who believe in independence, but a majority of people in Scotland rejected independence and voted to retain the benefits of being part of the UK: the security of our own shared independent currency, backed by the strength and stability of the Bank of England; the job and business opportunities of a deeply integrated single market; our social union, in which risks and resources are pooled; and common defence and security in an uncertain world. Indeed, I am delighted that Scotland is to be home to the new maritime patrol aircraft and another squadron of Typhoon fast-jets. These are the UK benefits that the Smith agreement and this Bill are careful to protect. We have heard a great deal about full fiscal autonomy. I will be clear: full fiscal autonomy ends the pooling and sharing of risks and resources across the UK. It would be bad for Scotland and bad for the UK as a whole, and that is why we rejected it.
I turn to the provisions of the Bill itself. Part 1 takes forward the Smith agreement that the permanence of the Scottish Parliament and Scottish Government be set out in UK legislation, and that the Sewel convention be put on a statutory footing. This reflects the existing political understanding and does not alter the principle of parliamentary sovereignty. The Scottish Parliament will be very largely responsible for how it runs itself, how it is elected and the people who can vote to elect it. Part 2 covers taxation. Maintaining the integrity of our single market and minimising business burdens means that not all taxes are candidates for devolution. Central to the debate is the devolution of income tax on earnings, building on the Scotland Act 2012 tax devolution, which comes into effect in April, and providing the Scottish Parliament with £11 billion of revenues. Income tax is paid by voters and is highly visible; whoever levies it is accountable to those paying it in the most direct way. While the definition of income remains reserved, the Scottish Parliament will have full control over rates and bands of income tax. It will be able to set a 0% rate, if it can afford to do so.
However, the Smith commission agreed that national insurance contributions should be reserved, so Scottish taxpayers will continue to help fund UK-wide services. Alongside income tax devolution sits VAT assignment. Differential VAT rates inside a member state are against EU law. This Bill assigns half of all VAT receipts raised in Scotland: £4.5 billion of revenue. Assigning a share of VAT was first suggested by the Calman commission. The more the Scottish economy grows, the greater the share of VAT revenue Holyrood will keep. That is an
incentive to achieve growth. With the devolution of location-specific air passenger duty and the aggregates levy, the Scottish Parliament will have a mix of taxes and vitally important decisions to make.
Part 3 of the Bill means that the Scottish Government will be responsible for welfare provision in Scotland, worth approximately £2.7 billion last year, and able take decisions for a number of types of social security benefit, discretionary payments, and employment support. Universal credit and its legacy benefits, such as pensions, remain reserved, although Scottish Ministers will be able to vary certain limited aspects. Devolving labour market benefits would undermine their role as automatic stabilisers and potentially put undue pressure on Scotland’s finances in the event of a localised economic shock. What the Bill does devolve are benefits strongly linked to powers already exercised by Scotland, such as social care and health. The Scottish Parliament will have responsibility for benefits to meet extra costs paid to carers, disabled people, those who are ill, and those who require help with winter fuel, funeral, and maternity payments. When people most require help, the Scottish Government will be able to tailor that help to particular Scottish circumstances.
The Smith agreement was also of the view that the Scottish Government should be able to top up reserved benefits: the Bill allows this to happen. On Report, the Commons approved a new government clause enabling the Scottish Parliament to create new benefits in devolved areas of responsibility. We must be clear about these new welfare powers. If the Scottish Government wish to make supplementary payments to people in receipt of a state pension or universal credit, for example, or create new benefits in devolved areas, they should be able to do so. However, crucially, they must be able to pay for it from their own revenues.